Sometime in the future, the real estate industry will whittle itself to just four brokerage models, said Robert Reffkin, CEO of Compass.
There are hundreds of different multiple listing services for residential real estate in the U.S., but they should all be unified into a single one, according to Robert Reffkin, CEO of the fast-expanding real estate brokerage Compass, who spoke on a panel session alongside rival Realogy CEO Ryan Schneider at the Inman Connect New York 2019 real estate conference on Thursday.
“There shouldn’t be 800 MLSs; there should be one,” Reffkin said on the panel, moderated by Inman founder Brad Inman.
There are actually 634 MLSs, according to the Real Estate Standards Organization (RESO). Reffkin has previously expressed concern that consumers are going to portals such as Zillow or realtor.com first, instead of directly to a real estate agent’s listing on their own site or in the multiple listing service. His solution is to create one unified, national multiple listing service.
He also called for one unified real estate platform for customer relationship management (CRM), lead generation and search apps.
“There should be one system that we all invest in to make everyone’s life easier,” Reffkin said.
Schneider, for his part, called out one portal by name: Zillow. The chief exec said the country’s most popular home search platform is great for consumers, but it’s not clear that it’s been a good thing for agents.
“Their pricing is going up and the lead generation quality seems to be going down,” Schneider said, referencing Zillow’s Premier Agent advertising program. “Some of the moves here, especially here in New York City recently, to continually shrink the prominence of the listing agent when the agent was the one who wrapped up that listing is just outrageous.”
Schneider said brokerages need to do more to ensure that agents spending their money on Zillow are instead spending their money within their own company for things like lead generation.
The cordial discussion started with a little mutual admiration from the two leaders after Schneider revealed that Reffkin used to work for him at McKinsey & Company. Schneider joked that he had to leave the company because Reffkin set the bar too high.
“He was a real star in the company,” Reffkin replied.
Schneider followed shortly after with what Reffkin characterized as a slight jab later, when talking about the downfalls of running a public company.
“There’s a lot of exaggeration in our industry,” Schneider said, possibly referencing Reffkin’s lofty goals and claims of massive market share in certain industries.
Reffkin also repeated his previously stated prediction that traditional brokerages will be totally disrupted by new models.
“The traditional brokerage firm as we know it is not going to exist at some point in the future,” Reffkin said. “It’s because the agent doesn’t want to pay the brokerage firm enough to pay their rent.”
What will remain, Reffkin said, will be four types of businesses: do-it-yourself models; the “we-do-everything-for-you” firm; the seller-owner business; and the micro boutique that seeks to distance itself from the other three models.
Reffkin compared the do-it-yourself model to a landlord-tenant relationship. Meanwhile, he believes Compass will emerge as a “do-everything-for-you” business, which is a brokerage that covers everything from marketing to lead generation. He described the seller-owner model as a broker-owner who operates a brokerage with a large group of agents but uses a well-known brand to retain market position. Finally, the boutique model is a small brokerage willing to generate small profits in order to work on a smaller, more intimate scale.
The two further discussed agent recruitment and Reffkin addressed the charge that Compass buys agents with big signing bonuses.
“I think it’s not kind to the agents in this room and in this country to say that one can buy agents,” Reffkin said. “If someone gets a $100,000 bonus, a $50,000 bonus to come to a company, I don’t think they’re coming home to their spouse and saying ‘hey honey, I got bought today.’”
“You can’t buy companies,” Reffkin added. “I’ve talked to some of the best companies in the country. They don’t want to sell.”
Schneider said that, during this time of change or disruption, it’s more about finding the equilibrium.
“At the moment, all that disruption is financial,” Schneider said. “Most of the changes you’re talking about here is financial disruption, it’s people paying more for agents and changing whatever the market clearing price is to make agents be excited about the value proposition you’re offering.”
Schneider echoed Reffkin’s remarks, noting that money is not the only thing that matters. It’s also about the value proposition that these companies offer agents beyond just that first signing bonus, or whatever the commission split is.
So even as commission splits rise, brokerages need to continue to provide better service and become leaner. They need to provide better technology and better lead generation, for example, Schneider said.
“How brokers do work hard for agents matters a lot,” Schneider said. “I think we’re going to a world where the margins in the business are lower and we’re also doing it at a time when there’s less inventory in the market and we may be going into a little bit of a tough outing here.”
“There’s another equilibrium to be found here as we get through this disruption time,” Schneider added. “We as brokers, whether it’s us, Compass, whoever, we have to up our game.”
Inman asked Reffkin if Compass was done acquiring companies, to which Reffkin plainly said, “no,” and admitted they are currently talking to companies. He also reiterated that they’re not opening in new markets in 2019, but will open 51 offices in areas in which they already have a presence.
When asked point-blank if Compass was going to acquire the Chicago-based @properties, Reffkin said no.
“We’re not going to buy @properties,” Reffkin said. “I think @properties is one of the best companies in the country.”
Schneider said Realogy’s focus won’t be on mergers and acquisitions in 2019 and will instead focus on organic growth.
Editor’s note: This story has been updated with the current number of MLSs in the country, per RESO.