If you’ve never heard the term “dark pool,” you are not alone. If you’ve never worked on Wall Street, or you don’t have a background in financial literacy, it’s not a phrase you’d care much about in your day-to-day life.
But homebuyers and sellers should become well-versed in what they are, and what they mean, because dark pools have come to the housing market in the form of private listing networks — and some of the biggest brokerages in the business are betting on them to control deal flow and information.
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Dark pools refer to private trading venues used by large institutions to buy and sell securities away from public exchanges like the New York Stock Exchange. Trades happen away from public view, pricing information is not immediately available, and access to what’s happening is highly controlled by the participants.
While dark pools are somewhat regulated, they are controversial because they don’t allow for transparency, fragment the market and don’t allow for true price discovery. Sound familiar yet?
Private listing networks operate in much the same way because brokerages that implement them can encourage sellers to list away from the public market, within their controlled audience, to “test” the market without revealing information like days on market or price drops, and it’s the brokerages who can determine who sees the inventory.
Information sharing vs. information control
The real estate industry, which has long relied on collaboration and a transparent marketplace, is now being splintered into brokerages that believe information should be shared and those that believe it should be unapologetically controlled.
The recent move by MRED and Compass to launch a national private listing network is only working against the broad sharing of information. I cannot stress enough that the ability to sell a home off the MLS and away from the public eye has always been an option, and it continues to work well for those who truly require it, but it’s not for everyone.
This narrative that PLNs can and should serve everyone is a farce; it’s a Dark Pool that enables brokerages to double-end more deals and keep non-participants out. It serves complicit brokerages very well, but it does not allow for maximum exposure for sellers nor a true picture of available inventory for buyers. It impedes true price discovery.
As fiduciaries, agents need to be very careful when it comes to the dark pools of private listing networks. Agents are supposed to work in the best interest of their clients; asking sellers to sign a waiver acknowledging that the PLN option you’ve proposed may limit competition and exposure does not exactly coincide with fiduciary responsibility; at the very least, it’s a bad look.
Exclaiming that days on market and price drops should not be for public consumption makes for an awkward conversation when you have to turn around and represent buyers who want to know that information.
The impact on fair housing
Perhaps most importantly is the issue of fair housing. Dark pool private listing networks can allow for a seller to agree to test their home within the limits of the controlled audience, but what happens if that seller turns around and says, “Now, let’s control who actually buys my home.”
Bad actors will take advantage of the lack of transparency, and then we will have major legal and ethical dilemmas. We should not be advocating for a system that excludes people, period.
Steve Jobs once said, “Start with the customer experience and work backwards to the technology,” but it seems some big brokerages are now forgetting the customer experience in favor of their agenda.
Brokerages are businesses with a responsibility to put their buyers and sellers first. Consumers do not want to have to play hopscotch all over the internet to find the latest inventory, nor do agents want to be detectives.
This is why the industry fought so hard to create a fair market structure rooted in transparency and collaboration for all. Dark pools of listing inventory were created to keep people out, but a system designed to stifle access is easily corruptible.
Bess Freedman is the CEO of Brown Harris Stevens in New York City.
