Compass’ answer to the affordability crisis is to make homes feel more upscale, rarer and more urgent, because that’s how brokers extract premiums, writes Misha Fisher, chief economist at Zillow Group.
Greg Haig, Director of Home Sales Strategy at Compass, published an article in Inman last week arguing that homes should be marketed like Ferraris, using exclusivity, scarcity and urgency to make buyers feel like they’re competing for something rare.
He wrote this at the height of the worst house price crisis in a generation, when he happened to make the best case for private property.
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Ferrari’s sales pitch sounds clever until you remember that a house is not a luxury car. A home is a necessity, not a luxury, and is the biggest purchase most Americans will ever make.
Private listings take away that purchase and strip away two things that protect buyers and sellers: free competition and price transparency. This allows intermediaries to steer both buyers and sellers toward deals that pay the most commission.
Intermediaries intentionally create scarcity, and those who can least afford it end up paying for it.
What Ferrari’s strategy actually does
Ferraris are rare because they make very few cars and their technology is so expensive that very few people can buy them. It’s true scarcity, built into the underlying economics of the product itself, and priced accordingly.
This editorial borrows from Ferrari’s prestige, but describes something crucially different: creating a sense of scarcity by hiding homes from buyers competing for them. The house exists, the buyer exists, and the market exists. What Compass is selling is the wall between the two.
George Akerlof won the Nobel Prize in Economics for establishing what happens when markets suffer from information asymmetry. When one party to a transaction has more information than the other, the outcome systematically favors the informed party and causes the underinformed party to pay more than necessary.
Private listing networks are asymmetric machines of information. It’s designed to keep buyers in the dark about what else is available, how long the home has been sitting, and how its price history has changed. The urgency and premium of extraction that the editorial touts comes directly from buyers who have been kept in the dark. Exploitation disguised as marketing does not create value for sellers.
And Akeroff’s theory points to collateral damage. When buyers find themselves lacking information, they end up pricing in more risk. Sellers of the best homes receive lower payments, but buyers of weaker homes still receive overpayments, and only the broker benefits.
The data supports this. Homes sold on the open market consistently sell for lower prices than comparable homes sold through wide exposure. If private listings guaranteed sellers a premium for Ferraris, there would be a body of research to show that, but there isn’t.
Buyers don’t get a break in return either. They see fewer houses and less information about each one. The only party who is guaranteed to make a profit in a private sale of a home is the agent, who collects commissions from both parties.
What’s missing from the Ferrari debate?
The Compass editorial treats broad market exposure as a liability, one that makes housing look obsolete and undifferentiated. But what the editorial calls “obsolescence” is actually price discovery, the process by which the value of something is established through genuine competition.
Markets with more participants and more information produce fairer prices. In markets where access and insider information are limited, prices reflect not how much a home is worth, but whose connections it has.
Economists have understood this for the better part of a century. That’s why every state has consumer protection laws built on the premise that buyers have a right to accurate information. It’s the same reason it’s illegal to put the odometer back on a car before selling it. The entire architecture of a market economy assumes that people can make real decisions based on real information. Privately listed networks deliberately attack that premise.
everyone should be angry
For first-time buyers, we have pricing from markets across the country. For people without family wealth or insider connections, the gap between renting and owning is wider than ever. And Compass’s answer is to make homes feel more exclusive, more rare, and more urgent. Because that’s how intermediaries extract premiums.
Meanwhile, sellers are being steered into private listings by the same agents who double their commissions if they agree.
So if Compass wants you to think of a house like a Ferrari, that’s fine. Remember who is driving and who gets hit.
Mischa Fisher is chief economist at Zillow Group. Connect with us on LinkedIn.
