The pre-market network effect: A battle for real estate’s future
Compass’ walled-garden strategy could set off a private inventory race — but the open ecosystem has an opportunity to become its most powerful counterweight.
Key points:
- The proliferation of private listings is creating a network effect: a system that becomes more valuable as more participants join.
- Major industry players — large brokerages, Redfin, Zillow — have been forced to respond with competitive strategies of their own.
- For brokerages, maintaining an open network will require scale, and that could mean partnering with unlikely allies.
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The views expressed in this column are solely those of the author, who previously published a longer version of this piece on his blog.
In 2019, I stood onstage at the T3 Leadership Summit and warned brokerage leaders about a dynamic I believed could reshape residential real estate.
My argument was that once a brokerage accumulated enough market share, it could unlock capabilities even large competitors would struggle to reproduce. I called that moment the tipping point.
Start with listings. With enough inventory, a brokerage could put a meaningful share of the market behind a velvet rope. That inventory captures buyer demand. Buyer activity generates valuable data. That data helps win more sellers and recruit more agents, producing still more listings.
At some point, the system stops growing linearly and starts compounding. Market share itself becomes a competitive superpower.
I was watching the beginnings of it in San Francisco. My neighbor's listing wasn't on the MLS or major portals. Eventually, I found it among Compass's Coming Soon inventory.
I pulled up the rest of Compass's pre-market listings and thought: What happens if this keeps growing? Buyers might feel pressure to choose an agent based on access to inventory. Sellers would want access to those buyers. Agents would want access to both. More agents would produce more pre-market listings, and the cycle would repeat.
Today, private and pre-market inventory sit at the center of Compass' three-phased marketing strategy, and its acquisition of Anywhere has given the company vastly more listings and agents with which to run the play.
The question is no longer whether this strategy could become powerful. It already has.
The question is what everyone else does about it.
This is a network-effects war
Private listings themselves aren't the strategy. They're an input. The strategy is a classic network effect: a system that becomes more valuable as more participants join it.
First comes inventory: More homes are entering the Compass ecosystem before reaching the broader marketplace, creating differentiated supply.
Then comes distribution: Compass.com provides a direct consumer destination, its Redfin partnership extends Coming Soon inventory to another major audience, and Collections puts that inventory in front of buyers already working with Compass agents.
Finally comes data: Buyers view homes, save them, reject them and discuss them with their agents. At sufficient scale, those signals create a live picture of buyer demand. Inventory captures more demand. Demand creates more data. Data makes the network more valuable. A more valuable network attracts more participants and inventory.
The prisoner's dilemma has arrived
There's a concept in game theory called the prisoner's dilemma: Once one player takes an action, the other can no longer afford not to respond. That increasingly describes pre-market inventory.
A brokerage may believe broad, immediate distribution is best for sellers. But if a competitor's multi-phase strategy begins winning listings, attracting buyers and recruiting agents, doing nothing creates a competitive disadvantage.
Redfin, once one of the loudest critics of private listings, now distributes Compass Coming Soon inventory.
Zillow faced the same competitive reality and responded with Zillow Preview, allowing participating brokerages to display pre-market inventory across a network that isn't controlled by a single brokerage.
A walled garden has one fundamental constraint
The natural response for many brokerages has been to build private or pre-market ecosystems of their own.
But network effects depend on scale. A handful of brokerages may have enough concentrated market share to create sufficient liquidity largely on their own. For everyone else, smaller walled gardens cannot individually reproduce the network effects of one enormous network.
Another option is to aggregate that inventory across brokerages instead of asking each company to create enough scale on its own.
Through my eyes, that is what makes Zillow Preview strategically important. It gives brokerages a way to contribute to and access a larger network of pre-market inventory.
For many brokerage leaders, that is a tough pill to swallow. The industry has spent years looking for ways to reduce its dependence on Zillow. But network effects are ultimately a scale game, and Zillow already has what most brokerages do not: massive consumer reach, national distribution and the ability to aggregate inventory across competing firms.
If the goal is to create a credible counterweight to a closed network, scale may matter more than who provides the infrastructure.
(Editor's note: RealScout is a Zillow Preview syndication partner.)
Gradually, then suddenly
For years, I've come back to Hemingway's line about how change happens: "gradually, then suddenly."
The "gradually" started in 2019. Nearly seven years later, most of what I cautioned about is no longer a prediction. We are in the "suddenly" now.
Pre-market inventory is now a national issue. Redfin has been pulled in, Zillow is putting real resources behind Preview, and major brokerages, by the hundreds, are participating.
Waiting isn't neutral because, network effects compound. Every quarter spent watching is another quarter for someone else's network to grow stronger.
The scale of any broader alternative will depend on how much inventory participating brokerages contribute.
I wrote the full strategy for brokerage, franchise and megateam leaders thinking through what to do next, including the distribution model I'd build, why I'm betting on an open network instead of another walled garden, and the structural constraint inside Compass that I think the industry is still underestimating. Read the full post here.
Andrew Flachner is CEO and co-founder of RealScout, a leading real estate technology company serving more than 100,000 real estate professionals and many of the country's largest brokerages and top teams. He is a recognized industry voice, frequent keynote speaker, and host of Playmakers, where he interviews influential leaders across real estate, business, and technology about the forces shaping the industry's future.