New York City-based Compass, a tech-focused brokerage that’s grown rapidly thanks to generous funding from investors, has raised an additional $50 million at a reported valuation of $800 million to further fuel its expansion into new markets — an effort that could include gobbling up brokerages across the country.
The brokerage has already pushed out of New York City into Washington, D.C., and Miami, and CEO Robert Reffkin tells Inman that Compass is almost definitely expanding to Atlanta, Boston, Chicago, Dallas, Houston, the Hamptons, Los Angeles, Philadelphia, Phoenix, San Diego, San Francisco and Seattle.
The firm could carve out a presence in those markets by either launching with a “great manager,” launching with a “great agent” or acquiring a local brokerage.
Compass used the last strategy to plant roots in Washington, D.C., snapping up Lindsay Reishman Real Estate in late 2014. It’s since tripled that office’s agent count to 80, and it claims to have been ranked the No. 1 sales office in its region as measured by dollar volume of properties bought and sold.
Last month, Compass also announced it had set up shop in Miami.
Ori Allon, founder and executive chairman of Compass, attributes Compass’ success in D.C. to the firm’s “first-class client serve, unrivaled technology and our ability to transform data into actionable intelligence.”
Compass envisions providing that intelligence “to players across the real estate value chain,” including, Reffkin says, mortgage bankers, real estate developers, real estate investors and actuaries.
Compass casts its proprietary technology for real estate agents as core to its success. Reffkin said examples include:
- A valuation and comparable analysis tool that allows agents to “value properties better than any tool in the country.”
- A listing strategy tool that provides insights into what month is best to list a property and the best pricing strategy by month.
- An open house and “show sheet” tool that allows agents to create “high-quality collateral in seconds, not hours.”
“The focus of our tools is to save agents time and provide them with analysis that makes them better advisers,” Reffkin said.
Compass reportedly might consider licensing some of this technology to brokerages in some regions, Allon told TechCrunch. Some firms have offered Compass tens of millions for the right to use its platform, he claims.
“We could potentially license tech to markets where we might not go, but I don’t want to do that yet,” Allon told TechCrunch. “We still have places where we would like to go.”
Compass’ focus on technology invites comparisons to Redfin, another brokerage that’s raised more than $100 million.
But while Compass may have closely resembled Redfin early on, Compass quickly shed some of the hallmarks of Redfin’s business model.
Compass stopped employing salaried agents (in favor of hiring agents as contractors instead), paying bonuses based on customer satisfaction (in favor of paying agents based solely on commission) and offering discount listing fees shortly after launching.
Based on their gravitation toward a more traditional model, some other high-tech brokerages have similarly appeared to recognize the merits of some conventional brokerage practices (see Inman’s special report on hybrid brokerages), even Redfin to some degree.
Redfin has found that increasing its commission rate does not impact demand for its services, meaning the brokerage could theoretically boost profits if it charged going rates to match its competitors. Nonetheless, Redfin says it has resisted raising its fees in order to stay true to its mission of putting the customer first.
Compass said its “continued to experience explosive growth in New York City” by doubling its exclusive listings to over $1 billion, securing $2.5 billion in new development and more than doubling its agent count this year.
Compass’ funding round was led by Institutional Venture Partners (IVP), and also included investments from existing backers such as Thrive Capital; Founders Fund; 406 Ventures; Advance Publications Inc. (the parent company of Condé Nast); Kenneth Chenault, CEO of American Express; and Marc Benioff, founder and CEO of Salesforce.com.
Compass’ latest funding round follows the startup’s $40 million round in July 2014 and brings the its total funding to $123 million.