The traditional way of selling homes has been picked apart for years now, and the players of the future are emerging. It’s shaping up to be a competition between full-service brokerages vs. Redfin vs. ibuyers.
This article describes the power play, and features Compass as Case Study #1:
Compass has traded capital for rapid growth, raising a reported $1.2 billion and a valuation of $4.4 billion. With these resources at its disposal and not shy about losing money for the moment, Compass has been catalyzing growth by offering significant sign-on bonuses, investing deeply in technology, and doubling down on M&A.
Many observers have a hard time understanding how any brokerage can invest so aggressively, often complaining that “it’s not sustainable” – “it makes no sense” – “it’s not a profitable way to do business”.
It does make sense, however, if you consider the superpowers that a company gains by reaching the tipping point first and thus becoming a single, dominant company that can 1) grow by making the market and 2) differentiate and dominate through data.
For Compass, San Francisco is ground zero for this strategy, where the firm has about 36% of the market. Compass has expanded its local footprint quickly through acquisition, the latest being the March acquisition of Alain Pinel with its1,300 agents and $12.2 billion in 2017 sales volume—the third such acquisition in 8 months. According to Compass, the company is not only the biggest brokerage in the Bay Area, “it is now the largest residential brokerage in the country by sales volume, growing from $15 billion to more than $35 billion between January 2018 and January 2019.”
Compass has realized that market share makes their brokering power bigger. With more listings and more buyers, they can bolster your exclusive “coming soon,” “off-market,” and “in-house” transactions that the competition can’t match, creating a “FOMO” (“fear of missing out”) effect in both customers and agents.
If you’re a consumer or an agent looking at the screen below from compass.com, which shows Compass’ exclusive off-market and coming soon listings, how could you not work with Compass?
These tactics fuel the incentives for buyers to work with Compass because Compass has the exclusive listings. And that means sellers have to work with Compass because they have all the active buyers working with their brokerage. And finally, agents will have to work with Compass because that’s where the action is. Boosting agent recruitment then brings in more listings and buyers, fueling that superpower growth loop.
If you want access to the market, you now have to go to the company who has the greatest ability to make the market, and that, in San Francisco, is clearly Compass.
Compass is working off this specific strategy:
- Hire the top listing agents in each market area.
- Create a search portal that rivals Zillow and Redfin.
- Offer Compass Concierge to get homes in top condition prior to selling.
- Offer exclusive listings on compass.com for days/weeks in advance of MLS input.
- Use strategy to attract buyers & sellers, and recruit more listing agents.
The not-so-obvious critical step is the creation of a national search portal that intends to be the dominant real estate website in America. The current version has a ways to go before deserving that attention, but after another year or two of development it could be worthy.
Notorious Rob explores Andrew’s article further here:
Wow. There’s a lot to digest here but it’s great to get an insiders perspective going through the transition from independent agent to direct labor for Compass (maybe I don’t have this quite right yet but that’s my feeling at the moment).
Honestly, in the long run, although “consumers and agents might have no choice but to use Compass,” this does not necessarily bode well for consumers (sellers or buyers even!) or real estate agents. Although I am sympathetic to agents that are going through this change.
I really don’t see a great free market efficiency where all relevant parties have complete information, thus allowing buyer’s and sellers to clear the market at the appropriate price. You mention it’s a race to implement barriers to entry to inventory and information! That is not good economics.
I see what is the natural course of self interested entrepreneurs (not saying that in a negative way because everyone is self interested), but to figure out exactly what is happening here, beginning with the end in mind.
They want to control sellers, buyers, direct labor involved in the transaction process, and inventory.
Was the MLS that corrupt and or outdated so that this creative destruction is good for the real estate market?
direct labor for Compass
Nice shot, but let’s be clear – I only work for my wife. 🙂
The scramble is on to fill the void left by the lack of leadership for decades – it’s been a free-for-all.
But now that outsiders are seizing the moment, the traditional agents need to join the right team to survive what the future will bring.
The ibuyers could control the market, but how would anyone (buyer or seller) know if the comps are real if they were all done by ibuyers?
Today’s WSJ article on ibuyers in Phoenix, the ground-zero for the movement:
Was the MLS that corrupt and or outdated so that this creative destruction is good for the real estate market?
The MLS was an ingenious device and would and could still be the best solution for consumers and agents today.
But there is no leadership.
Without somebody insisting that every listing gets inputted onto the MLS system, it doesn’t work. It’s now the MLS is the market of last resort.
The players’ stances:
CAR Attorney: It’s a local issue, we’re not touching it.
NAR: No comment
MLS Companies: We aren’t in the enforcement business. If an agent wants to file a complaint, they are directed to the local association of realtors and told they have to gather the evidence themselves and present the case in front of a kangaroo court of 3 volunteer realtors who act as judge and jury.
Brokerages: Anything goes.
Over the years it has morphed from occasional off-market sales into full-blown marketing strategies.
With outsiders intent on busting up the cartel, it’s too late now to try and go back and fix it.
Instead, the off-market strategies are seen as the way to beat Zillow and Redfin. Why do you think they are both doing the pivot to ibuying? It’s their counter-punch.
For decades the real estate selling business was a proud cooperative where we all got along willingly – and it was to everyone’s benefit.
Now it’s kill or be killed.
While I admit I am sensitized to the Compass footprint, I m surprised at the increase in local listings here in Ventura County. It also seems you have a lot of Santa Barbara participants.
Sure, the current execution is unsustainable. That’s part of a plan towards profitability. Nothing wrong with that. I’m comfortable with the path Compass has chosen to navigate the roiling waters coming.
I’m comfortable with the path Compass has chosen to navigate the roiling waters coming.
Me too. We are taking the high road and offering a turbocharged full-service option for consumers.
With both the ibuyers and realtor industry both telling consumers they don’t need the hassle of selling on the open market, the old traditional way of selling will go away, regardless.
At least the Compass way is to deliver full representation, which should emulate an open-market top-dollar sale, while with others it’s doubtful.
Instead of trying to go back and fix the existing MLS system (which would be impossible at this point), the Compass way might be able to start everything over – and do it right.
1. The boss is adamant about having the actual listing agent displayed prominently on every home-for-sale on compass.com, whether it’s a Compass listing or not.
2. We are in the major markets, which could lead to a national MLS.
3. We make the rules. Just having rules would help – the current MLS is lawless, really.
Plus we have the money to push it hard for years (or until the IPO).
Jim the Realtor knows I’ve made a meta-comment about four or five times in the last fifteen years.
“No matter where you fall or where you are in the RE world… No matter how successful you have been in the past… no matter anything else….
We are already talking about the MLS in the past tense.
No denying it. No going back.
Let’s focus on going forward.
Another thing you said was that all previous assumptions don’t apply.
Just because we’ve always had the MLS doesn’t mean it will last.
Within the Compass network we hear more and more stories about how great the coming soon program is working. This week an agent in Beverly Hills shared his success story on how he posted an expensive new listing as a Coming Soon, and had four showings – three by outside agents (outsiders are watching compass.com for inventory to show) and an unrepresented buyer. The unrepresented buyer loved it, paid cash, and closed in 10 days. Agent got both sides of the commission, and everyone is happy.
Just like everything else in realtorland, as more of these stories get around, the more off-market deals will happen – and be treated as normal business.
We’ve come out of the short-sale era (where banks were getting ripped off left and right), and nobody cared about those, so these seem legit, relatively, and just a natural evolution.
This just came over – are they reading this blog?? 🙂
C.A.R. is conducting research on real estate professionals and their experience with their MLS and MLS-related issues and would like to ask for your input. The purpose of the study is to get a better understanding of REALTORS®, the challenges that they face, and the help/services that they need. With the results from the survey, we hope to highlight areas of opportunities and growth in the industry for members, and at the same time help us better serve the REALTORS® community.
We greatly appreciate your participation and hope you can take about 15 minutes of your time to respond to this very important study. Your individual response and identity will be kept anonymous.
Follow this link to the Survey:
Senior Vice President and Chief Economist
CALIFORNIA ASSOCIATION OF REALTORS®
525 South Virgil Avenue
Los Angeles, CA 90020
Blast from the past, or more like ancient history:
“The best thing you as a real estate professional can do in this market is to encourage sellers who are not serious about selling their homes not to list. Don’t take a listing from someone on a hope,” Leslie Appleton-Young told a group of Inland mortgage brokers and agents in Rancho Cucamonga.
Just in from the network:
Compass Concierge offers a somewhat similar service to instant offer/i-buyer style programs…..only when seller clients use Compass Concierge, THEY are the beneficiaries and pocket all the profits.
Some sellers do not have the capital to pay for the staging, fixes, small renovation work and painting that is essential these days in commanding the best and highest price the market will bear. Some don’t want to liquidate certain investments to fund these costs. Along come the ‘INSTANT GRATIFIERS’ of the world and offer sellers an instant way out to sell with no additional capital. “We’ll give you cash NOW!” That is appealing for sure. Just like the vultures who offer agents a commission payout before something closes, naturally, there is a fee. Often that fee is large and most times its not worth it. unless you are truly desperate. The fees are high. But worse, the profit that this seller could make for themselves is being gifted to a third party. Compass-provided interest-free loans to pay for the improvements someone else will do at your expense seems the perfect alternative. It may take a bit more time, but more than likely the seller will net more.
Here is ANOTHER Compass Concierge Success Story from Joe Ryan of the Ryan & Ryan Team in Brooklyn, NY:
“We were hired to rep a Park Slope co-op listing after an off-market deal had fallen apart. The sellers wanted the guidance, marketing and expertise of experienced brokers. They knew they had to freshen up the apartment before coming to market and sought our advice. We guided them on which renovations to undertake, helped identify great contractors, executed the changes, and hired an awesome stager. Compass Concierge allowed us to front ALL of the costs for these renovations with no hidden fees and 0% interest, to be paid back at closing.
We just closed on this apartment for $312,000 MORE than their off-market deal that died. After broker fees, and repaying Compass for the renovation costs, our sellers realized a profit 26% higher than what their off-market deal would have closed for. Just another reminder that working with the best agents at the best company – with services that truly add value – has its perks.”
We as agents of Compass with this spectacular tool at our disposal need to message its advantages to the consumer and our sphere of influence repeatedly. It is win-win marketing MAGIC….and why? Because ultimately it benefits the consumer. When the consumer benefits, we all benefit!