Well, it finally happened. Compass, the brokerage that has been burning through venture capital like it’s kindling for the last decade, just acquired Anywhere Real Estate. If you don’t know who Anywhere is, you definitely know their kids: Corcoran, Sotheby’s, Coldwell Banker, and Century 21.
Last Friday, Compass dropped $1.6 billion of stock to buy them. This makes Compass the largest brokerage firm in the world. They now represent over 40 percent of the residential sales market in New York and San Francisco. If you thought they were everywhere before, wait. You literally can’t escape them now.
The Government Speed Run
Here’s the weird part. Normally, when two giant corporations want to merge and form a functional monopoly, the government has a few questions. Antitrust suits usually take a year. They include depositions, subpoenas, and a lot of lawyers wearing bad suits.
Not this time.
The Department of Justice gave this a waiver in a matter of a few months. This is in spite of the fact that Senators Elizabeth Warren and Ron Wyden wrote a very loud letter to the FTC asking them to please, for the love of God, take a look at the civil rights and antitrust issues in this case. The DOJ apparently left that letter on "read." We have very little idea of how this mega-merger is going to distort the market. I have a few guesses.
The Velvet Rope of Real Estate
Compass has a love for the "private exclusive." This is their fancy way of saying that they will keep a home's listing off of Zillow and that only other Compass agents will get to see it first. They like to think that this is a way for their sellers to test the waters without the embarrassment of a public price drop.
The truth is, it is a walled garden. Because Compass now has almost half the market share in the major cities, if you are not already working with a Compass agent, you may not even know that your dream home is for sale until it is already sold. It forces the buyers to use the Compass agents just to view the inventory. It also conveniently allows the brokerage to collect the commission on both ends of the transaction. They claim it is not their intention. I say it is a happy accident for their bottom line.
Efficiency for Them, Not for You
Compass is always going on about their "tech stack." They have software called Compass One that is intended to make the nightmare of closing a deal easier. It is believed that this could reduce the transaction costs of selling a home.
That sounds great. Do not get your hopes up.
Just because it is cheaper for Compass to sell your house does not mean they will share the savings with you. They have a $1.6 billion purchase to answer to their shareholders. They will probably tack on more fees. They will probably try to steer you into their title insurance and their mortgage referrals. The efficiency is for their benefit, not your pocketbook.
The Price Tag Stays the Same
If you are waiting for this consolidation to bring down home prices or commission fees, then you can keep waiting. Americans pay some of the highest commission fees in the world. The consolidation of the two largest players means that real estate agents have less leverage to negotiate their splits, but it won’t incentivize them to charge you less. Check out this quick rundown of what’s happening: Trust Over Tech
Economic facts: If transaction costs decrease, the seller typically keeps the difference. Houses are durable goods, not consumer goods. It is only more valuable to the owner if it is cheaper to sell.
The mid-sized brokerages are the actual losers in this scenario. Unless they are catering to a hyper-niche market of celebrities, they are going to be absolutely crushed. We are looking at a future where you have two options: a giant corporate behemoth or a boutique firm that only sells castles. Good luck out there.
