"Over the past year, Zillow, the country’s largest real estate portal, and Compass, the biggest real estate brokerage in the world, have traded lawsuits and allegations of antitrust violations, all while waving the banner of consumer protection," wrote The New York Times on Saturday.
"Both companies have gobbled up competitors and become so dominant that when they shift their rules and practices, they have the power to change how homes in the United States are bought, rented and sold," The Times continued.
What Is Zillow Allegedly Doing Wrong?
Nobody is suggesting that Zillow, which is America's biggest real estate portal and the owner of StreetEasy and Trulia, is doing anything illegal. But, in January, Dr. Jerry Wind, the Lauder professor emeritus and professor of marketing at the Wharton School, published an academic paper that suggested many Zillow users were confused by one aspect of the company's offering.
Readers who have used the website may have seen buttons that invite them to "Contact Agent" or "Request a Tour." Wind conducted a survey of recent actual or prospective home buyers to discover what users expected when they clicked through on those buttons.
"Incredibly, 99.7% of consumers exposed to Zillow's standard interface were unable to correctly identify who would actually contact them," Wind found. "Even Zillow's additional disclosures failed to meaningfully improve consumer understanding."
Users who assume that clicking one of those buttons would put them in touch with the listing agent would often be wrong. Instead, they were put in touch with a buyer's agent.
Buyer's agents used to typically act for a purchaser for free, sharing the listing agent's commission. That's still common, but no longer virtually universal.
Wind's paper alleges: "The implications extend beyond individual transactions: as alleged in recently filed lawsuits, consumers are routed to agents who have paid Zillow for these leads and who are heavily incentivized to direct customers to Zillow Home Loans — a mortgage product that (according to a recent study and the lawsuits) can be significantly more expensive than other available mortgages."
A Zillow spokesperson told The Times: "When you go into a negotiation, you want to make sure that each party to the negotiation has somebody on their side who is advocating for them." Meanwhile, the listing agent's contact details are shown on each listing's webpage.
How Is Compass Criticized?
Compass is the world's biggest player in real estate. It owns many famous brands, including Century 21, Christie’s International Real Estate, Coldwell Banker, and Corcoran, and globally employs or contracts with 340,000 real estate professionals, according to The Times.
In its article, The Times criticizes the company for facilitating an explosion in private listings. Again, there are no allegations of illegality in what the company is doing.
There's nothing new or wrong about private listings; they've been around for as long as most of us can remember. Some home sellers have always demanded privacy, including rock and movie stars, politicians, judges, shy businesspeople, and many others in the public eye. They don't want their addresses and photos of their homes spread across the internet and the media through public listings.
What is new is that Compass has greatly expanded its use of "Private Exclusive" listings. These allow only Compass clients and agents to view the home.
There are advantages for the seller. It allows different price points to be tested without the humiliation of a "clock" ticking ever upward as it publicly records the days the home has been on the market.
But the flipside is that buyers can't be warned off homes that have been marketed for many months or years. Many buyers find such listings red flags. Some have suggested this is the equivalent of putting black adhesive tape over a car's odometer before selling it, says The Times.
Meanwhile, there can be downsides for sellers. Their homes are exposed to a shallower pool of buyers, meaning non-Compass clients who'd love to purchase them don't even know they're for sale.
"Private listings primarily benefit brokers rather than consumers," Dolly Lenz Real Estate agent Jenny Lenz told The New York Post on Tuesday. "Our responsibility is to serve our clients' best interests, whether they are buyers or sellers, and broader market exposure creates the strongest outcome."
Critics say the biggest winner of Private Exclusive listings is Compass itself. As only its own buyer's agents can view the home, the chances of Compass agents earning money on both sides of the deal are vastly increased.
Three states, Connecticut, Washington and Wisconsin, have already passed laws restricting private listings, and New York is looking to do so soon, according to The Post. Elsewhere, agents and sellers can do what they want.
And Compass says that's a good thing. "Sellers should have the right to decide how their homes are marketed and where they are marketed," says Robert Reffkin, the chief executive of Compass, in a statement quoted by The Times.
Does This Matter?
If small real estate web portals and brokerages were doing this, fewer people would be bothered. But both Zillow and Compass are by far the biggest players in their fields.
And continuing consolidation in the real estate markets risks those and other companies acquiring monopolistic power over their markets, which could become distorted.
Critics allege that these companies are prioritizing their own revenue streams over their users' and clients' best interests. Others might argue that they're doing only what free enterprises are supposed to do: maximize shareholder value. Readers must decide what they think is right and wrong.
