Zillow just lost most of its Chicago listings. Is the rest of the country next?

On Wednesday morning, about two-thirds of Zillow’s Chicago home listings abruptly vanished. Zillow is in an ongoing dispute with a local MLS, or multiple listing service, named Midwest Real Estate Data (MRED). The two companies have been in an escalating conflict for about a year. Zillow has sued MRED in federal court, alleging antitrust violations. This week, MRED cut off Zillow’s access to its listings as the latest blow in that fight, although a federal judge has temporarily restored them. It took that step at the apparent urging of Compass International Holdings, the nation’s largest brokerage—which itself once tried to sue Zillow under antitrust law. Compass is actively partnering with other MLS providers around the United States, which means Zillow will likely lose listings in other parts of the country as well. This dispute comes down to how homes for sale are presented to buyers, and who controls that process. It’s the kind of battle that can break out when a startup uses technology to disrupt and dominate a well-established industry, and the biggest player in that industry attempts to squelch that disrupter. Selling homes through private networks Increasingly, large brokerages are using their own private listing networks to initially list homes for sale. Those networks are only available to those who work with a brokerage agent. Doing so gives the brokerage an exclusive on that listing. Perhaps most significant, it means the agent can probably keep the whole commission, rather than split it with a buyer’s agent. And if a home doesn’t sell immediately (which most don’t), the brokerage can then list it with an MLS, and thus Zillow. Until now. Zillow wants all homes listed in their local MLS—and thus on its site—as soon as they become available. It doesn’t want leftover homes listed exclusively on a private network for days or weeks before they appear on Zillow. Zillow, which owns Trulia, is the nation’s largest real estate portal, and it believed it had the clout to change brokerage practices. So in April, it created a new rule. If a home had been marketed on a private network more than one business day before appearing in the MLS, it would not appear on Zillow. Why is MRED fighting Zillow? But wait. This dispute should be between Zillow and the brokerages large enough to have their own private networks. Why is a multiple listing service involved? Wouldn’t MRED benefit from listing more homes, just as Zillow would? You might think so. But MRED has operated a private network of its own for years. Recently, it formed a partnership with Compass and opened its private network to any real estate brokerage that wanted to participate, inviting them to share their listings. The company told Real Estate News it would protect agents from reprisals by “third party portals.” That was a clear reference to Zillow and its new anti-private network rules. The new partnership gave MRED listings from around the country, not just the Midwest. In accordance with its new rules, Zillow began filtering out some of Compass’s homes on the MRED listing. MRED gave Zillow until Wednesday to reinstate those homes or lose access to its MLS altogether. Zillow didn’t, and MRED cut off its feed. On Friday, a federal judge issued a temporary restraining order that restored those listings to Zillow. It also restored the homes Zillow was blocking because of their earlier appearance in a private network. The two companies will fight it out in court, and in the meantime, Zillow will list all of MRED’s feed. Zillow may lose listings around the country Compass has already partnered with three other MLS companies around the country. None have cut off their feed to Zillow so far. But a Zillow representative told Inc. that the company fully expects them to follow MRED’s lead. Compass markets its private network to home sellers as part of a three-phase marketing strategy. Phase 1 is the private listing. Phase 2 is listing the home as “coming soon” on the Compass and Redfin websites without revealing its price. Phase 3 is a traditional listing in the local MLS. The first phase allows sellers to validate their pricing and fine-tune their staging and listing details, the company says. “This is about whether homeowners have a choice in how they market their homes, or whether Zillow can set a one-size-fits-all policy for the industry,” a Compass spokesperson said in a statement to Inc. “We commend MRED for enforcing policies that protect both consumer choice and the fiduciary obligations agents owe their clients. Buyers in Chicago should not be deprived of access to listings because a platform disagrees with how a homeowner chooses to market their property.” Two real estate giants battle for the soul of the industry Does this sounds like a fight between two real estate giants, each trying to exert their will on an entire industry? That’s exactly what it is. But when it comes to private listing networks, the business model Compass is defending, there are clear winners and losers. Among the winners: any brokerage large enough to be dominant in its marketplace, because having a large private network will pretty much give it a lock on that marketplace. It will also be able to “double-end” the transaction and keep the entire commission. Home sellers may also benefit from a phased model such as the one Compass proposes. Most sellers agonize over what price to ask. They may want to pre-test an asking price ahead of the official MLS listing. On the other hand, Zillow counter-cites research suggesting this phased approach confers no economic advantage to the seller and merely lengthens the selling process. Homebuyers are the biggest losers In markets where large brokerages have private networks, homebuyers’ only choice is to work with those brokerages or risk missing out on many available homes. In Chicago, Compass represents about a third of the homes for sale. If private networks continue to proliferate, buyers will need to work with more and more brokerages if they want to see all available homes. I’m old enough that when I bought my first home, the only way to know what was for sale was to visit a real estate agent and let them show me what they chose. Decades later, when my husband and I bought our last home, we scoured online real estate listings and drove around looking from the outside at every available house in our price range. We covered something like a 20-mile radius. If we’d tried to do this with an agent, we’d have driven that agent insane. But it’s how we discovered that a house that didn’t look great in its listing was actually exactly what we wanted. So count me as someone who wants all homes for sale to show up in one place. By the next time I need to buy or sell a house, I hope that’s true again. —Minda Zetlin This article originally appeared on Fast Company’s sister website, Inc.com. Inc. is the voice of the American entrepreneur. We inspire, inform, and document the most fascinating people in business: the risk-takers, the innovators, and the ultra-driven go-getters that represent the most dynamic force in the American economy.