Is Compass Pointing Real Estate in the Right Direction?
Updated: May 7
Whether you are in real estate, Proptech, or investing, you have probably heard the buzz surrounding Softbank’s newest cash cow, Compass, and their recent IPO. While most of this talk has consisted in whether Compass may be another empty shell startup, much like the notorious WeWork (coincidentally another Softbank good boy gone bad), few people are discussing Compass’ trajectory compared to that of the Proptech industry as a whole.
Since the inception of the real estate industry’s slow transition to tech, Proptech has been trying to slowly loosen the National Association of Realtors’ death grip on the overall process of buying and selling homes, a process which has remained relatively unaltered for the last half-century. For a more detailed look at the progression of technology in real estate, see Sean Black’s helpful article. Essentially, Sean argues that the first obstacle which tech companies had to overcome was the coveted Multiple Listing Service, so that buyers could find reliable and relevant information on homes without using real estate agents. Companies like Trulia were able to bypass the NAR’s restrictions on listings through the MLS by going directly to brokers and agents.
While this eliminated the necessity for a real estate agent in order to find a home, real estate agents were still necessary to buy a home. It is this latter necessity that the newest wave of Proptech companies are trying to eliminate. Proptech’s most recent solution to this conundrum is the iBuyer model. In this model, sellers directly contact companies who function as cash buyers. Many companies have gravitated to this model because of the success of Carvana which uses an identical model but with vehicle sales. While this model is effective because it provides sellers with a fast and reliable offer, it is also extremely limited because sellers are provided only one offer by each company. Even more disadvantageous, a recent study of 20,000 iBuyer transactions demonstrated that, “the discount to market of 1.3 percent, or $3,500 on a $270,000 house, as the primary monetary difference between an iBuyer and a traditional market sale.”
So, what does all this have to do with Compass and their recent IPO? While the rest of the Proptech market seems to be trying to shrink the role of real estate agents in property transactions, Compass attempts to provide tech tools to an antiquated process. Compass’ strategy can also be appraised by how one envisages the future of property transactions. Does the future contain real estate agents with virtual tools, powerful CRM’s, and digital marketing, or does it contain technology which simplifies the convoluted real estate transaction process to empower buyers and sellers to operate with increasing autonomy? Which future comes to pass is largely based on whether Proptech will be able to overcome or sidestep the NAR’s roadblocks. Compass will only be successful either as a temporary transitional solution between the current real estate process and the mitigation of real estate agents, or if the NAR is able to maintain its control.
Finally, this forces us to answer the question posed in the title of the article, “Is Compass pointing in the right direction?” The answer seems to be both yes and no. While Compass seems to be flowing with the current that is the wide river of Proptech right now, there definitely appears to be a split down stream. Eventually, companies will have to choose between a simplified transaction process or real estate agents. If Compass maintains its current trajectory, it will float down the side that is ever narrowing.
Unlike Compass, OfferBright is simplifying the transaction process for buying and selling real estate. While we acknowledge that real estate agents will continue to be needed in many instances, we also believe that technology can provide sellers and buyers better options. Our app improves upon existing Proptech in 3 major ways. First, our Property Match Al matches buyers and sellers more efficiently than a real estate agent on Compass but also more effectively than search engines like Trulia. Second, unlike iBuyer sights which only provide one offer from each company, sellers can be provided with multiple offers from multiple buyers. This allows for more competitive pricing that is more reflective of or even above fair market value. Third, OfferBright utilizes a unique workflow that guides buyers and sellers through the entire buying/selling process. From posting a property, to setting the terms of an offer, to making an offer, to accepting an offer, to signing contracts, OfferBright easily guides users through the entire transaction process. OfferBright is trying to anticipate the split in the river which is coming to Proptech and is heading down a different stream than Compass. And when it comes to the future, we think it looks really bright.