This week may be remembered as the moment residential real estate industry consolidation kicked into high gear.
Something good gave way, or something good began, depending on how you look at it.
Structural and competitive shifts that will drive more share into the hands of big companies with big brands and big balance sheets has begun to happen in a big way.
At the highest level, this is how I think about the impact of Rocket’s acquisition of Redfin (or rescue, depending on how you viewed the latter’s prospects), the rhetorical climax of the CCP debate, reached via Robert Reffkin’s aggressive statements on a conference stage and Michael Ketchmark’s threat to sue should NAR fail to repeal the policy, and the rumored Compass mega-deal with HomeServices of America.
I have long believed that “organized” real estate industry had two choices — to muster the courage required to end the “more Realtors at all cost” madness, wherein the bar is kept so low as to be almost subterranean, or to punt and have this outcome forced on it by others.
The second option has been chosen.
Rocket-Redfin, the CCP climax, and possibility that Compass buys HomeServices portend a starve-out in which the unproductive, the unprofessional and the unskilled will be forced to reconsider their real estate license.
This may take several years. But with another Zillow-sized player in the real estate search and brokerage space, a private listings free-for-all imminent, possibly led by a Compass with more than double its current agent count and transaction sides, well, I think the writing is on the wall.
This isn’t game over if you’re not on the Rocket or Compass platform. It just makes it tougher to compete. The strong will survive, the weak will not. As someone who wants the best in this business to win more often, I am 100% fine with a new Darwinian reality.
OK, that’s a big preamble. Here are some thoughts on the events themselves…
Rocket/Redfin
We wrote in our weekly newsletter this week that the short-term impact of this deal was small for the average broker, agent, or consumer. That’s true.
In the longer term, say three to five years, the impact could be large.
Here’s what I mean:
After Zillow ended its adventure in iBuying three years ago, it got serious about mortgage, showings, title, and the B2B software that helps tie those things together. It also went big on a referral-based agent model that gave it more control over its agent partners. In other words, it aggressively pursued the sort of holistic real estate/mortgage transaction experience that had previously been achieved at scale only by well-run, mature, on-the-ground real estate companies like Howard Hanna or HomeServices of America. Zillow started with real estate search and agent leads, and pushed outward from there.
It worked. Zillow is executing well on this “super app” strategy and aims to have 6% transaction share by the end of this year.
Rocket is working toward this goal in the opposite way. They are the #2 mortgage lender in America and have a mature title business. But while they have had a national home search site and a referral brokerage for years, these things never felt strategic.
Now Rocket stands to own what is arguably the best real estate search site/app in existence, the nearly 50 million visitors a month drawn thereto, and a brokerage operation that’s become very good at driving mortgage capture.
This is Rocket’s real estate “super app” play. Rocket’s business, which is bigger ($28 billion market cap, versus Zillow’s $16 billion) also extends into personal finance through Rocket Money and Rocket Card, which gives it another way of fueling its nascent real estate/mortgage machine.
This all means there are now two big companies with the money, data, brains, and brand power needed to reinvent the real estate transaction. If Rocket can get on the kind of transaction share trajectory Zillow is on, I don’t think it’s unimaginable to see 20% of all transactions on one of these platforms in five years.
Unless….
CCP falls, and Compass acquires HomeServices of America
Someone grabbed me in a conference hallway a couple weeks ago and asked “Is Compass going to succeed in their crusade to destroy Clear Cooperation?”
It occurred to me that while I’ve shared my thinking on the CCP issue itself, I had not shared my take on which way it would break. So here goes:
I think Compass will succeed. In fact, I think Compass has already succeeded. They’ve cowed many MLSs into non-enforcement, pushed many of the pro-CCP players (most noticeably, Anywhere) toward vague calls for compromise, and triggered a pulse of product development anticipating a private listings boom.
NAR’s anticipated decision on the policy is becoming less relevant by the minute. The reality Compass has envisioned is already manifesting.
That was my view before Michael Ketchmark, of Sitzer fame, made it known that he would take legal action against the brokers or companies voting, as members of NAR, to uphold of the CCP; before Robert Reffkin went onstage at an Inman event to amp up his already aggressive rhetoric on the issue; and before we heard from The Wall Street Journal yesterday that Compass was in talks to buy HomeServices of America.
This is building toward a conclusion of epochal force. If the #4 broker in America buys the #3 broker in America (by sides, per RealTrends), it’s a big deal. But if the combined company is uniquely equipped — through systems, culture, technology, and concentrated market share — to leverage the competitive and pricing power of a private listings program… well, you have something very significant indeed.
By the way, HomeServices has something that Compass has struggled to achieve: A scaled, mature mortgage company to which agents at brokerages it owns send significant business. They have the old-school version of this “super app” thing already fired up.
Compass ended 2024 with 5% market share. If the HomeServices deal happens, that number goes to 10-15% immediately. Then the private exclusives flywheel starts spinning fast.
You see where this goes.
Back to the big picture
So look, what we’re glimpsing here are the outlines of a future in which a lot of real estate sales production gets pulled into two really big digital-first companies (Rocket/Redfin and Zillow) and one really big physical-world brokerage (Compass/HomeServices).
This leaves less for everyone else. Great brokers, teams, and agents outside these orbits can and will succeed, but it also means many among the less-than-great will fall away.
I think all of this week’s news can be looked at through this lens. But as I suggest above, there are also areas of obvious tension.
For example, if Compass/HomeServices keeps an ever-increasing number of their listings off the MLS, and, by extension, public search sites, Zillow and Rocket/Redfin take a hit. This could give Homes.com the opportunity it needs to create a quasi-MLS ad platform.
Or maybe not. Maybe this is the week Andy Florance, now facing the prospect of competing with two household-name brands, realizes he got more than he bargained for when he entered residential real estate.
I don’t know, exactly. But I do know, generally and imprecisely, that this was a very consequential few days.
Enjoy your weekend.
