Why the Bay Area's biggest real estate company is at war with Zillow

A dispute between the Bay Area’s largest home brokerage and an online real estate giant could shape how buyers search for homes — and even their ability to see some listings at all.

The monthslong battle between Compass and online real estate marketplace Zillow has escalated over the past few weeks, potentially limiting sellers’ options when choosing where and how to market their home. 

At the core of the matter is the brokerage’s approach to privately marketed homes, sometimes called “pocket listings.” While these types of home sales are nothing new, Compass launched a program late last year allowing sellers to gradually transition their listings from private to public. 

Sellers who sign up for the program start their homes in the “Private Exclusive” phase, meaning the listing can only be shared with other Compass agents, and in some cases with agents from other brokerages. The property eventually moves to the “Coming Soon” phase, during which it becomes visible to anyone scrolling Compass’ website, before finally being fully shared with other brokerages and online.

This program, which Compass calls a “Three-Phased Marketing Strategy,” helps both buyers and sellers, said Kevin Patsel, who leads the company’s presence in Northern California. Sellers get to soft-launch their homes, setting an initial price point among a smaller pool of potential buyers, before putting it on the open market. 

Because buyers can’t see private price changes or time a home spent off-market, the company argues this gives sellers some flexibility while they prepare the home for public viewing. Buyers shopping Compass’ private exclusives also face less competition for those homes, the company adds, allowing them to avoid bidding wars.

“If you’re looking at a movie premiere, or the selling of a new car or something, there’s always a lead-up to the launch,” Patsel said. “It’s just a matter of building … anticipation.”

And, in some cases, Compass’ website suggests, a seller might find a buyer willing to pay a premium to get ahead of the post-marketing crowd. Out of Compass’ nearly 3,600 Northern California listings as of the end of April, 1 in 3 were private, the company said. Most of those private listings were expected to eventually make their way to the public market.

But Compass’ critics, chief among them Zillow, argue that the whole setup is a bad deal for both buyers and sellers, amounting to an attempt by Compass — which according to the San Francisco Business Times is the largest brokerage in the Bay Area — to monopolize even more home sales and commissions. Zillow has even pledged to ban listings that use Compass’ phased marketing, according to Zillow’s Chief Industry Development Officer Errol Samuelson.

In recent weeks, both Compass and Zillow have doubled down on their respective approaches, a development that could force sellers to choose between Compass’ flexibility and Zillow’s exposure.

Zillow, whose business relies on providing real estate agents with leads in exchange for a fee, says Compass’ program throttles the amount of attention a listing would get if it were put on the open market from the start, losing sellers money. Buyers, the company adds, are prevented from seeing a slice of the market unless they agree to work with Compass, privileging those who already have real estate connections.

“You can see why a brokerage might choose to do it, but is it really in the best interest of the seller and the buyer?” Samuelson said. “We think no.”

So far, no major Bay Area brokerages appear to have joined Compass, whose CEO and founder Robert Reffkin has been increasingly critical of Zillow and the National Association of Realtors, which requires most of the nation’s real estate agents to share information about their public listings with other brokerages. The trade group declined to comment.

Zillow and Redfin have said they will not publish any listings that were marketed — including through social media or yard signs — only to a subset of buyers unless they were shared with the regional Multiple Listing Service, a real estate industry database, within 24 hours. Those bans include Compass’ phased listings, Samuelson said, though Compass has seemed to indicate that they only apply to its “Coming Soon” properties, which tend to be shared publicly within a day.

Still, the ban means sellers hoping to get more eyes on their home through Zillow or Redfin may have to think twice about going all-in with Compass — something the broker itself acknowledges. Sellers using its phased marketing strategy must sign a form that cautions doing so could reduce the number of potential buyers, and ultimately the final sale price.

But Compass has marketed itself as something of an alternative marketplace, announcing this week that it was making its private listings available to any agent who visits one of its offices, addressing criticism that its new program was motivated by a desire to keep both the seller’s and buyer’s commissions.

Patsel, the Compass executive, also pointed out that the company’s listings would have ended up on Zillow eventually, once they were made public — just not before they were viewable to Compass’ clients. He added that he doesn’t believe being banned from Zillow will hurt a listing’s chances of being sold, noting that many other websites will market the listing.

“Zillow is kind of dictating for the industry how we operate,” he said.