Big Tech Coming After Agent Commissions in a Big Way
/The biggest real estate tech companies — Zillow, Compass, and Opendoor — have set their sights on agent commissions as a source of revenue and profit growth.
Why it matters: Agents remain the backbone of the industry, generating around $100 billion in commissions annually.
That commission pool is a rich target for big tech companies to tap into.
Zillow's new strategy (Zillow 3.0: Back to Basics) is centered on extracting an additional $1.5 billion from agents by 2025, for a total of $2.9 billion annually.
Compass wants to pay agents less. In its own words, Compass has a demonstrated track record of "improving economics with agents" of one percent per year.
Compass provides multiple slides that highlight its plans and ability to reduce commission splits paid to its agents over time.
In other words, if you're a Compass agent, the company's plan for profitability hinges on reducing your commission split over time. Sorry!
Opendoor continues to use its scale to push buyer agent commissions -- one of its biggest expenses -- lower.
In Atlanta, Opendoor has experimented with buyer agent commissions ranging from 1.5 to 3 percent, having finally settled on 2.25 percent.
Interestingly (and I don't think I can take credit for this), Opendoor dropped its lowest 1.5 percent buyer agent commission ten days after I published about the iBuyer War on Real Estate Commissions.
Some perspective:
Opendoor sold 20,000 houses in 2021. A 0.75 percent savings in buyer agent commissions is about $53 million annually.
Compass's medium term goal of a 2.5 percent commission split improvement on its 2021 revenues is $160 million annually.
Zillow wants to generate an additional $250–$300 million from agents per year.
Yes, but: These companies aren't simply raising prices; they're offering increased value to agents.
Opendoor promises partner agents increased deal flow and less time spent on each transaction.
Compass promises its agents increased deal flow and efficiency from its brand and tech platform.
Zillow provides agents with exclusive access to pre-qualified buyer leads.
The bottom line: Big Tech has big plans to extract hundreds of millions of dollars from real estate agents in the coming years.
Amidst a landscape of new models, disruptors, tech innovation and "super apps," there remains one consistent way to make money in real estate: commissions.
