Fair markets are rooted in transparency and cooperation, writes Beth Friedman, CEO of Brown Harris Stevens. Private listings were created to suppress access and keep people out.
If you’ve never heard of the term “dark pool,” you’re not alone. If you’ve never worked on Wall Street or don’t have a background in financial literacy, it’s not a word you care about much in your daily life.
But homebuyers and sellers need to understand what dark pools are and what they mean. That’s because dark pools are emerging in the housing market in the form of private listing networks, and some of the industry’s biggest brokerages are betting on dark pools to control transaction flow and information.
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Dark pools refer to private trading venues used by large institutions to buy and sell securities, separate from public exchanges such as the New York Stock Exchange. Trading takes place away from public view, price information is not readily available, and access to what is happening is highly controlled by participants.
Although dark pools are somewhat regulated, they remain controversial due to lack of transparency, market fragmentation, and lack of true price discovery. Sound familiar yet?
Private listing networks work in much the same way. This is because intermediaries implementing it can encourage sellers to leave the open market, list within a controlled audience, and “test” the market without revealing information such as days on market or price declines. The intermediary can also decide who sees the inventory.
Information sharing and information control
The real estate industry has long depended on collaboration and transparent markets, but it is now fragmenting between brokers who believe information should be shared and those who believe it should be managed openly.
Recent moves by MRED and Compass to launch a national private list network are only counterproductive to broader sharing of information. While the ability to sell a home off the MLS and out of the public eye has always been an option and continues to work well for those who truly need it, it cannot be overstated that it is not for everyone.
This narrative that the PLN can and should serve everyone is a travesty. This is a dark pool that allows brokerages to double-end more trades and lock out non-participants. While this is very effective for collusive brokering, it does not give maximum exposure to sellers or give buyers a true picture of available inventory. It prevents true price discovery.
As fiduciaries, agents must exercise extreme caution regarding private listing network dark pools. Agents must work in the best interests of their clients. Ask the seller to sign a waiver, recognizing that your proposed PLN option may limit competition and the exposure will not exactly match your fiduciary duties. At least it looks bad.
Shouting that there shouldn’t be a day on the market or a day when the price drops for public consumption makes for an awkward conversation when you have to turn around and represent a buyer who wants to know that information.
Impact on fair housing
Perhaps most important is the issue of fair housing. Darkpool’s private listing network allows sellers to agree to test their home with a controlled audience, but what happens when that seller turns around and says, “Okay, let me manage who will actually buy my home.”
Bad actors will take advantage of this lack of transparency, and you will face major legal and ethical dilemmas. We should not advocate a system that excludes people.
Steve Jobs once said, “Start with customer experience and work your way back to technology,” but some large brokerage firms now seem to be forgetting customer experience in favor of their own issues.
A broker is a responsible business that puts buyers and sellers first. Consumers don’t have to play hopscotch on the Internet to find the latest inventory, and agents don’t want to be detectives either.
That’s why the industry fought so hard to create a fair market structure rooted in transparency and cooperation for all. Dark pools of inventory were created to keep people out, but systems designed to suppress access are easily broken.
