A few years ago, a real estate veteran allegedly wore a hat with the number “40” emblazoned on the crown, which was his purported ranking on the Stefan Swanepoel 200 Power List.
There was a time when such antics were comical, though arrogant, as the power-broker elite sat at the top of the real estate food chain, making money as easy as Lululemon sells yoga clothes.
Those days are long gone. The big broker owners no longer look down on anyone, and their margins are nothing to tweet about. Never has so much change rained down on this segment of the industry.
Newbies with better tech, culture and comp packages are stealing agents right and left. And market share is going with it.
After stripping critical top producers and key managers, Compass has swooped in and gobbled up several large companies for a song. Any delusions that the owners of Pacific Union, Stribling and Alain Pinel made a financial killing is just flat out wrong. Twenty years ago, Realogy’s NRT unit overpaid for these big broker enterprises, but that is not the case today.
Despite what the naysayers claim, Compass has a strategy to become profitable. Some of its agent agreements start with a 90-10 commission split in year one, others are structured differently and end up at 70-30 in year three with stock options as part of the package.
With its booming market share, Compass will not take long to paint a high-margin business case and take the entire enterprise public. For now, it can use venture capital to finance its overhead and the costs of its ostentatious agent raid and get away with it.
Compass is based on the Eastern front.
On the Western front, Zillow has suddenly morphed right before our eyes, becoming a platform for the best agents, like Compass oddly enough. Its Zillow-branded Premier Agents will benefit from Zillow’s 14-year consumer brand conquest. For the first time, the portal plans to earn a cut of the commission for its part delivering qualified customers and its giddy-up transaction technology.
Plus, some homesellers will get an instant offer from Zillow, turning on its head the 100-year broker cooperation system that kept so many big brokers in business.
And there is more. A vastly improved Zestimate will likely become the industry standard for every CMA. Just because you don’t like something doesn’t mean it won’t happen.
The old school big brokers who often beat their chest about size, rankings and share have been humbled, and must now rethink who they serve and how. The alternative is a big oof.
Many smart, agile teams have become next generation brokers. Some are partnering with Zillow and Compass to remake their business model, not resting lazily on broker cooperation, but paying undivided attention to the consumer and everything they need.
Think about it this way. Zillow, in its new rendition, could become the Uber of real estate — rating, ranking and vetting agents, and kicking the bad ones out. Cab companies let their fleets rot and Uber stepped in. Riders opened the car doors and never looked back. On demand, on time, easy and effortless.
Today, Zillow works best with tech savvy teams, while Uber from the beginning partnered with opportunistic small fleet owners. Both are independent contractors. The parallels are unmistakable.
And could it be that Zillow’s Instant Offers program is its version of driverless cars — fearlessly going consumer direct?
Does this make Zillow evil? No, just smart, doing what the industry promised for 20 years — focus on the consumer — but rarely did. Others were too busy thwarting change, or working tirelessly to train bad agents and keep their brokerage out of trouble when Realtors got sloppy and forgot who the customer was.
Better Homes & Gardens Real Estate CEO Sherry Chris lays out the course of real estate history by decades. For many years, big brokers ruled the roost, then agents. Now, it’s consumers.
You can imagine a day when Zillow and Compass dominate the market with more or less the same business model, feeding their top producers, as they gobble up share. Of these two, the winner will be the company that best manages the consumer experience, where Zillow has a head start. And in this mix, one cannot ignore Redfin and iBuying leader Opendoor, both of which have also put a priority on the consumer experience.
Where does this scenario leave some broker-owners, including franchise operations like RE/MAX, Realogy and Keller Williams?
Their playbook today must offer a seamless transaction, a plan to dump bad agents, a redo on long-term agent financial well-being and a nifty consumer experience. Otherwise, they may choose to follow Stribling, PU and Alain Pinel, and get out.
The bar is being set higher than ever for the real estate industry.
Editor’s note: This story was updated after publication to include new information from Compass on how its agent commission splits work.
