Zillow economist calls out Redfin for ‘mischaracterizing’ research 

In mid-March, just two weeks after Rocket announced an exclusive partnership between Redfin and Compass to post the brokerage's Coming Soon listings on the portal, Redfin published an eye-catching report that suggested pre-marketing could boost inventory by 6-12% in some markets.

But now a Zillow economist is saying the report's findings merit closer examination.

Redfin study points to benefits of pre-marketing

The report, based on a Redfin analysis with commentary from Senior Economist Asad Khan, said that by testing pricing strategies via pre-marketing, home sellers can reduce the chances of lowering their list price later. 

Roughly 1 in 3 sellers underprice or overprice their home, the report said, which noted that overpricing by as little as 10% could cause a listing to sit on the market for a month.

Meanwhile, the reduction in risk of more days on market is worth about 1.2% to 2.4% of a home's value, the report said, concluding that annual listings could grow by 6% or more in markets where home sellers can first test pricing through pre-marketing.

The report appears to align with preliminary data released by Compass last year suggesting that pre-marketing leads to fewer days on market and higher sale prices.

It's a conclusion built on assumptions, Zillow says

While Redfin's findings seem to add another proof point for proponents of pre-marketing — notably Compass, which has built its 3-phased marketing strategy around the practice — Zillow Chief Economist Mischa Fisher wrote in a recent LinkedIn post that the analysis is modeled around assumptions, not hard data. 

"The estimate works roughly like this: take a share of sellers assumed to be uncertain about pricing, multiply by an assumed share who would benefit from early feedback, then apply an assumed relationship between listing confidence and eventual inventory," Fisher wrote. "Stack those fractions, add a 'multiplier' for sell-then-buy chains, and you get 6-12%."

But Fisher claims none of those inputs are based on concrete data about pre-marketing strategies, and some of the evidence cited in the report is actually a "mischaracterization" of Zillow surveys that found sellers are held back by a variety of factors, including affordability and life uncertainty. According to Fisher, Redfin's analysis cherry-picked from that data to suggest listing hesitancy was primarily due to sellers' concerns about home prices and the potential penalties they might incur from mis-pricing their home (or "supply elasticities"). 

The Redfin study, he noted, assumes half of sellers would decide to adjust their price and list a property publicly after testing it on the market, but Fisher claims the report offers no evidence to support this idea. 

Instead, the data used to illustrate sellers' sensitivity to adjusting their sales price was derived from a study of Dutch homeowners in the 1990s and real estate transfers taxes in Toronto in the 2010s — findings that may not be relevant to how American sellers today respond to a pre-marketing option, Fisher added.

Potential omissions — and a plug for open marketplaces

Zillow hasn't been shy about its opposition to pre-marketing — at least when it involves restricted access to listings (the company recently introduced its own pre-marketing program called Zillow Preview) — and Fisher's rebuttal went on to point out the downsides to marketing to a select group. He said pre-marketing creates an "information asymmetry" that hinders market participants who don't have access to view all properties.

Fisher noted that many sellers are also homebuyers, so even if pre-marketing helped them fetch a higher sale price, they may be competing in that same higher home price environment as a buyer — making the benefit they receive as a seller "partly self-canceling."

Failed pre-marketing efforts may also be detrimental to sellers, Fisher argued, even if days on market do not technically accrue. "The stigma the model assumes is eliminated may simply re-emerge in a different form," he wrote.

Finally, Redfin's model does not account for sellers who ultimately decide to exit the market, Fisher said. "Those withdrawals reduce net inventory — a dynamic the model ignores entirely."

We 'welcome discussion,' Redfin says

The real estate portal and brokerage stood by its research and said the data is all publicly available.

"We appreciate the engagement with our research and welcome discussion about the model and its parameters," a spokesperson for Redfin said in an emailed statement. 

"Our assumptions and calculations are laid out transparently so anyone can stress test the model based on different inputs. For example, even cutting the assumed supply elasticity in half, total inventory would still increase 3-6%," the statement noted. 

"Our reference to Zillow's survey data was accurate and cited one of the multiple factors that potentially influence seller behavior. We will continue studying this topic in depth in future reports and will share our findings as we do so."

Anyone can review Redfin's methodology for the study on its website.