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.