This week, realty sage Stefan Swanepoel took some mystery out of the Redfin and Compass sensation with his study on which U.S. real estate firms are the biggest and the baddest.
These two upstarts are smoking. Redfin (12-plus years old) came in fourth and Compass (six years old) ranked ninth in the T3 tally of the biggest U.S. real estate brokerages. Redfin did $22.5 billion in sales volume with only 1,250 agents while Douglas Elliman at no. 3 did $26.12 billion with 7,136 agents. Compass did $14 billion with 2,043 agents. (Full disclosure: T3’s new Swanepoel Mega 1000 is a new ranking system and has not yet faced the scrutiny such lists always encounter — get ready Stefan.)
This announcement brought back some dark memories of how old-guard companies tried so hard to trip up the innovative newbies. But it was also a powerful message of how 20 years of innovation has finally landed on the doorstep of a seemingly untouchable and sometimes arrogant industry.
In 1997, 26-year-old LendingTree founder Doug Lebda spoke at Inman Connect and was asked how many loans he helped close. He declined to answer, knowing the small number might get jeers, but he got hissed anyway by the old guard who regularly flogged entrepreneurs. Lebda sold Lending Tree for $700 million in 2005 and came back as CEO in 2009, and today, the online lending marketplace is worth a staggering $3.45 billion.
A couple of years later, the two bright-eyed founders of ZipRealty, Scott Kucirek and Juan Mini, were also on the Inman stage and were asked the same question about number of closed deals. They answered “four” and were openly scoffed at by a handful of old-school brokers in the audience.
ZipRealty, a precursor blueprint for Redfin, sold for $140 million to Realogy in 2014.
Fifty-year-old Long & Foster Real Estate with 11,000 agents, 200 offices, 1,800 employees and mortgage and property management services was allegedly sold for an estimated plus or minus $800 million to Home Services of America. That is a mighty sum, and at the highest multiple “in my career,” said Steve Murray who represented Long & Foster in the transaction.
But when you compare its numbers to the valuations of the newer online portals and tech brokers, it’s sort of like Target versus Amazon. Not a beast brought to its knees by any means, but exiting may have made more sense than fighting a new generation of technology upstarts — a classic case of going out while you are on top.
The legacy company bully stories taunting the new kids on the block seem silly today. Zillow has a market cap of $9.3 billion and Trulia sold for $3.5 billion. Both companies were ceaselessly panned by what was once the establishment. Redfin’s Glenn Kelman was booed from the Inman stage. He got the last laugh, Redfin’s market cap is $1.78 billion — more than twice that of Long & Foster when it sold.
More recently, some industry folks produced a trash-talk slide deck on Compass. It was done anonymously, which made the hit piece even more lowbrow.
And years before that, constraint of trade, business interference and collusion to stop the upstarts were all too common. And maybe nothing has changed. The U.S. Justice Department is allegedly considering investigating (not sure how formally) recent claims of the same sort of illegal activity. This comes ten years after the settlement between the DOJ and the National Association of Realtors.
Like so many entrepreneurial ventures, Redfin and Compass were underestimated. But these two are distinctly different from most startups before them. They are gunning aggressively at the core business model of legacy brokerage companies.
Realogy, Re/Max and HomeServices of America are being hit by these new entrants along with fresh competition from the growing 100-percent commission models. Though Keller Williams is on fire, it would be a surprise if they are immune (its effort to rebrand as a tech company suggests they are well-aware of the need to alter their course, and do so quickly).
And even the newer indie broker owners, which took share in the past decade with a new approach to culture and to technology, are in a fight for their lives.
The savvy and fast-growing Chicago indie @properties is playing hard ball with new windy city entrant Compass, and smaller companies like Berkeley, California-based Red Oak Realty are doubling down to protect its local market edge. The company sports an impressive new look and a fierce attitude by owner Vanessa Bergmark who has a strong message to counter the competition.
And good news may be on the horizon, private equity firms are reportedly considering acquiring successful broker owners, as is Compass who has figured out it can’t get to its goal of 20 percent market share acquiring agents. Even without Realogy being active, the mergers and acquisition market is hot, say the M&A experts.
But without an exit, it is not easy, Redfin discount commission billboards can be seen just a few blocks from Bergmark’s office.
Redfin billboard. Credit: Brad Inman
The rodeo has just begun, and a few cowboys are going to be thrown from their saddles.
But in this footnote from history, Henry Long, Wes Foster and one employee began their real estate venture in 1968 in a 600-square-foot office. I suspect they too were taunted for being new kids on the block. “Integrity” was their unique proposition at the time.
Innovation is never easy.
