Compass, Redfin... how do you adjust?

Question

Hello all,

I've been noticing a big trend on being a "tech-enabled real estate brokerage" and big companies like Redfin and Compass are capitalizing on that notion. There are also companies that will buy/sell homes for 1% commission fee completely removing the realtor.

Having worked with multiple brokers as a property manager and seeing the back-office I would say 9/10 are extremely outdated.

With that being said what new software/automation tools have you adopted to stay ahead of the curve and reduce overhead? The new wave of buyers(Millenials) don't want to be cold-called or bogged down with traditional postcards. They expect everything to be seamless, paperless, convenient and aesthetically pleasing to the eye.

Russell Brazil · Answer

Redfin loses $3,000 per transaction. Compass had the growth it does almost strictly from buying market share through buying teams and high volume agents, and brokerages.

Neither business model is sustainable in the long term. Realistically it is these 2 companies that need to make adjustments if they want to survive. As is typical, half of non profitable brokerages go bankrupt each recession, and Id expect at least one of the bigger name money losing brokerages to go belly up in the next down cycle.

Gregory H. · Answer

I've seen a bit of Compass start to pop up in the Philly market, can't say I've interacted with them at all. They only have 40 out of 4,500 listings in the City of Philadelphia, a chunk of those are high end, but that is only because they lured one high end broker from another traditional brokerage, and I'm sure she's getting a great deal.

My experience with Redfin isn't great. I love using their website, but I'm not terribly impressed with their brokerage. Given that they market themselves on saving the sellers money, they tend to attract a certain type of cheaper DIY seller who's properties have a decent amount of deferred maintenance. Also, their listing agents don't seem to be as invested in the transaction as a traditional agent who lives or dies by their commissions. The agents tend to be slower to respond, if they respond at all, their properties sit longer, sell for less. They also make things more complicated for the agent on the other side with smaller things, like their brokerage refuses to hold deposit funds unlike every other brokerage with which I've interacted. Also ... they aren't very prominent, in the City of Philadelphia, they have about 20 residential listings currently ... out of 4,500 total.

Eva Croasdale · Answer

I recently moved over to Compass in the Seattle/Bellevue market and I give it two thumbs up.  One of the main selling points for me was their Compass Concierge program.  Basically, Compass fronts the cost of home repairs prior to listing, so Sellers don't have to use their own cash, get a bridge loan or a HELOC.  They charge zero interest which is bonkers to me, especially in the world of hard money loan interest rates.  Offering this value-proposition has been pretty amazing.

Gregory H. · Answer

@Richard Ibeh I'm not sure how well that is going to work, this is a sales business & moving from commission to base salary is why I feel Redfin has been struggling to make big headway into markets, down 20% since they IPO'd. They're trying to do lower commissions, salaries & make up for it in volume, but it doesn't seem to be going particularly well.

Compass can recruit as heavily as it wants, but the top agents that produce most of the commissions are still going to go with whatever brokerage gives them the best deal, meaning Compass is going to need to retain the hefty commission model or its top producers that it lured will just jump ship again, most top agents I've seen have flipped brokerages half a dozen times or more, they keep a generic gmail account for all business so they don't have to deal with the hassle of switching email accounts when they flip brokers. Also, Compass is specifically going after the luxury market, which they may be able to make some headway in given the margins especially with the younger moneyed class that wants to be lured with tech & branding. Additionally, $800M isn't terribly much funding to go against the traditional brokerages like BHHS backed by Berkshire Hathaway or KW with 200K agents.

I work at a KW office that didn't even exist 10 years ago and now has 400+ agents, manages 100+ hi-rises & has arms in development, flipping, mgmt, turnkey, finance, title, etc ... so our "traditional brokerage" seems to be doing just fine. Also, my clients never touch paper unless they want to, everything is done digitally.

20 years, haha, just about every industry in existence could functionally disappear in the next 20 years with technological innovation.

Richard Ibeh · Answer

@Gregory Hiban yes, Compass is really huge in New York and now they are heavily recruiting nationwide thanks to their 800 million funding.

There’s going to be a big shift soon as many angel investors are moving into the real estate space (even the founder of Uber) as they notice how outdated the entire industry.

Some boutique modern brokers are removing Commission Only and moving to base salary, bonuses with 401k and PTO.

Going to be a sink or swim for many legacy companies in the next 20 years.

Compass, Redfin... how do you adjust?

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