Goodbye Zillow surfing? How megamergers in the real-estate industry could impact home buyers.

By Aarthi Swaminathan

'There are so many people shooting daggers at one another,' one brokerage's CEO says

The residential real-estate industry is seeing greater consolidation.

Three years of abysmal home sales have made the residential real-estate industry hungry and territorial.

Real-estate agents are fighting over who gets control of home listings, while mortgage giants and real-estate brokerages are eating up smaller competitors and acquiring adjacent businesses during a period of stagnation. Big-name companies including Redfin, Rocket Companies (RKT) (RKT) and Compass (COMP) have been jockeying for dominance.

"There's a lot of noise going on," Michael Valdes, chief executive of real-estate brokerage LPT Realty, told MarketWatch. "There are so many people shooting daggers at one another."

Smaller real-estate businesses are not seeing strong growth due to a lack of home-buying demand, making them attractive targets for bigger companies looking to grow larger and gain influence.

All that could be both good news and bad news for home buyers and sellers in America. Consolidation could make the housing market less transparent, experts told MarketWatch, and lead to higher costs for buyers and sellers - even as it makes the process of buying a home easier.

Here's what anyone buying or selling a home should expect from the big moves in the residential real-estate industry right now - and why they should pay close attention.

More convenient home closings - and higher prices

Earlier this year, Rocket Companies, the country's largest mortgage lender, entered into agreements to purchase real-estate brokerage Redfin, for $1.75 billion, as well as mortgage servicer Mr. Cooper, for $14.2 billion. Both acquisitions have since been completed.

Rocket's acquisitions of a brokerage and a mortgage servicer were intended to create a one-stop shop that would streamline the home-buying and selling process for consumers.

"We want a customer to be able to check her phone to find out what she can afford, see which homes are just right for her, schedule a tour with a local expert Redfin agent and get prequalified for a loan, all in a matter of minutes," Glenn Kelman, the CEO of Redfin, said when the companies announced the deal.

But that convenience, however useful it is, could come at a cost, as MarketWatch has previously reported. For instance, buyers may be less inclined to comparison shop for the best mortgage rate because the lender and real-estate broker are working together in the same place.

Citing concerns about the merger's impact on consumers, a group of U.S. senators in June asked federal antitrust enforcement agencies to look into blocking the Rocket-Redfin deal. The Federal Trade Commission did not oppose the acquisition.

The senators' main concerns revolved around whether Rocket would use its influence to steer Redfin users toward Rocket real-estate agents, directing business away from independent agents and brokerage firms. The deal could also allow Rocket to steer Redfin users toward Rocket mortgages and make them less likely to shop around for the best loan, potentially costing home buyers thousands of dollars long term, they wrote.

"These deals would combine the second-largest mortgage originator, the largest mortgage servicer, and the third-most-visited real-estate brokerage website in the United States, into a massive, vertically integrated conglomerate that may reduce choice and raise prices for American families in the housing market," wrote the senators, which included Democrats Cory Booker of New Jersey and Elizabeth Warren of Massachusetts, and Bernie Sanders of Vermont, an independent who caucuses with Democrats.

But if the companies' new platform - called Redfin Powered by Rocket - can offer a more convenient experience, people may be willing to live with higher costs, Tomasz Piskorski, a finance professor at Columbia University, told MarketWatch. "People will be willing to pay a bit more for a convenient experience," he said.

Mergers aimed at improving the process of buying real estate are "generally going to benefit consumers," Piskorski said. But "some of these benefits won't be [in the form of] reduced fees, [but rather a] much better experience on a platform."

Rocket told MarketWatch that the acquisition will create cost savings by cutting out middlemen involved in real-estate transactions who drive up the cost of housing.

"Clients must contend with annoying handoffs, mindless repeated data, zero transparency, and it's expensive as heck," Rocket CEO Varun Krishna said on an investor call on March 31.

"All these middlemen extract roughly 10 percent of a home's price in fees," he added. "Just think about that - that's $40,000 on a $400,000 home."

More secret listings, less Zillow surfing

In September, brokerage giant Compass announced it was buying rival firm Anywhere Real Estate for $1.6 billion.

The Compass move was aimed at expanding the brokerage's footprint and increasing the number of agents under its umbrella. The new entity would become the biggest brokerage in America, with around 340,000 real-estate professionals under one giant network.

Compass and Anywhere are the top two real-estate companies in all of the U.S. based on sales volume, followed by eXp Realty and the Warren Buffett-owned HomeServices of America (BRK.A) (BRK.B), according to RealTrends.

The consolidation of Compass and Anywhere is "concerning," Brian Shearer, a former Consumer Financial Protection Bureau official, told MarketWatch. Shearer is the director of competition and regulatory policy at the Vanderbilt Policy Accelerator.

"There's no real legitimate reason to have more and more agents under one brokerage umbrella," he explained, "other than the idea that you're kind of building a network of agents that refer business to each other."

In addition, "there's no reason why the agent market works better if they're all under one roof," Shearer noted, "because they're supposed to be acting independently on behalf of their clients, and so I think that's the most concerning to me."

The consolidation of more brokers under Compass' roof could come at a cost to buyers and sellers.

Compass has been one of the biggest proponents of using private, off-market listings - meaning for-sale listings that are only shown to a select group of buyers. Having more agents at its disposal could increase the number of for-sale listings that never appear on popular real-estate portals.

In other words, buyers would increasingly need to hire - and pay - a real-estate agent to show them available properties, rather than find homes themselves online.

These private listings - referred to as pocket listings or off-market listings - refer to homes that are for sale but not marketed on a multiple listing service, the national network of databases traditionally used by real-estate agents, and therefore are not syndicated to widely used platforms like Redfin and Zillow (Z) (ZG).

Keeping listings private can mean buyers don't see certain for-sale listings, while sellers could get fewer eyeballs - and offers - on their homes. (Read more about the fight over pocket listings in this previous story by MarketWatch.)

For that reason, Compass' acquisition of Anywhere Real Estate "does not bode well for consumers," Stephen Brobeck, a senior fellow at the Consumer Policy Center, told MarketWatch.

"The new company is in a position where they can exert undue influence over the residential real-estate marketplace that will probably include pushing private listings," Brobeck said. "The only question is how intense will that pressure be from Compass on all the agents, keeping in mind that Compass essentially controls the new company."

In response to MarketWatch, Compass said that private listings offer sellers a choice. The strategy "helps price strategically, attract serious buyers and avoid costly price cuts by premarketing a home for sale," the spokesperson said.

To be sure, prior to being acquired, Anywhere's CEO said on the company's first-quarter earnings call that they wanted buyers to see all inventory and for sellers to get the most eyeballs on their listing, so that they could get the highest price for their home.

More European-style fiefdoms, less American transparency

One possible - but remote - outcome of this flurry of mergers and acquisitions is that the U.S. real-estate market could start to look more like foreign markets - becoming less transparent in the process.

If the U.S. market were to be dominated by private listings, home buyers and sellers would face a very challenging market, similar to what people in Europe face at the moment, said Valdes of LPT Realty. He has been in the industry for two decades, and was previously at eXp Realty and Sotheby's.

Outside the U.S., finding a house to buy is a more involved process because there are fewer centralized databases where for-sale listings can be viewed by a wide audience. Instead, home buyers rely more on individual agents and the listings that they each control.

While there are some real-estate portals, listings in the U.K. are not consolidated into one easy-to-access database such as the multiple listing service used in North America, Valdes noted.

"If you were looking for a property in London, you have to go to every estate agency there to really have a good shot of understanding what's out of the marketplace," he said.

But such a reality is still far off in the U.S., despite the recent attention to pocket listings, Valdes added.

-Aarthi Swaminathan

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