CRMLS leaders pick apart Compass lawsuit 

Ten days after Compass sued the California Regional MLS over its listing policies, the MLS has published an open letter that aims to poke holes in the brokerage giant's claims.

The letter, written by CRMLS CEO Art Carter and VP and General Counsel Ed Zorn, argues that Compass' complaint offers "what amounts to significant evidence that its own agents are falling short of the standard of competence California sellers are entitled to expect, and that they may be failing to meet their fiduciary duty and disclosure obligations under California Civil Code section 2079.16."

On agent services and competency

Carter and Zorn invoke article 11 from NAR's Code of Ethics, which says Realtor services "shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage."

One of those services is providing sellers with an estimated market value for their home, the authors assert. They go on to highlight a sentence in the complaint that suggests homeowners like Compass' 3-phased approach because "they can use pre-MLS public marketing to test the price of a home with real-world feedback from agents and their clients, which helps ensure the home is not overpriced when it lists in the MLS…"

CRMLS argues that if Compass agents require such feedback to determine an appropriate list price, they may be failing NAR's competency test.

On disclosure requirements

For their next argument, Carter and Zorn turn to the section of California's Civil Code that specifies the duties of listing agents. The code states that a listing agent owes certain duties to both the buyer and seller, including "a duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties."

If a property's value is affected by its listing and pricing history — metrics Compass has referred to as negative insights — "shouldn't [buyers] have access to its complete marketing history, not just the portion that begins when it enters the MLS?" the letter asks.

While Compass' complaint references the same section of the Civil Code as it relates to an agent's duties to a seller, it "leaves out the rest of a seller's agent's affirmative duties under the same statute," the CRMLS leaders state. "Every Compass listing agent owes a legal duty directly to the buyer: a duty of honest and fair dealing and good faith, and a specific, affirmative duty to disclose all facts known to the agent that materially affect the value of the property and are not known or otherwise available to the buyer."

On price testing

Compass' complaint says its marketing strategy allows sellers to test their home's sale price, something the brokerage has repeatedly touted as an advantage. 

The filing goes on to state, "Moreover, this strategy helps agents and their clients gather feedback on price without the risk of their listings being permanently soiled by price cuts and extended 'days on market' that hurt the perceived value of the homes."

Carter and Zorn interpret this statement as an admission "that the primary purpose of keeping for-sale properties out of CRMLS, and off the websites that track days on market and price changes, is to hide this information from the buyer, along with its supposed negative effect on value."

If price cuts and extended days on market do, in fact, permanently affect a home's value, they go on to argue, those are material facts a listing agent must disclose to a buyer and their agent per state law. 

The authors also point to Compass internal data indicating that listings marketed via the firm's 3-phased strategy sold for 4.6% more than similar homes that immediately went on the MLS, but they argue that "hiding listings from the MLS looks less like a marketing technique and more like a calculation of how to misinform buyers so they overpay because important information about the property has been purposefully hidden from them."

Factual inaccuracies

The letter concludes with a refutation of what the authors consider to be "significant factual inaccuracies" in the Compass complaint.

They dispute the allegation that CRMLS monetizes Compass listings but doesn't compensate listing brokerages, noting that the MLS has clear licensing rules around revenue, and that it has sent numerous letters to Compass brokers with instructions on how to collect that revenue. 

Carter and Zorn also say the complaint mentions only two options for public marketing under MLS rules and "intentionally leaves out two additional options that exist under the CRMLS cooperation rules" — its "Internet: No" status, introduced in July as another option for coming-soon listings, and its provision that agents can publicly market a home with no restrictions as long as they have a non-exclusive agreement with the seller. 

The authors also take on Compass' assertion that no other industries require sellers to disclose price changes or the length of time a product has been listed for sale. They point to the automobile marketplace Edmunds.com, which tracks and displays both metrics, and Amazon.com, which allows users to see an item's price history. 

In response to the CRMLS letter, a spokesperson for Compass reiterated the statement made by Compass International Holding CEO Robert Reffkin when the brokerage filed its lawsuit against the MLS earlier this month: "Only the law and the homeowner should tell agents how to market a home, and CRMLS is neither the law nor the homeowner."