What the Compass, Zillow’s partnerships mean for the industry

An open letter to MLSes from executives at Compass, Rocket and Redfin clarified what a wave of recent announcements implied: Multiple Listing Services are in trouble.

“The MLS is now one path to public marketing, but not the only one,” executives wrote on Thursday. The letter comes weeks after Compass and Redfin announced an agreement for Compass to syndicate its “Coming Soon” listings to the website, now owned by Rocket Companies.

It also follows a Zillow announcement of a similar partnership on a product it’s calling Zillow Preview with several major operators, including Keller Williams and REMAX, and eXp Realty non-exclusively linked up with Realtor.com, Homes.com and ComeHome.com.

Compass and Zillow have each positioned their respective partnerships as an extenuation of their corporate missions: seller choice for Compass and transparency for Zillow. But the results are remarkably similar programs which position brokerages and portals to compete over the industry’s most valuable resource: inventory.

Left in the lurch are MLSes and the National Association of Realtors. The latest moves from brokerages and portals are the most direct challenge yet to MLS supremacy, providing a way to consumers and agents to directly view and share listings without entering them in the MLS.

“This definitely is not a good thing for the Realtor organization and MLSes,” said industry analyst Steve Murray.

MLSes in trouble

NAR spent much of the last year slowly ceding ground in the industry.

Last March, the trade group relaxed its requirement, known as Clear Cooperation Policy, which mandated that listings be added to the MLS within 24 hours of public marketing and instead punted the decision of public marketing timing to local MLSes. Then in November, NAR dropped membership requirements for accessing its Realtor-affiliated MLSes. Instead, access again will be determined by local discretion.

One of the largest MLSes in the country, Midwest Real Estate Data, followed through on NAR’s new rule earlier this week when it updated its own guidelines to no longer require its participants to be members of specific trade groups, including NAR and its state and local affiliates.

NAR’s waning authority has opened the door for brokerages to bypass the intermediary and go directly to consumers via platforms that are visited by millions each month.

Zillow quietly updated its listing access standards when it announced Zillow Preview. The standards had previously required listings to be uploaded to the MLS and Zillow within 24 hours of public marketing — now that MLS requirement has been removed. Zillow maintained that private exclusives such as those advertised exclusively on Compass’ website are still prohibited under its standards.

Zillow has claimed its product will require brokerages to maintain compliance with rules set by their local MLSes. But similar to how Zillow did not appear to enforce its listing access standards comprehensively, it’s not clear the role that Zillow will take in helping enforce MLS standards.

Compass has taken a more antagonistic approach, calling out local MLSes like CRMLS and StallerMLS for doubling down on what it calls “their unwillingness to change, threatening and imposing fines and disciplinary action” in the letter with Rocket and Redfin. “We will not accept rules that dictate where a seller and their real estate professional can and cannot market their listings,” the letter adds.

A spokesperson for NAR championed the role MLSes play in creating an “efficient and reliable marketplace”, while noting that the trade group’s policies leave rules around pre-marketing in the hands of local listing services.

Critically, Zillow and Compass have also provided incentives for agents to use their Coming Soon programs. Zillow will prominently display Zillow Preview listings on its site, and give the listing agent a chance to connect directly with interested buyers. If a deal is closed through Zillow Preview with a Zillow Preferred Agent representing the buyer, listing agents will receive an extra 10 percent of the buyer commission, paid by Zillow.

Similarly, Compass’ agreement with Redfin ensures buyers are directed towards the listing agent or another Compass agent. If the deal closes with another Compass agent, the listing agent will likely be in line for a similar referral bonus from Compass.

Compass dropped its lawsuit against Zillow on Wednesday, citing the platform’s updated listing standards. Zillow pushed back against Compass’ characterization of the dismissal, pointing instead to a New York federal court judge’s decision to deny Compass’ request for a preliminary injunction. A statement from the company said the decision indicated “Compass was unlikely to succeed on the merits of its claims.”

After publicly challenging NAR and Zillow over the course of the last year, Compass’ letter to MLSes indicates that it has likely found its next bogeyman in the local listing services.

“They’re absolutely screwed,” industry analyst Rob Hahn said of MLSes. “If I’m a brokerage in the United States, I immediately withdraw from the MLS. And I send all my listings to Zillow Preview.”

Inventory challenges

While Compass and Zillow’s recent moves raise questions about where listings will or won’t be, several industry experts have said off-MLS becoming the norm is a long way away.

For one, most properties offered for sale will eventually make it to the open market, even if they don’t start there. Just 35 percent of Compass’ listings begin as private exclusives or Coming Soons, and almost all of those properties, roughly 94 percent, ultimately land on MLSes and aggregators, according to a newsletter from analyst Mike DelPrete.

That means the listings offered to portals through these partnerships is just a slice of available inventory — a slice that will, more likely than not, end up on every platform in a matter of days. Even if that wasn’t the case, DelPrete wrote, it’s unlikely any of these deals will box out one platform for another. Instead, buyers on the hunt for a home will expand their search to include more aggregators.

“Portal traffic is non-zero sum,” DelPrete wrote. “New traffic can effectively be conjured out of thin air because consumers will visit more than one portal to make sure they’re not missing any inventory.”

The real battle ground then isn’t where listings appear and when, but rather through which platform the sale of a home actually takes place, according to DelPrete. Deals are finite — there are only so many homes and so many people willing to buy or sell at any given time.

If a buyer, for example, sees a home on Redfin or Compass while it’s still in the pre-marketing phase and pulls the trigger, that’s “one less for the rest of the industry.”

The debate over pre-marketing and private listings has only garnered so much attention due to a shortage of inventory across many markets in the U.S., said Hoby Hanna, CEO of Howard Hanna, which hasn’t struck a deal with any specific platform. With listings few and far between, the players with the most to offer will be the ones to attract buyers and ultimately get deals done.

“Buyers are looking for that edge,” Hanna said, though he added that an increase in supply could lower the stakes.

Even if the platform plays boil down to a fraction of listings, the shakeup is still another blow to the industry’s status quo, which has for years pushed the importance of marketing listings through the MLS. If the future of MLSes is in question, so is the normal flow of the brokerage business.

“We’re entering a whole new era now and where the pieces all fall,” Murray said. “We don’t know where it’s going to end up.”