Access to for-sale listings has become a point of contention between real-estate giants Compass and Zillow

One brokerage giant's battle against a real-estate portal is dividing the real-estate industry.

The real-estate industry is in the midst of a war over who controls for-sale listings, and home buyers and sellers could get hurt.

Last week, two New York City renters filed a class-action lawsuit against real-estate brokerage giant Compass (COMP), alleging that its private-listing marketing tactics inflated rent prices in Manhattan.

The plaintiffs argued that Compass effectively withheld available rentals from the market and reduced supply.

The lawsuit is the latest shot fired in a battle over so-called private listings between Compass and Zillow (Z). The war between the two giants will also affect home buyers and sellers nationwide, experts warned, and could ultimately cost them.

What the fight is about

Private listings refer to information about for-sale homes that is traded between real-estate agents and their networks. These listings are not publicly available on the internet.

Private, or pocket, listings have always existed; it's a strategy typically used by home sellers who want more privacy. But in recent years, Compass scaled up its use of private listings as a strategy to keep properties within the brokerage.

That puts them at odds with Zillow, whose business model revolves around displaying for-sale and rental listings on the internet from the outset.

Putting a home up for sale privately, at least at first, offers sellers more power, Compass has argued. When a seller lists a home for sale privately, they can determine their asking price, test it out, and then cut it if necessary, without making every price adjustment public.

A Compass spokesperson also told MarketWatch that the company is not hiding listings, but it is opposed to Zillow's hold over the real-estate market. They added that buyers can find their listings on Compass's website, as well as on Redfin (RKT) - another real-estate portal and brokerage.

Plus, these listings aren't hidden away from the public forever, Compass said. Ninety-four percent of Compass's listings that start off as private eventually end up on the Multiple-Listing Service, according to Compass, and then, in theory, they end up on Zillow.

For that reason, "implying that these listings are hidden from the market" is "completely false," a Compass spokesperson said.

Why consumer advocates don't like private listings

Compass's move to take listings off the market and share them with select groups, even if only temporarily, is "not good for consumers," Sharon Cornelissen, director of housing at the Consumer Federation of America, told MarketWatch.

"No one benefits when real-estate listings are not public and you have to go through one website or one company" to learn about what's available to buy or rent, she said.

"This is a reversion back to the [time period] where the agent was the gatekeeper of all housing information," Jonathan Miller, co-founder of Miller Samuel, a real-estate appraisal company, told MarketWatch. Prior to the rise of online real-estate platforms like Zillow, it was mainly real-estate agents who had knowledge of which homes were up for sale.

Gatekeepers of home listings "stand to profit significantly" by keeping listings away from the general public, Nick Aufenkamp, a Vancouver, Wash.-based real-estate agent, told MarketWatch.

Under current real-estate practices, house hunters can see almost any U.S. home for sale within 24 hours of the property being publicly marketed for sale. That exposure is critical at a time when home-buying demand is low.

Across America, sellers in many markets are having a tough time getting offers as high mortgage rates and home prices remain a hurdle for buyers. Nearly four in 10 sellers are cutting prices to attract buyers, according to data from Parcl HQ.

Against this backdrop, Compass argues that sellers should be able to market their homes privately to a select pool of buyers first, instead of making them accessible to the public from the very beginning.

Zillow argues that making home listings public from the beginning leads to more views, and theoretically, better offers and higher prices for sellers. It also argues that keeping listings private could shut certain home buyers out of the housing market.

How private listings can affect home buyers and sellers

Fewer eyeballs could mean lower sale prices. Industry research suggests more online views of a for-sale listing lead to higher sale prices. One analysis of for-sale listings by the California Regional Multiple-Listing Service found that homes for sale marketed privately sold for $27,000 below list price on average.

MarketWatch also previously reported on research suggesting that private listings don't result in higher sales prices than public listings.

Home buyers and sellers don't get the full picture of their local market. Compass's private-listing strategy hides the number of days a home has been on the market. Sellers may benefit from this omission, but that will hurt prospective buyers, Miller said.

"Buyers and sellers take inputs from the market: What's the asking price, how long has it been on the market, what condition is it in, all those things. And that's how they decide what to offer for a home," he added.

Agents may not act in buyers' and sellers' best interest. Marketing home listings privately, even if only temporarily, could also set up a conflict of interest, Miller said.

When a listing is private, both the buyer's and seller's agents could be incentivized to work with each other within the same company to get a commission quickly, as opposed to finding the best deal for the client and their needs, he said.

"This is bad for the housing market," he said. "You're creating this perverse incentive that suddenly impacts all agents, because that's the system that they work with because they're reliant on a commission."

In such a scenario, "I cannot be sure that my agent has my best interests at heart," Cornelissen added.

Home values could get distorted. A lack of access to all listings could also affect home values down the line.

Without public access to all listings and information such as days on the market and price cuts, the market could get distorted, Miller said, because appraisers may have a harder time determining a home's value if they don't know what's for sale and at what price.

"The whole appraisal system starts to fall apart," Aufenkamp, the real-estate agent, said, "because appraisals are built on not just on the final purchase price... they're built on the complete story on any given property and its time on the market."

Data such as "days on market and price-drop history are extremely important for appraisers to figure out how the market is moving," he added.