Private listings don't expand consumer choice — they narrow it
When agents and brokerages limit access to information, consumers are unable to weigh all their options, inherently constraining their range of choices.
Key points:
- Before the internet era, buyers were highly dependent on agents for listing information, comps and other data — an "informational advantage" some agents used to serve their own interests.
- The current rise in private listings creates a similar dependence and risk of consumer harm, which increases as individual brokerages dominate a given market.
- Recent state laws regulating private marketing practices are part of the solution, but more consumer education is needed.
Proponents of private listings argue they give sellers more options. I believe they're taking the industry back to an era when consumers didn't have enough information to know what their options were.
Exploiting an 'informational advantage'
A few decades ago, buyers and sellers had no direct access to home listings. They relied solely on their agents, who subscribed to local multiple listing services and could selectively share or limit the information held within those databases.
Some agents took advantage of this dependence to prioritize their own interests over those of their clients, according to the industry's own research. The National Association of Realtors' rationale for adopting the Clear Cooperation Policy in 2020 acknowledged one aspect of the problem — the use of pocket listings — stating that the "significant growth in the use of pocket listings and misuse of various limited exposure marketing tactics" has occurred "to the disadvantage of homebuyers and sellers," adding that such listings "generally have been perceived as benefitting the listing firm more than the client."
Additionally, a 2005 study by University of Chicago economists Steven Levitt and Chad Syverson found that when agents sold their own homes rather than their clients' homes, they fetched a better average sale price, even after controlling for multiple differences in home characteristics. The researchers concluded that agents were using their "informational advantage" to serve their own best interests.
Turning back the clock on consumer access to information
The growth of the internet and new technologies in the aughts gave both brokers and portals the opportunity to aggregate listings and make them available to the public. Home search sites allowed sellers and buyers, on their own, to learn much more about the wide range of available properties and their characteristics. This increased knowledge also narrowed the "informational advantage" agents had over consumers.
Private listings do the opposite. Without exposure, sellers are no longer aware of all buyers who may be interested in their property. Buyers (and their agents) are limited in the properties they can find and purchase. Sellers can hide important information about the property such as days on market and price changes, tilting what has been a fairly level playing field in their favor. The result is an overall decline in access to information, which inherently constrains consumer choice.
Brokerage dominance increases consumer harm
If local real estate markets were highly competitive, consumer harm due to private listings would likely be limited. A brokerage with a small share of a market's listings might have difficulty finding buyers that were attractive to seller clients if it kept those listings in-house. That changes, however, when one brokerage dominates a local market. Now the firm has a much greater chance of finding a buyer from within, especially if buyers gravitate toward that brokerage because they believe it offers them a greater choice of properties.
The extensive use of private listings by a dominant brokerage encourages other brokerages to also list privately, further limiting consumer and agent visibility into the full real estate marketplace. Brokerages may decide to partner with other firms to allow shared access to their listings, but that doesn't help consumers, who would, once again, depend heavily on their agents for that information.
What needs to be done
It's not clear how many listings are now being marketed privately since brokerages don't have to disclose that data. But federal and state regulators should be closely monitoring private listing practices and their implications for competition, as well as the related market dominance of large firms.
At the same time, pro-competitive brokerages and consumer educators should work hard to help sellers and buyers understand the implications of private listings. Laws that have been enacted recently or are nearing passage in states including Washington, Connecticut, Wisconsin, New York, Indiana and Hawaii are also part of the solution.
Stephen Brobeck is a senior fellow at the Consumer Policy Center (CPC), a nonpartisan consumer think tank. Brobeck began researching residential brokerage issues in the 1990s and has written dozens of reports, many of which can be found on his CPC profile page.