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James Dwiggins is not shy when it comes to sharing his opinion about what the future of the real estate industry will be — if Compass’s private listings strategy prevails.
Inman caught up with the co-CEO of franchisor NextHome ahead of his appearance at Inman Connect San Diego at the end of this month to ask him about the potential outcomes of the debate over the National Association of Realtors’ Clear Cooperation Policy and Compass’s “three-phase marketing strategy,” which, at least initially, keeps listings off of multiple listing services to market them privately.
In Part 1 of this interview, below, Dwiggins lays out three possible paths for the industry, one of which he says is unavoidable, another that preserves the MLS, and another that blows up the industry and hands it over to Zillow. In Part 2, Dwiggins discusses what truly offering sellers options means and NAR’s role in MLS policy and in promoting Realtor value.
This interview has been edited for length and clarity.
Inman: Everybody has their views on this whole private listings situation. But what I want to know from you is, what do you think is going to happen? Where is this going? What is the end result of this?
James Dwiggins: It’s going to go one of two paths. No. 1 is there will be massive litigation from this coming in time. The only reason why it hasn’t started yet is there’s not a big enough class. I’ve spoken to class-action lawyers who are like “this is easier to win than Burnett.”
They take the marketing material being used to push this. They take the numbers on the amount of people that are going into this status, the number of people who sold their listings off MLS. They’re going to take that data. They’re going to look at those numbers. They’re going to look at comps and what it should have sold for versus what it did.
Doesn’t matter whether the seller agreed to the price or not. Doesn’t matter what the documentation is. Just look at Burnett | Sitzer, same thing: They signed listing agreements agreeing to the commission compensation sharing. The point is, in the law, in the courts, the way this works is you just got to convince a jury.
They’re going to wait until the class is big enough and there will be massive litigation on people that are doing this. One hundred percent.
That is the foregone conclusion at this point. In 24 to 36 months, watch for litigation to occur.
Path No. 2 is Compass doesn’t get its way, and this whole game slows down, and it’s used selectively for sellers that legitimately need to do that, and we get back towards serving buyers and sellers correctly without manipulation of the market, providing transparency and doing what we spent 40 years to build, which is what I hope will happen.
Path 3 is Armageddon. This is the path that scares me the most. What nobody seems to understand, especially at Compass, is they’re too small to compete in this game if everybody decided to build a private listing network like Compass did. There’s nothing innovative about the three-phase marketing plan. There’s nothing innovative about the technology. It’s not like that can’t be duplicated very quickly.
If everybody went down the road of building private listing networks because that’s what they had to do based upon what this one company is pushing, then what happens? It’s absolutely catastrophic. You have the worst consumer experience ever created, where all this inventory is held back, trying to be sold internally, which is what this game is about. You don’t have access to it unless you’re working with one of the agents at that firm.
So consumers are going to sign buyer rep agreements with people that they didn’t want to sign. They didn’t know what they signed. You’re going to deal with litigation there.
Nobody knows what’s for sale. The value of the multiple listing services goes to hell in a hand basket. There’s all these deals done that aren’t on the MLS now, so you have no data that’s accurate for comps. Appraisals become a problem. Imagine that, where you’re trying to appraise, but the appraiser can’t use it because they don’t have access to data.
So we’ve got massive appraisal issues, we’ve got massive loan issues, and then the game of roll-up occurs, and it’s very clear what will happen if you don’t have enough inventory to be anything relevant in a market: You get consolidated into a company that does because the only way you get to see the inventory is working for one that has the inventory. You end up seeing probably 12 to 15 real estate brokerages in the U.S. that control 70 percent of the inventory. MLS is gone. Consumer experience gets totalled.
I’ll tell you who the biggest player is out of all of it: It’s Zillow. Zillow has a motive in all of this, obviously. They need inventory because inventory allows them to generate leads, and that’s part of their business model. But if that inventory is no longer available on Zillow, I can tell you exactly how they’ll get their inventory: They’ll tell every single agent that’s part of their lead network, “You have 72 hours to switch your license over to become a Zillow agent and bring all your inventory with us, or we’re going to shut off your entire lead pipeline.”
You think any agents have any loyalty to the brands they work for? Good luck!
They will absolutely leave every single one of these firms, including mine, and go to the business that’s driving all their revenue. Zillow becomes the largest real estate brokerage in 30 days in the U.S. with massive market share and massive eyeballs and they push all that business to their agents now. That’s the game that gets played.
The people that are playing this game do not understand the chess pieces on the board, and it would be a very bad thing for everybody: sellers, buyers, brokerages, agents, MLSs, associations. The only people that benefit are the top 10 companies, which just become even bigger than what they are.
That’s the ironic part about this whole thing that I just don’t even understand. EXp does 50 percent more deals than Compass does and has 50 percent more agents than Compass does too, just in the U.S. And they’re not wanting to do this game. They’re outwardly saying, “This is really, really bad for consumers and not good for the industry and not good for buyers and sellers.” You know who benefits the most if this game were to go down this road that Compass is playing? EXp does. They grow to double their size.
You see 95 percent of the industry not doing this because there’s historical perspective to understanding how bad that experience was. Brokers agreed a long time ago that this isn’t good, this game of “I have inventory, you don’t. I want to work with you, and I’ll work with you on this deal, but not another.” We got rid of that. We put it into a repository because it’s good for sellers and it’s good for buyers. It’s the only system in the world that operates the way it does. As imperfect as it is, it’s still the best. So, yeah, where does it end up? One of those three paths. One of them is good; the other two are scary.
Why do you think that companies like Compass, Howard Hanna, other brokerages that are pushing private listings, don’t see what you’re seeing?
Maybe they do. Hoby [Hanna] and Robert [Reffkin] are pretty smart people. I’m sure they understand exactly what they’re doing. They have their own initiative and motives to do stuff. I’m not against that. America’s capitalistic. I get it. Do you. I just don’t think it’s the right thing to do. Our jobs are to sit down, ask questions: What are the goals of the seller? Ninety-nine percent of sellers are going to say two things: highest price possible, least amount of time.
If the seller says I need privacy, then we provide a tool for that privacy.
In my company, we can have it so the address isn’t displayed online, so we can generate interest about your property, but they don’t know where the property is. So we’re getting the eyeballs, we’re getting consumer inquiries, we’re making sure we’re generating that interest.
The second way is, if you really don’t want that, we won’t put it online, but it’ll be available to every Realtor in the multiple listing service, which is going to represent 90 percent of all buyers. So we’re going to take care of that exposure, while also making sure that nobody knows you know anything about that property.
The third and the last scenario is we do an office exclusive, but I want to be clear with you, what that means is I’m working this internally. There’s no public marketing. We’re not sharing it. It’s going to take us longer. There’s less consumers, and if that’s your option you want, we can pick that.
That’s the only conversation you should be having with a seller in those particular examples. The rest of it is just marketing spin. It’s just a way to convince the seller to do it. It sounds great: “We’re going to test the price.” You can’t test price unless you have enough market share to actually have enough eyeballs to determine what the price of the home is. If there are 10 potential buyers for a property and one of them is represented by an agent in the same brokerage, but nine are represented by agents in other companies, how can you test the price if they don’t know the property exists? It’s just supply-and-demand economics.
So there is a path for this. It should be asking questions, providing tools, letting the seller choose without influencing them on those decisions. That is your fiduciary responsibility. That is what 95 percent of people are doing.
Anything beyond that, where, if you can get a buyer represented by an agent in your brokerage, the brokerage benefits because you’re getting both sides of the commission. Literally, on their website, [it says] “Compass Private Exclusives. Work with a Compass agent to see private exclusives.” That’s a lead-gen tool that is designed to get people to inquire specifically to work with you to see those properties. It’s not a seller choice thing. You’re using it as a way to gain more listing inventory, gain more buyer inventory, recruit more people to it, which they’re not shy about if you read the statements the senior management team’s making.
In Scenario No. 3, what happens to your company?
I either get really big or I consolidate with someone else. The numbers are really simple. In our calculations, if you have less than 10 percent market share in a local MLS — thinking of brokerage now — you won’t survive. You’d have to team up with somebody else. Because if everybody’s holding the inventory back, and you can’t show your buyers that inventory, then all you have is one side of the deal. You’ve only got listing inventory, so you’re still having to share that because you don’t have enough. You’re just not big enough in size. It’s a monopoly game.
It sounded like Scenario No. 1, the litigation, you thought was pretty much inevitable. How do you get to Scenario No. 2?
The industry sticks up for what’s right. MLSs enforce these rules. If you’re not going to play by the rules, then you get fined. And if you get fined and want to keep doing it, then get out. It’s that simple.
You either play by the rules like everybody else, or don’t and don’t be part of the MLS.
Good luck. But that’s fine. It’s your choice. You do it.
But you don’t get to [see] all the listing inventory and then not share your inventory. That’s not how IDX [Internet Data Exchange] works. That’s literally the exact opposite of it. There’s a reason why these rules are in place. You can’t selectively choose who gets to view who gets your inventory in IDX. That’s actually for antitrust reasons. If you’re going to put it in the MLS, everybody gets access to it. You can’t be like “Zillow doesn’t get it. Or NextHome doesn’t get it.” Doesn’t work that way.
You’ve mentioned before that this private listing strategy doesn’t do as well in a buyer’s market.
Not at all.
It does seem like the market is not doing well at least in some places for sellers. What happens to this whole controversy if that becomes more widespread?
Well, two things to put into finer point: If Zillow’s listing ban is overturned and they can’t enforce it, then you move towards Scenario 3. That’s the Armageddon.
So literally, the industry’s future is depending upon this ban that Zillow has in place, and that’s why Compass is suing them.
If Zillow’s listing ban stays in place, this three-phase marketing plan that Compass has becomes very little used because there’s not a scenario where you want to explain to a seller that if we do X, Y and Z, your listing will never be shown on Zillow. That ain’t going to fly.
So really, everything hinges on the Zillow listing ban being able to be kept in place — and technically Rocket’s ban in September — or not. That will be the decider.
