So-called “premarket” listings appear to be the next big trend for the industry. Zillow’s recent pivot to host what are essentially “Coming Soon” properties (and a mad rush by brokers to strike deals with the portal or other consumer platforms) was an overwhelming affirmation that real estate believes that, to some degree, limited marketing options are the future.
But as the industry embraces some level of exclusivity, one factor has proven hard to quantify (at least objectively). When sellers hold their listings back from the broader market—specifically, the MLS—are they really getting the best deal?
The conventional wisdom says no, admits Darren K. Hayunga, a professor in the real estate program at the University of Georgia. Economists have long understood that “maximizing the pool of bidders maximizes the clearing price” in an auction situation (like a home sale).
However, in a paper submitted earlier this month to the Journal of Urban Economics, Hayunga presented that an analysis of over 20 years of MLS data shows that private listings actually sold for a 1.7% premium—at least before the National Association of Realtors® (NAR) stepped in with the Clear Cooperation policy.
“I wasn’t sure what the data would say,” Hayunga tells RISMedia. “So it really was a truly empirical study, because we know what the theory would say, but yet why are people doing (pocket listings)?”
The question of whether sellers benefit from limited marketing is central to arguments on both sides of the debate. But with additional concerns about market fragmentation, the role of the MLS and rapid industry consolidation, will consumers—or agents—get onboard with these programs? What are the long-term ramifications of a move toward what are essentially off-MLS marketing strategies?
“What’s not good for the consumer always ends up bad for everybody’s business down the road,” says Jeff Lichtenstein, a top-producing broker and CEO of Echo Fine Properties based in Florida. “This is not good. And it’s being sold very strongly as good for the consumer.”
Amit Kulkarni, an industry consultant who has held leadership roles at Bright MLS, Realtor.com® and independent brokerages, says that consumers are going to be able to get the real story, regardless of what agents or brokerages are pitching them.
“Just put it into ChatGPT…‘Should I go with a private listing, as a regular person?’ It’s going to tell you no, for a number of reasons,” he says.
While Hayunga’s study could provide a counterpoint to these objections, the reality is that real estate professionals can no longer ignore or dismiss the potential consequences (and maybe opportunities) of listings that are not marketed immediately and broadly, with companies like Zillow and a huge number of brokerages onboard. And with how fast the pivot has come for power players, is the industry moving toward consensus, or more high-profile battles over the future?
Jason Abrams, head of industry at Keller Williams, says that “a smart real estate company” would see the new premarketing plans as just one of many potential strategies in a transaction, emphasizing that agents (at least at his company) use “bespoke” marketing plans for every sale. The reason premarketing is relevant now is that “another real estate company” has changed the conversation regarding premarketing off-MLS.
“Do I want to provide that option to our real estate agents as they make (their) bespoke marketing plans? And for us, the answer was yes, we did,” Abrams says.
Seller’s choice
The definitions of “premarketing” and “coming soon” are still murky, making both analysis and debate of the topic difficult. Hayunga’s paper focuses on a very specific definition, which would seem to include only properties that were never marketed on the MLS.
Conversely, essentially every brokerage who is pushing forward with these premarketing partnerships say the intent is for listings to eventually end up on the MLS, with most affirming they will follow local MLS rules. Compass has claimed that around 95% of its premarketed listings sell on the MLS.
Hayunga’s study, though, seeks to answer the same question that is at the heart of the current debate—are there benefits for sellers that choose to limit who gets to see their properties?
Using MLS data from 2002 to 2022, alongside data from the Texas Real Estate Commission, Hayunga focused on a more classic idea of “pocket listings,” defined as MLS sales with zero days on market (meaning they were negotiated off-MLS, and only entered into the system after the fact).
Accounting for other variables, these pocket listings outperformed identical on-MLS sales by a “modest” but significant amount across all price points—and by a much more weighty 8% at luxury price points.
This is largely attributed to sellers being able to avoid the “negotiation tax”—buyers who expect they can find some wiggle room in the price—as well as seller’s ability to get pricing feedback and avoid the days-on-market or price drop stats on the MLS, Hayunga says.
“For a standard home, buyers expect to negotiate the price down from the list price. Pocket sales immunize the seller against this standard,” Hayunga says.
That supports arguments long made by some real estate business leaders, with Compass CEO Robert Reffkin the loudest voice pushing back against so-called “negative insights,” even claiming the premarketing options will incentivize hesitant homeowners to list their properties.
Hayunga also rejects what the paper calls “agency conflict explanation” of pocket listings—that sellers are being steered into these programs by companies trying to double-end deals.
“It wasn’t the agency aspect,” he says.
The analysis found no difference between dual agency, same-office representation and “arm’s length” deals when looking at sales price premiums. That is more evidence that premarketing is something sellers have a rational reason to pursue—though not necessarily purely for a financial benefit.
Hayunga’s data includes two years post-Clear Cooperation. In those two years, there was actually an increase in pocket listings, though the price premium largely disappeared.
Hayunga declines to speculate on why this might be the case, but does note that there are other “ancillary benefits” to limited marketing strategies.
“If you can avoid all that marketing hassle and things like that, why not?” Hayunga asks. “If you know that you have something that looks fairly guaranteed, that looks pretty steady that you’re going to get to sell your house and not suffer a price discount, that still is an economic benefit.”
Nuts and bolts
Industry insiders were much more cautious in their assessment of these benefits. Real estate, they mostly agreed, is too complicated for anyone to tout one marketing strategy as some inherently positive move for all (or most) sellers, even with evidence that sellers see a financial boon in many cases.
While acknowledging there might occasionally be incentives for sellers—or even buyers—to transact privately, Lichtenstein warns that the fragmentation and loss of trust will be a huge net negative for consumers, and for the industry at large.
“I think the consumers are going to get frustrated,” he says. “There could be lawsuits…and maybe some of these large companies are banking on it. They don’t care because they’re trying to pick up enough market share and they’ll make enough money that it may not matter to them.”
Perception will be a huge issue, he claims, recalling a moment back around the financial crisis when a stranger sympathetically told him “you Realtors® have it tough right now.”
“They knew we were working, and they got it,” he says, arguing that a move toward private listings is going to result in consumers losing that “trust and faith” in real estate professionals.
A recent Gallup poll found perceptions of real estate agents are “modestly negative,” currently close to historic lows in terms of trust and ethics.
Still, Lichtenstein acknowledges consumers have a right to guide their own marketing strategies, (Lichtenstein says he will do a private listing if asked, with “a surgeon general-type warning”).
“It doesn’t compute in how I would market something for the benefit of my client. And it’s definitely benefiting the broker, if they’re having both sides of the deal,” he says.
Abrams is also careful to say that he doesn’t believe that sellers necessarily want to premarket their homes.
“The vast majority of sellers, they wake up in the morning with the goal of getting the highest price with the least amount of hassles and the timeline that fits best for them,” he says.
He adds that for the last couple years of Hayunga’s data, the industry was going through a particularly unusual market, which he argues could skew some of the conclusions from the study.
Will Keller Williams train agents on these premarketing strategies, the way Compass has? Abrams largely defers on this question, noting that the brokerage is always updating its “timely” training, but adds there is no specific metric or “tipping point” for the company to start pushing a strategy or process.
“The industry is constantly evolving and some of it sticks and most of it doesn’t, and you see what happens next,” he says.
Kulkarni says that if he were advising a smaller or mid-size brokerage, he would urge them to pursue some sort of premarket partnership on their own terms, if it fits into their business model. At the same time, he doubts whether premarketing is a real “competitive advantage” from a more fundamental level, and suggests that taking an opposite position could itself be an advantage.
“(Sellers are) going to listen to the agent that can market themselves, and (say) how they’re going to sell your home the best,” Kulkarni argues. “(You can) start using some of that messaging to say, ‘I’m going to give your listing the most distribution possible. I’m not going to tell you stories and have it hidden.’”
The existential questions
One thing that Hayunga’s study doesn’t delve too deeply into is the impact on buyers, who will not be able to view price drop or days on market stats when listings are sold off-MLS.
Hayunga says he doesn’t believe, based on his results, the pocket listings are an overall negative for buyers. The fact that buyers are willing to pay the premium, and that they get the “certainty” of avoiding a bidding war, is evidence that buyers are not losing out in a premarketing world, he says.
How about fair housing, as many buyers will never have a chance to see certain listings (though again, the premarket portal “Coming Soon” listings are essentially public)?
Hayunga acknowledges that pocket listings, closer to the ones defined in his study, have been the subject of sociological studies that claim the process creates racial and other types of discrimination. His paper does not seek to explore that question, and Hayunga says that generally he believes in a free market and that “an owner of any asset (should) be allowed to sell it however she wants to.”
Zillow previously put out a study that claimed the use of private listings on a Chicago-based MLS “risks deepening segregation,” citing the same sociological research that Hayunga referenced.
How about the impact on MLSs? The fear from many is that brokers partnering with portals will essentially make MLSs obsolete, even as nearly every big brokerage—including Compass, despite its sharp criticism of MLSs—continue to say they value the principles and infrastructure of multiple listing services.
“I think MLSs have an existential decision to make…are (they) going to figure stuff out to make us relevant to the market?” Kulkarni asks.
In regard to market fragmentation—the idea that consumers will have to go to multiple websites to find all the listings—Kulkarni notes that there is nothing stopping someone from building a tool to aggregate all the different “premarket” listings from every portal or brokerage website, something that Lichtenstein also predicts.
Where will portals or brokerages draw the line for what is transparent? Zillow’s new rules specifically say it will still ban listings that force buyers to sign up with one company or utilize a single brokerage’s services to access listings.
Abrams claims that during periods of “rapid technological change,” rules and regulations often “lag” what is actually happening. With Keller Williams committing to follow MLS rules, he says the company does not seek to define what is appropriate or transparent, but trusts in the MLS system to work that out, calling the current system “the most transparent real estate marketplace on earth.”
“That’s the thing about membership associations: they either come to the right answer or they cease being,” he says. “I think that’s one of the things that makes it strong.”
Kulkarni, for his part, is much more critical of MLSs and real estate incumbents right now, arguing MLSs “haven’t really made the industry better” over the last 25 years.
He guesses that portals like Zillow will happily keep building inventory that they can monetize, with no real incentive to stop.
But Abrams notes that the number of off-market sales in Hayunga’s study is still very small, peaking at around 3% at the highest point. But internal Compass documents revealed the company at one point saw 37% of listings using its 3PM, or three-phase marketing plan, seemingly proof that a significant number of sellers are willing to at least start their listing off-MLS.
What happens from there? Lichtenstein brings it back to trust, noting that consumers will be able to see that a lot of big brokers and portals changed their stance on “transparency.” The lost trust is the most essential aspect, he says, and claims that it will be harder for any agent to sit down and ask a seller to trust “the system” if premarketing becomes the norm.
Kulkarni agrees the issue is more trust than inventory, but adds that technology will be an even more important factor. In the very near future, AI will create a “more empowered, more well equipped consumer,” who will “take much more control of the transaction” and be looking for better ways to buy and sell a house.
“And then they just use a completely different system to transact real estate, because they can’t trust the people that they need to trust with their most expensive, important transactions,” he says.
