Private Listings and the Myth of DOM
According to Compass's website, private exclusive listings give a seller "a head start marketing your home and building exposure -- without public days on market or price drops that could damage its value." But do public days on market (DOM) or price drops actually damage a home's value? If a home is on the market for, say, 37 days instead of 22 days, does that make its value less?
Key Takeaways
- DOM can provide a meaningful metric in some situations, but oftentimes its usefulness is exaggerated.
- Private exclusives are beneficial in certain circumstances, but a broad application of them obscures the market.
- The best value for a home seller ultimately derives from a free and open market.
- "Pre-market" is an illusion.
- Zillow and Compass have every right to do business the way they want, so long as consumers are not hurt in the process.
In this short blog series, I am exploring the lawsuit that Compass filed against Zillow last year. At the heart of the lawsuit lies the issue of DOM. In this post, I will explore Days On Market (DOM) and its often exaggerated importance. I will also pull back the curtain on private exclusive listings and discuss when they are beneficial and when they are not. Finally, I want to dispel the illusion of a "pre-market" listing and make abundantly clear that the best price a home seller can find is on the open market. I will also briefly review the Compass vs. Zillow lawsuit and talk about the impact to consumers.
The Days On Market (DOM) Fallacy
Days on market has been a common metric that real estate agents and brokers have used for decades now. It simply measures the number of days a property has been active in the MLS. Said another way, it measures how long a property has been on the market.
Real estate agents will often talk about their belief that if a house sits on the market for too long—an arbitrary designation—buyers will be willing to pay less for it. In other words, a home's value declines as DOM increases. What often happens is that agents and their buyers come up with some arbitrary idea of how long a house should sit on the market before selling. If they see a house listed with a DOM that exceeds their ideal length, they make an assumption that something is wrong with the house and/or that it is overpriced. This assumption often leads to them skipping over that house entirely. As a result, the buyer pool for that home can shrink, causing it to potentially sell for less than it might otherwise sell for.
But pricing a home can be tricky, especially in slow markets or for properties that are unique. Because agents are afraid of the DOM indicator reflecting negatively on their listing, they generally work with their sellers to try and find a listing price that will bring a buyer quickly. However, homes don't always sell as quickly as sellers and listing agents would like.
Enter Compass's (and other brokerages') private exclusive listings. To reiterate, Compass's own marketing literature states that private exclusive listings offer a seller a head start in marketing their home. Because private exclusives are only available to Compass's internal network, the properties don't accrue DOM in a public MLS system. These brokerages are claiming that private listings will ultimately attain a higher sell price for their clients' properties.
The first point I want to make is that DOM only means something because we agents have made it mean something. It's just a number. There is no intrinsic connection between DOM and a home's value. The fact that it affects a home's value is only so because real estate professionals and their clients have collectively decided it does.
This is very similar to the famous conceptual art piece called Comedian in which artist Maurizio Cattelan duct-taped a banana to a wall. In 2024, Sotheby's auctioned a version of this art piece for $6.2 million!
If I went and duct-taped a banana to a wall, would I be able to sell it for $6.2 million? No. The reason is that the art community decided collectively that they appreciate Cattelan's artistic efforts. If I did the same thing, I would be called a copy-cat and likely ridiculed. Same banana. Same wall. Same duct-tape. But it's the collective perception that decides value.
We don't have to let DOM dictate a home's value if we don't want to, and I would argue that it's rather silly that we do so in most cases.
Is DOM ever meaningful? Sure. If you are in a liquid market (meaning volume is high) and you are dealing with a property that is significantly similar to other properties nearby that have sold recently, DOM can tell you something. For example, let's suppose that you are the listing agent for a 3-bedroom/2-bath home that has about 1700 square feet. Let's also suppose that three other houses very similar to yours have sold in the last two to three months. If those houses all sold within about 30 days and for roughly the same price, but yours is priced higher and has been on the market for 90 days, that's a good indication your listing is probably overpriced. In this case, the 90 DOM figure is pretty telling.
But the reality of the real estate market is such that there are seldom situations like this. More often than not, a property is significantly different than other properties around it that have sold recently. This is why appraisals are so difficult and often varied. Appraisers will admit that you could generally get three different valuations from three different appraisers for a given property. True cookie-cutter house situations are simply rare.
As a result, using DOM as a value indicator for most homes is fallacious. In most situations, DOM is just noise.
The Benefits and Downsides of Private Exclusive Listings
Suppose for a moment that real estate pros and their clients decide to quit relying so heavily on DOM to indicate a property's value, are there valid reasons for utilizing private exclusive listings?
I believe the answer is yes, but with a caveat. There are very few situations that warrant a private exclusive listing.
If you are a celebrity with a luxury property, there are lots of reasons you might not want that property listed in the MLS. In this case, utilizing a private exclusive listing makes sense. In addition, maybe you represent an estate that wants to protect the privacy of the property owner. Or you might have a very unique property that has a business attached to it or something like that, and you don't really want the details of the property broadcast to the whole world. These and other similar circumstances might warrant a private exclusive listing.
But for the vast majority of sellers, a private exclusive listing just doesn't make sense.
Statistically speaking, a seller will attain their best price by listing their home on the open market where all available buyers can compete for the home. Without diving too deep into game theory and auction theory, these ideas—and the studies that accompany them—generally posit that price discovery is most accurate in open and competitive markets. This means that if you are a buyer or seller of real property, you are generally best served by an open and free market. Anyone telling you differently is most likely mistaken—or prioritizing something other than maximizing price.
To be clear, there are certainly situations where a seller may prioritize speed, privacy, or convenience over maximizing price. But those cases are the exception, not the rule.
One aspect of private exclusives that I've heard and read about is that the Compass network is so vast that there are plenty of potential buyers to provide feedback for a listing before going public in the MLS. But if this is the case, is the listing really private? At some point, the private network becomes statistically large enough to be called "the market." At this point—and I'm not saying we've reached it yet—the private exclusive network is simply a shadow MLS system.
Speaking of statistics, I want to make one other point about private exclusives and the idea that they can accurately illuminate proper pricing for a home.
In the world of statistics, there is a concept known as population and a concept known as sample size. As a real-world example, if you want to know what most people think about a certain political candidate, the best way to find out would be to come up with a question (like, Do you believe Mickey Mouse would be a good and fair leader?) and then go survey everyone in that candidate's district with that question.
If there were 1,000 people in Mickey's district, and 750 answered "yes" to your question, you could accurately say that 75% of the people thought Mickey Mouse would be a good and fair leader.
However, in most situations in life, it isn't practical to go survey all people in a given population (such as a voting district). So, mathematicians have figured out that all you need is a fair sampling of the actual overall population—a certain percentage of the population. If you can derive a fair sample of the population and pose the question to them, your results will generally mirror what the entire population would say.
In the case of private exclusive listings, saying that an accurate price can be derived from the private network is sketchy at best. Unless someone has insured that the private network reflects an accurate sample size of the overall population of buyers for that market, one cannot truly declare mathematically that the private network is providing the most accurate price point for the given property.
In short, mathematically speaking, private exclusive networks cannot reliably guarantee accurate indicators of proper pricing unless they represent a sufficiently broad and unbiased sample of the overall market.
The Pre-Market Illusion
As such, private exclusive listings do not provide sellers with a true test of the value of their homes. Pre-market is just an illusion that brokerages such as Compass have created to convince home-sellers to use their services. If private exclusive listings truly indicated the value of a home, then by definition they wouldn't be privately exclusive because only a truly open market can provide the value of a home.
I want to be clear that I am not advocating for legislation banning private exclusive listings—as some state legislatures are doing. I believe Compass and other brokerages have every right to offer private exclusive listings to their clients. And sellers have every right to choose to list their homes in a private network. I just believe that in the vast majority of cases, private exclusive listings do not provide sellers with the best service.
I also want to be clear that I believe there are lots of very qualified and competent agents that work for Compass and its subsidiaries. And in no way am I suggesting that listing your home with one of their agents is a bad decision. If you happen to work with a Compass agent, just be cognizant of the fact that they might offer you the private exclusive option. Before you accept that option, understand what it will and will not give you.
The Zillow Connection
Back to the Zillow lawsuit. Zillow decided that if a listing was publicly marketed but not entered into the MLS within one business day, they could choose not to display that property on their website for the duration of the listing agreement. In effect, Zillow is attempting to get brokerages to list their properties publicly right away.
In response to the Zillow move, Compass sued, claiming Zillow violated antitrust laws. The lawsuit is an attempt to force Zillow to show Compass's listings once they go active in the MLS.
In the same way I believe that Compass has every right to offer private exclusive options to their clients, I believe Zillow has every right to pick and choose what properties they display on their site. Attempting to force them to show properties via the antitrust laws seems silly to me. Quite frankly, I think both Compass and Zillow are potentially hurting themselves with their policies. But in my opinion, each should be able to do business the way they want to do business so long as it isn't hurting the consumer.
The Impact to Consumers
And this begs the question, does either Compass's private listings policy or Zillow's refusal to show certain properties harm consumers?
I am no lawyer, and I will not attempt to answer this question from a legal perspective. But from a logical perspective, I don't think consumers are being hurt by either of these policies, so long as both organizations are being completely forthright and upfront about what they are doing. Consumers have the right to do business with Compass if they want, and they have a right to stay away if they want.
Some might argue that because of Zillow's size and market share, they are doing consumers harm by withholding certain listings. But consumers have other options. Sites such as realtor.com and redfin.com also list homes that are for sale in the MLS. If consumers are being shafted by Zillow, all they have to do is switch search engines. And it doesn't cost them anything to do so.
Where I do think we might see a consumer problem at some point is if Compass got so big that their private exclusive network represented a significant share of the market. If this were to happen, I think consumers would be harmed because appraisals would become infinitely more difficult due to the lack of transparent price data that we currently have in the MLS. As a result of this, lenders might have to charge more because there would be more uncertainty about their investment. Plus, consumers would have less data upon which to make their buying and selling decisions. One beneficial thing that Zillow does for the consumer is to provide a central location to gather most home sales information (with the exception of final sales price because many states—such as Texas—prohibit the public dissemination of sales prices). If private exclusives become more popular, the overall housing market will become more splintered. And this could definitely hurt consumers.
But as it stands today, to me, the biggest impact to consumers is an educational one. The injustice would come if a listing agent were to convince a seller to utilize a private listing without first explaining the potential drawbacks to it, including the fact that their house might not ever be shown on Zillow.
Because of this, I think it is always important for us as agents to inform our clients about all their options and the potential downstream effects of each one. Granted, real estate transactions are usually complex and full of many unknowns. But that's why we are here as agents. We function to help consumers understand what they are getting into in different situations. And though we don't have all the answers ourselves, we usually know where to find the answers to any question or problem that arises.
As long as agents and brokerages are being honest and transparent, I think consumers will be just fine.
Conclusion
To sum it all up, private exclusive listings arose largely because of the stigma attached to the DOM indicator. But the reality is, the DOM indicator is only what we collectively make it. And as agents, we can stop making such a big deal about it.
That aside, there are valid situations in which a private exclusive listing is warranted. But for the vast majority of residential listings, private exclusives make no sense.
The idea that a home can be listed "pre-market" in order to obtain valid price feedback is illusory. What one receives during a "pre-market" phase may or may not reflect what one can/will actually receive on the open market. And according to numerous studies, the open market is the optimal place for true price discovery.
While I believe that both Compass and Zillow have every right to implement their current policies, consumers should be aware of the potential impact of these policies before listing a house. Just because it's legal to eat 10 hamburgers a day doesn't mean it's in your best interest to do so.
A Real-World Example
I want to conclude with a real-world story that I believe illustrates a central point of this post well—namely that DOM is largely irrelevant. I'm going to make up numbers here and be intentionally vague with some details to protect identities.
Early last year, I took a listing in a beautiful rural neighborhood with nice homes. Just before we listed, a similar property sold next door. This was wonderful, as I felt like we had a solid comparable sale upon which to base our listing price. So, we listed our home thinking it should sell within two to three months based on other recent sales in the neighborhood.
Two or three months go by, and we hardly have anyone even walking through the property. But I keep an eye on the other active listings in the neighborhood, and I notice that none of them are moving either. Every couple of weeks I have a conversation with my seller about the situation. We discuss the pros and cons of lowering the price. But with the other active listings staying put as well, we decide to leave the price alone for the most part (we did finally do a slight price drop several months into the listing). Meanwhile, I watch several of the other active properties dropping their prices every few weeks. This went on for months—like eight to nine months. One similar home ended up dropping their list price by nearly $100,000, and it still wouldn't sell.
In spite of the lack of interest and the high DOM, we held fast to our price and just stayed put. Nine months later, a couple from the northwest walked through the home, fell in love with it, and offered cash at a little under our list price. Soon thereafter, the other homes in the neighborhood started selling as well. The one that had dropped their price by nearly $100,000 ended up selling for quite a bit more than the $100,000 discount.
If we had gotten disturbed by our high DOM, my clients almost certainly would have walked away with much less money than they did. Not everyone selling a home has the luxury of waiting nine months. And in those cases I understand it is necessary to drop the price more often and perhaps more dramatically in order to sell the house quickly. But all things being equal, the DOM did not damage my client's home value.