Zillow’s Real Estate Blacklist Is in Effect: What Homebuyers Can Do

Pretty much every potential homebuyer looks for houses on the internet, scouring listings for the right facade and envisioning their couch in glossy photos of empty living rooms. A lot of the time, that digital touring pays off: The National Association of Realtors recently found that about half of purchasers end up finding the winning property online. For many house hunters, the never-ending cyberquest for that dream home includes a stop (or many) at Zillow.

If you count yourself among the 221 million monthly visitors who scan Zillow or one of its affiliated portals, like Trulia, you probably won’t notice any change in your home-scrolling habit on June 30. But it’s an important date for the biggest name in home search. Behind the scenes, Zillow is using its vast machinery to fight a battle that could determine where you find your next house — and whether it even appears on Zillow at all.

Starting Monday, Zillow will be banning home listings that have been marketed publicly by a real estate agent — which includes everything from planting a for-sale sign in the front yard to posting on Facebook — without being shared in the local databases that feed home listings to the rest of the real estate industry, including Zillow and other search websites, within one business day. The move is part of a broader fight over “exclusive inventory” or “hidden homes” — basically, properties advertised in some places but not others. In an attempt to seize more control over their listings, agents at some real estate brokerages have been advertising homes in internal databases or posting them only on their own websites, out of reach of the search portals.

While the fight has been going on for a few years, things have recently turned especially ugly. Compass, the largest real estate brokerage in the US by sales volume, sued Zillow in federal court last week over the new blacklist, and industry execs have spent months trading barbs via social media, speeches, and email blasts that reached thousands of agents across the country.

The back-and-forth leaves homebuyers and sellers in a weird spot. I’ve spent months talking to people around the industry about the hidden listings issue, and I’m left with one big conclusion: If you decide to hire an agent (which most people do), you should go into that relationship with open eyes. The rules of the game are changing. Consumers need to make sure they know exactly what they’re getting from their agents and how much they’ll be paying for those services. Buyers’ agents should also be able to explain how they’ll navigate a shifting landscape in which some listings may become harder to find.

Big companies are squabbling because they need your clicks, your home listings, and, ultimately, the commission checks that flow from your deal. Whether you’re a buyer or seller, your business is especially valuable right now. It can be daunting, but the upheaval may be advantageous if you play your next home transaction correctly.

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Every real estate company has a huge financial stake in this war over listings. Zillow’s new policy is an attempt to stem the rising tide of “exclusive inventory,” or homes marketed outside the multiple listing services, the formal name for the more than 500 local databases that distribute listings among fellow agents, big brokerages, and the popular search portals. Instead of being entered into the MLS, these “hidden” houses are shared among agents who belong to the same brokerage, swapped in clubby groups known as private listing networks, or posted exclusively on one brokerage’s website without being distributed more widely. The leader of the push toward this walled-garden approach is Compass, which maintains its own trove of thousands of homes that you can only see by working with one of their agents. But it’s far from the only company doing this — other major players, such as Howard Hanna, are increasingly leaning on hidden listings. Still others have threatened that they could do the same if the market fractures further.

Candidly, I hate to come to the aid of Zillow because I don’t particularly like them.Dick Selzer, owner and general manager of Selzer Realty and Associates in Ukiah, California

Zillow really doesn’t like this shift. The company depends on selling leads tied to the mountain of listings in its portal: When you signal your interest in a property on its website, Zillow will typically pass along your contact info to an agent who pays a fee to the site — not the agent who actually listed the house for sale. If the spigot of home listings gets cut off, search portals like Zillow are in trouble. Beyond self-interest, the company says it’s also fighting for something far more noble: a fair and transparent housing market, in which listings are readily available for everyone to see. Buyers just want to see all the houses out there, Zillow execs say, and sellers can draw out the best offers when their homes get maximum exposure. Plenty of agents around the industry resent Zillow for the power it wields, but even some who have beef with the search giant have told me they agree with its basic point: A wide-open market is best for consumers.

Kirk Simmon, a 20-year veteran agent in the suburbs of Philadelphia, touts what he calls a “public inclusive” approach — a play on Compass’s “Private Exclusive” listings, which are distributed internally among Compass agents and their clients. For the vast majority of people — except, maybe, A-list celebrities or those who desire true privacy — Simmon advises sharing a home listing as widely as possible.

“Why would you ever sell your house without the public knowing and everybody being included?” Simmon tells me.

Dick Selzer, the owner and general manager of a Re/Max-affiliated brokerage in northern California, agrees. “Candidly, I hate to come to the aid of Zillow because I don’t particularly like them,” Selzer tells me. But, he says, “My job is not to be happy with Zillow. My job is to do the best I can for my client.”

I’ve gotten a similar message from Compass agents on the opposite side of the aisle, who say they’ll stick with their marketing strategy despite Zillow’s new rule.

“I’m not going to let them bully me into doing things that are detrimental to my clients,” Jennifer Knoll, a Compass agent in the Washington, DC, area, told me recently, emphasizing that she always has clear discussions with her clients about their marketing plans.

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Compass says the search portal’s new policy is just an attempt to protect its market dominance. Robert Reffkin, Compass’s CEO, argues that sellers benefit from testing their home listings with a limited audience before blasting them out more widely. The Compass website, unlike Zillow, Realtor.com, or any of the other big search websites, doesn’t track price cuts or show how long a house has been sitting on the market, information that Reffkin says harms sellers. Compass can also monetize leads through its own website rather than handing those opportunities to a portal like Zillow.

The main thing consumers need to know is that they can — and should — be part of this conversation. Sellers should know exactly how their agent plans to market their home, and why they’re doing what they’re doing. Some of this comes down to just reading the forms. One of Compass’s disclosure forms, for instance, warns sellers that listing homes off the MLS may “reduce” the number of potential buyers who learn about the property, the number of offers, and ultimately, the sale price (94% of Compass’s listings last year eventually sold via the MLS, the company says, even though many were initially marketed in Compass’s internal database). The form also warns sellers of the chance that their house won’t show up on Zillow if the listing’s advertisements run afoul of the search giant’s new policy. A Compass spokesperson said in an email that while the company’s research shows that consumers benefit from pre-marketing, the disclosure form reflects the fact that the company cannot guarantee results. One thing is clear: Sellers should know the trade-offs baked into any marketing plan for their home.

For buyers, a whole other set of rules from a massive legal settlement against the real estate industry last year dictate that before you so much as step into a house with an agent as your guide, you have to sign an agreement that outlines the terms of the agent’s services and how much they expect to be paid. Buyers can no longer coast on the assumption that their agents’ services are free, and they should make sure they’re getting their money’s worth. And though many homes are available in the major search portals these days, buyers have always relied upon agents to dig up the houses that can’t be found online. That’s not changing anytime soon, especially in markets that are still starved for available inventory. One Zillow economist recently told Business Insider that, after a tumultuous home search this spring, he eventually purchased a home that had not been officially listed for sale — his agent had heard of a homeowner who could be prompted to sell for the right offer.

Again, you probably won’t notice anything different on Zillow or any of the other popular search portals in the coming weeks. Zillow has spent the past month warning agents whose home advertisements violate its new rules, and while the company won’t say exactly how many listings it’s flagged so far, Errol Samuelson, Zillow’s chief industry development officer, said in an email statement that the company expects “only a small number of for-sale listings will be affected.”

Everyone involved in this fight is scrambling to protect their slice of the pie. Savvy consumers should have no illusions about where they stand in this ecosystem. This may be happening out of sight, but buyers and sellers alike lose if they keep it out of mind.

James Rodriguez is a senior reporter on Business Insider’s Discourse team.

Business Insider’s Discourse stories provide perspectives on the day’s most pressing issues, informed by analysis, reporting, and expertise.