All of this made the industry a prime target for Ori Allon, an Israeli-Australian serial entrepreneur and computer scientist. Allon had sold companies he’d founded to both Google and Twitter, each boasting proprietary technology that became core parts of how both tech giants operated. (In 2005, when he was 25 pitching to Google in San Francisco, he started by saying, "I’ll show you the future of the world of search.") He used some of the proceeds to buy his hometown basketball team — Hapoel Jerusalem — a perennial also-ran, and turn it into a championship contender. Along with Reffkin, a former chief of staff for the president of Goldman Sachs and White House Fellow who ran nearly 50 marathons, who he met during dinner at an American Academy of Achievement conference, Allon launched Urban Compass in 2012.
Allon initially saw the real potential in real estate in the data. There are more than 600 versions of the Multiple Listing Service, the shared data platform that lists homes for sale, across the country. Allon believed that by bringing all these data sources under one roof, creating a system that could parse and analyze, seeing trends faster than a human agent, he could create a more efficient, and ultimately more lucrative, sales process. In 2014, he told the New York Times that he loves to "fix things with technology, and real estate needed to be fixed." It was a challenge "way more interesting to me than what I’ve done in the past," and his target demographic was "every person that can operate an iPhone or website."
Allon’s vision for a real estate tech company did tap into a colossal problem faced by the industry. The work of agents is very inefficient. As M. Ryan Gorman, CEO of Coldwell Bankers (part of Realogy), puts it, they are the "quarterback of every transaction," and responsible for so much marketing and prospecting work that happens out of the eyes of a consumer. Coordinating with escrow companies, prepping homes for showings, creating marketing material, scheduling tours, and even setting up renovations can add hours of work before factoring in face-to-face conversations with clients. But Gorman says both consumers and agents had been resistant to taking the human touch out of the largest transaction most of them will ever make.
In 2018, the firm, flush with SoftBank funding, launched a massive acquisition campaign in cities across the country, poaching agents with the goal of grabbing 20% of 20 markets by 2020.
Other tech companies had already digitized pieces of the process. Whereas Zillow made home values more accessible and transparent, and Redfin created a digital-first brokerage, Compass, bolstered by technology, would aim to make the sales process more efficient. To get there, Allon and Reffkin swung in a bunch of directions. Initially, the firm touted its agent-side technology. Then, in 2016, it launched an app for consumers that provided agents and buyers and sellers constantly updated market information. The company would continue to ping-pong back and forth between being an agent-focused and consumer-centric platform, eventually settling on trying to be all things to all people. Now, according to Rory Golod, president of Compass’ New York region, the platform is "B-to-B-to-C" (business to business to consumer), with the agent at the center.
Compass began with an $8 million seed round in 2012, with investments from Goldman Sachs and Founders Fund, among others, and by 2016, had raised $208 million with a valuation of $1 billion. In 2018, the firm, flush with SoftBank funding, launched a massive acquisition campaign in cities across the country, poaching agents with the goal of grabbing 20% of 20 markets by 2020. Candy Evans, a Dallas-based publisher who runs a local real estate news site CandysDirt, says that "high-end brokers were quaking in their boots, and everyone perked up" when Compass came to town. Agents tend to prefer firms with more expensive property and better commission splits, which enable them to make more money on each sale. This was especially important amid increased competition: The National Association of Realtors found that while the number of brokers nearly doubled from 760,000 in 2000 to 1,359,000 in 2018, the number of total transactions actually dropped, from 5.99 million to 5.96 million.
Across the country, agents spoke about getting generous fee splits from Compass, or signing bonuses some rumored to be in the seven figures. Compass said they do not poach; Realogy, which has a pending lawsuit in New York accusing the company of just such an action, disagrees. Matt Spangler, Compass’ chief marketing solutions officer, says Compass’ retention rate is the best in the industry, and they’re "not paying people any more money than anybody else." ("You’re not poaching anyone; you’re attracting someone," he clarifies.) Investor Peters, who sits on the board of trustees of Side, a VC-backed brokerage in San Francisco, says that an explicit part of their strategy is to lock up as many good agents as they can for as long as they can, so the ecosystem of other options for them will be limited. "Is that innovation?" she says. "To me, that seems more scorched earth."
But agents like Evans say that while Compass’ aggressive splits and signing bonuses work in the moment, agents are mobile by nature, and when one- or two-year contracts are up, they often return to their old firms. She believes the spree of acquisitions, bonuses, and favorable terms is about market share, more than anything else. "You can keep your revenue split at 90 or 95%, what agent wouldn’t want to go there?" she says. In Dallas, Compass took on legacy firms such as Briggs Freeman and Ebby Halliday, and now, according to Evans, are on nearly equal footing. "They did find the agents," she says, "but here’s the rub: How are you going to turn a profit when you’ve given them almost all of their commission? They have a beautiful office. Their marketing has expensive signs. But how are you going to turn a profit?"
At the end of 2018, Compass made a splashy hire with its new CTO, Sirosh, Microsoft’s former CTO of artificial intelligence who had also created a fraud detection system for Amazon. He’s helped introduce Compass Lens, which determines which upgrades will raise the sale price the most, and the custom CRM software that tells agents when it’s better to get in touch with contacts. He’s opened up Compass tech campuses in Seattle and India and hired hundreds of coders and A.I. experts to help improve Compass’ technology, all while the company has gone on an acquisition tear, buying up Contactually (customer management), Detectica (A.I.), and Modus (digital title and escrow services, core parts of a real estate transaction).
Over Zoom in mid-October, Sirosh explained that Compass’ technology could handle all the grunt work, with agents doing more transactions with less cost, and reach more customers with Amazon-level service quality. As co-founder Allon — who has no day-to-day role at Compass, but currently serves as executive chairman — once said, "bringing the science to what has for too long been only an art."
Tony Accardo has been a realtor for the last 12 years, working the Los Angeles beachfront and Palos Verdes. He saw Compass as the only player that’s "looking forward, not backwards" in an often stodgy business. When the company came to L.A., he saw them growing at such a fast pace, he told his wife, "If I don’t do this, I’m going to miss the train." He joined in 2018 and now 90% of his day is spent behind the Compass dashboard, looking at market data, seeing which properties his clients click on. It’s a "portal that provides everything, cohesively branded and well thought out." He says it makes him much more efficient with his time, and his 2020 sales are triple what they were last year.
Victor Lund, a real estate tech consultant, says that as Compass continually adds more data points to better understand the market and its clients, it’ll create a longer-lasting relationship with the high-end buyers and sellers making up an increasingly large part of the market. "In terms of raving fans, Compass agents we speak to often refer to their CRM and marketing tools as the best they have encountered," he says. "I tend to agree. Compass has already passed their peers who have fumbled quite significantly in the core tools provided to agents, but the next iterations of Compass tech that leverages data as an asset to improve agent effectiveness and client services will reveal an entirely new landscape for the industry."
Lund believes other tech solutions for real estate — Keller Williams’ A.I.-powered virtual assistant Kelle, for example, which is focused on teams and associates, and various iBuyer options, which use an algorithm to place a competitive bid on a property — just aren’t as focused, and loyal, to the agent as the one being built by Compass.
But when pressed for specifics and stats to confirm the effectiveness of its technology, Sirosh won’t go beyond vague. When asked if he had data on how the agent tools impacted sales and performance, he noted that the top third of agents are growing at amazing rates year over year, but "it’s hard to say whether it’s correlation or causation, but either way, it’s a good story." Could he provide more details, or hard numbers or statistics that proved the efficacy of Compass technology? Sirosh suggested the company was growing too fast, and changing so quickly, it was hard to quantify. "It’s all good and positive and big numbers, but with hockey stick growth in the number of agents, there’s limited history around any specific thing. Meanwhile, a multilayered study by real estate tech expert Mike DelPrete from this spring showed that on an array of different measures, from production to transactions, Compass agents lagged behind the competition.
If there were a ubiquitous symbol of real estate in need of a high-tech reimagining, Compass believed it was the for-sale sign sitting on someone’s front lawn.
J Maggio, a top-producing agent with Conlon, a Chicago boutique firm that operated in the city and nearby suburbs, was courted by Compass in 2017, says he got the "horse-and-pony show," but turned them down, only to become a Compass agent in 2018 when they bought out his firm. "I’ll say this as politely as I can: Compass had a cool software presentation, but none of it saved me time, made me extra money, or made my life easier," he says. The tech he used until he left the firm in March of this year was worse than what he’d used at other brokerages. "Compass has a young, swaggy vibe, but the tech wasn’t fully baked for what I needed it to be."