According to a new report by Redfin economists, markets where pre-marketing strategies are possible can increase the number of listings by 6% to 12% each year.
When Compass and Rocket announced a new partnership to display their private and upcoming listings on Redfin, the companies were quick to say the partnership would increase inventory for sale in markets across the country.
This left me with two questions. How can partnerships help increase inventory, and by how much?
Just over two weeks after the announcement, Redfin economists shared a report with Inman showing that the portal believes there could be an estimated 6% to 12% increase in inventory for sale in markets where presales are allowed.
“All we’re thinking about is how many more listings we could do within a year or every year if we could reduce some of the risk of mispricing for sellers or give them some more privacy,” Asad Khan, senior economist at Redfin, said in an interview.
The partnership will ensure that Compass Coming Soon listings are prominently displayed on Redfin before being widely distributed through multiple listing services. Upcoming listings of other brokerages, including Redfin, are also actively displayed on the portal.
Industry observers generally understand that the partnership represents a meaningful change in the ongoing battle between Compass and Zillow over the portal’s move towards listings that are not distributed through the MLS and are available on Zillow itself.
The partnership was also seen as a way to circumvent MLSs, which have various rules and regulations governing how long a listing can be listed without being distributed to all market participants.
Against this backdrop, the new Redfin report is a signal from the company’s economists that non-MLS marketing strategies could help sell more homes after years of declining inventory.
What does the report say?
Economists built their model with the basic assumption that many homeowners would consider selling their homes and moving in the not-too-distant future if they knew they could price test the housing market.
The perceived high costs and uncertainty associated with listing a home are enough to deter some owners from selling or moving, according to Redfin.
“So you can say, ‘Well, what kind of response would you get if a last-minute homeowner chooses to list now versus later?'” Khan says. “So we’re getting that estimate from a variety of sources. But once we get that estimate, we can say, ‘OK, these new additional listings are coming to market.’
Redfin economists wrote that markets that allow pre-marketing of listings without widespread MLS distribution could see a 6% to 12% increase in annual listings due to improved pricing accuracy and increased privacy and convenience.
Economists say the overall inventory shortage is the result of a combination of factors, from interest rates for homeowners that are well below today’s standards to worsening inventory shortages that prevent prospective sellers from buying or moving.
Economists evaluate pre-marketing strategies as follows: “We estimate these benefits to be worth between 1.2 and 2.4.” [percent] “It is part of the sale price of a home to a seller,” the economists wrote in the report.
Economists also said freeing up timid sellers to test sales would have a multiplier effect on the market.
“When you bring in this much new inventory by reducing the barriers to listing and selling homes, there’s going to be a knock-on effect as well,” Kahn said. “New sellers come on the market, they sell their homes, and then the buyers who bought those homes are more likely to put their homes up for sale.”
“We conservatively estimated it at 1.6x,” Khan added. “Every time you see a new listing, you unlock 0.6 more, right? Or every 100 listings you see, you unlock 60 more.”
Khan continued that interest, uptake and availability are likely to vary by market, meaning the impact on inventories will also vary. The volatility of the housing market and the complexity of pricing the homes themselves will also influence the actual impact.
Khan said Redfin’s economists were conservative in their methodology and assumptions in the report.
Meanwhile, Compass Coming Soon listings are widely visible on market portals that allow it, along with upcoming listings from Redfin agencies and other brokerages.
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