Brokerage Growth Dominated by New Models

The fastest growing real estate brokerages of the past seven years – representing over $383 billion in sales volume growth – are new companies with new models.

Why it matters: While the job of an agent hasn’t changed much, the business models of the fastest growing brokerages have undergone a transformation.

• The biggest gainers – Compass, eXp, Real, and Side – are all new models that barely registered back in 2018, but account for over $383 billion in new sales volume growth.
   

• The biggest incumbents of 2018, Anywhere and HomeServices of America, only grew their sales volume by $10 billion during the same time period.

The growth of the new models has been stunning compared to the large, traditional incumbents.

• In 2018, Anywhere was nearly 9 times as big as eXp – now that lead has shrunk to only 1.2 times larger.
   

• In 2018, HomeServices of America was three times the size of Compass – now Compass is 1.7 times larger.

As a percentage, sales volume at three brokerages grew less than the increase in average sales price of a home during the same period of time: Anywhere, HomeServices of America, and Redfin.

• This is a reflection of declining market share at these businesses since 2018.
   

• And Redfin has faced its own series of challenges (for a deeper dive, check out my recent podcast episode on that topic).

Which brings us to today (or at least the end of 2024), with the top 11 brokerages a wild mix of traditional incumbents and new models.

• The list includes luxury brands, 100% commission models, 100-year-old brands, portal hybrids, cloud brokers, and more.
   

• The source of this data (and a lot more) is RealTrends.

The bottom line: It’s difficult to tell if the industry is changing quickly or slowly, but zoom out and it’s clear that a range of new models are growing extremely fast, while the traditional incumbents remain large, but are lagging.

• It’s not one size fits all and there is no “winning model.” Yet.
   

• But every brokerage in this list, regardless of business model, shares one important factor: at the center of every deal, every sale, and every transaction is an agent.

---

Thanks to Mark McLaughlin for the discussion that led to this analysis!

Zillow’s Opening Moves in the Exclusive Inventory Battle

As the deadline for compliance to its new Listing Access Standards approaches, Zillow has started to execute its strategy to stop the proliferation of exclusive inventory. 

Why it matters: The opening moves in the battle over exclusive inventory will affect the nation’s largest brokerages, thousands of listings (and thousands of homesellers), and shape the industry’s power dynamics for the next decade.

First up: Zillow has clarified its definition of public marketing to include any buyer-oriented marketing that private listings exist.

• This is broad treatment: it’s not just a specific listing being marketed publicly (yard sign, social media post, email) that is in violation, but the mere existence of a private listing.
   

• So, in the case of Compass, simply advertising that there are private listings on its search results page means all of those listings are in violation and subject to a potential Zillow ban.

Setting policy and issuing statements will only get you so far – to be truly effective, Zillow needs to reach out to every single agent that is in violation of its policy.

• To change behavior, agents need to hear the consequences of listing privately directly from Zillow, not their own brokerage.
   

• To that end, Zillow has begun calling agents with a listing in violation of its policy – example below.

Zillow then follows up with an email that outlines its policies and clarifies that after June 30, non-compliant listings will be banned from Zillow for the life of the listing agreement.

Zillow has been described to me as “ruthless” – a characterization with negative connotations which may be unfair. 

• Instead, what I see is “maximum effort” (or “concentration of force” if you’ve sat through my Pacific War analogy at a Hub event).
   

• There are no half-measures nor compromises; if Zillow believes in something, it’s all in, and applies the maximum effort to achieve its goals. 

Where the rubber hits the road is a single metric: the number of Compass exclusive listings.

• Since July 2024 this has increased from 3,000 to nearly 10,000 listings, a number which, given Compass’s intentions, Zillow would prefer to be closer to zero. 
   

• If Zillow’s strategy works this number will go down; the plateau over the past two months is likely due to seasonality. Keep in mind: Zillow just started calling agents.

The bottom line: Personal opinions aside, these exclusive inventory POWER MOVES are a masterclass in strategy, focus, and execution.

• Over the preceding nine months, Compass has demonstrated the power of disciplined focus and strong execution, and now Zillow is countering with its own “maximum effort.”
   

• The stakes for the industry are huge and we're still in the beginning stages of this battle.

The Top 20% of Agents Do 65% of Transactions

There is a commonly held belief that in real estate, the top 20 percent of agents do 80 percent of the deals – a ratio that is close, but not entirely accurate. 

Why it matters: The truth is that the industry is concentrated, but not that concentrated – the top 20 percent of agents do 65 percent of deals – leaving a very long tail of producing agents.

• Like my previous research, this data is provided by CoreLogic/Cotality, covering 85 percent of the market: 3.4 million sales and 840,000 producing agents in 2024. 
   

• And a shoutout to my friend Aziz Sunderji who I collaborated with on these fantastic visualizations.

Agent productivity is heavily weighted on each end of the spectrum: a small number of high-producers and a lot of low-producers.

• The top 1 percent of agents, which also includes high-production teams, do an astonishing 18 percent of deals.
   

• In a team, deal attribution usually falls to one agent, which makes it impossible to differentiate between individual agents and teams in the data.

Agent productivity varies wildly between these groups; a simple “average” doesn’t tell the whole story.

• Highly productive agents and teams (the top 20 percent) are averaging 26 transactions per year.
   

• While the remaining 80 percent of agents are averaging just 3.5 transactions per year.

A large number of low-producing agents seems to be a truism of the U.S. real estate market.

• Even in a down market, the number of low-producing agents isn’t changing – in fact, it’s increasing.
   

• Despite challenging market conditions, the survivability of the low-production, part-time agent remains as strong as ever.

The bottom line: The 80/20 rule is close, but not exactly the truth, when it comes to agent productivity in the U.S. real estate market.

• In addition to a small, elite group of high-performing agents and teams, there is an extremely long tail of low-producing, part-time agents.
   

• The implications are significant for anyone looking to parter with agents – portals, brokerages, or tech vendors – do you go after the small number of high-producers, or target the extremely long tail?

2024 Real Estate Business Profitability Roundup

2024 was another year where a receding tide – a down market – revealed truths about business model resiliency and clues about future growth.

Why it matters: Profitability, the mother of all metrics, is a proxy for a healthy business model with product market fit, financial viability, and can generate returns for shareholders.

• Starting with the brokerages, eXp Realty comes out on top as the most profitable brokerage in the United States, with almost twice the operating cash flow as Compass.

Adding top real estate portal Zillow and arch-disruptor Opendoor into the mix expands the field and shows the vast discrepancy across varied business models.

• Zillow, with a high-margin core business, is a cash-generation powerhouse, while Opendoor continues to lose money buying and selling houses (asset-light vs. asset-heavy).
   

• Remember when Zillow exited the iBuyer business? Smart move.

Throwing Rocket and CoStar into the mix illustrates the high-stakes game of the Portal Wars – to-date, it’s been Chess without Checkmate.

• These companies are using profitable core businesses (mortgage and commercial real estate) to fund a massive expansion into residential real estate. 
   

• With its $1.75 billion acquisition of Redfin, Rocket is the new entrant to watch.

CoStar’s Operating Cash Flow dropped $100 million from the previous year – the most significant (and only) decline in six years.

• CoStar has been investing heavily in its residential real estate portal, Homes.com.
   

• Perhaps related, CoStar recently reached an agreement with a pair of hedge funds to refresh its board, “articulate a disciplined capital allocation strategy,” and “review the Company’s ongoing investment in Homes.com and ensure an appropriate timeline for profitability.”

Opendoor’s Operating Cash Flow has been negative for several years now, which begs the question: how much money does it have in the bank?

• The answer is about $600 million as of Dec 31, 2024.
   

• But, perhaps worryingly, its cash balance keeps declining – it’s down by about half ($600 million) over the past two years.

What to watch: The data reveals a few areas of interest.

• How aggressively will Rocket use its massive cash advantage to grow its presence in the portal and brokerage space?
   

• Will there be a change in CoStar’s level of investment in Homes.com?
   

• And, will Opendoor consider a business model pivot before its cash runway expires?

The bottom line: It may sound elementary, but a business needs to have a business model that works – and that means consistently making more money than it spends.

• It is those businesses – generating free cash flow – that are able to invest for growth, give returns to shareholders, and use the profits to launch new ventures that add value in the real estate ecosystem.
   

• Cash is funding significant POWER MOVES heading into the rest of the year: the exclusive inventory battle, Rocket's entry into the portal wars, and the massive investments into end-to-end ecosystems.

Zillow Strikes Back Against Exclusive Inventory

Zillow just announced a new policy: if a home is publicly listed for sale in a private network, it will never appear on Zillow.

Zillow’s new policy states that a listing marketed to ANY buyer must be available to EVERY buyer.

• Listings must be in the MLS and published on Zillow, as well as other sites that receive MLS feeds, within 24 hours of being advertised publicly.
   

• And listings that don’t meet these standards won’t be published on Zillow and Trulia for the life of the listing. 

Why it matters: This is a big deal and acknowledgement that exclusive inventory is a significant threat to Zillow.

For anyone closely watching and thinking a few steps ahead, this is a logical move on Zillow’s part.

• Op-eds, opposing research, and rousing speeches haven’t stopped Compass from growing its exclusive inventory, and other brokerages following in its footsteps.
   

• NAR is on the sidelines. And it will take years for any legal challenge to take shape. Zillow is the only player able to take action, and it is.

Power play: Zillow is flexing its considerable muscle to defend itself, stop what it sees as bad behavior, and take a strong moral stand to maintain a fully open and transparent marketplace. Finances aside, this move is aligned with Zillow’s values.

Zillow is effectively forcing agents to make a choice, but the ultimate deciding force in this battle isn’t the portal, the brokerage, or the agent – it’s the consumer.

• And this move is precisely and strategically aimed at that critical juncture, forcing agents to explain to a home seller why their listing will never be on Zillow, the country’s most popular real estate website, if they decide to list in a private network.

For months people have been asking who could possibly stop the rise of exclusive inventory.

• While all eyes were on NAR, the obvious answer was in plain sight: the consumer.
   

• And Zillow’s move is aimed squarely at pulling them into the discussion.

What to watch: Quite simply, the following chart, which shows the total number of Compass Private Exclusives and Coming Soon listings.

• Zillow's new policy begins May 1st.

The bottom line: To quote Churchill, this is only “the end of the beginning” in the battle over exclusive inventory.

• The phase of posturing through words is over.
   

• Now everyone in the space, from brokers to portals to agents, needs to start making some tough decisions.

The Business Case for Exclusive Inventory

Brokerages and agents have clear incentives to promote exclusive inventory, a strategy that could significantly reshape power dynamics across the industry.

Why it matters: Understanding the motivations surrounding exclusive inventory is critical to predicting the direction this battle will take – and why brokerages like Compass are pushing it so hard.

• This billboard mockup, used by Compass to explain the exclusive inventory strategy to its agents, succinctly sums up one key benefit.

The key phrase is “one week before any other site” – exclusive inventory is not exclusive forever; a better label might be “pre-marketing.”

• The typical Compass exclusive is off-market for 2–3 weeks, with 94 percent of these listings eventually appearing on, and selling through, the MLS.
   

• This pre-marketing period is akin to a restaurant soft opening – that’s a test run held before the grand opening, where a select group of guests try the restaurant and provide feedback, allowing it to fine-tune operations and menu before opening to the public. 

For brokerages like Compass, providing access to exclusive listings helps to attract and retain agents, and any leads that come directly through the brokerage website could be monetized in-house rather than through a portal.

• For agents, access to off-market listings is a very tangible way to provide and demonstrate value to potential buyers – and is a key differentiator to secure more clients.

The following chart shows the potential revenue benefit (after commissions are paid to agents) to Compass for every 100 agents recruited, closed compass.com website leads, and double-ended deals.

• These estimates are based on the following assumptions: average sale price of $1.06M (Compass FY24), average agent production of 6.1 transactions per year (Compass FY24), average commission of 3 percent, website lead referral fee of 35 percent, and an 82 percent agent commission split (Compass FY24).
   

• In aggregate and at scale, these benefits could be worth $50–$100 million or more in additional revenue per year.

Another financial benefit comes from using access to a large pool of exclusive inventory – a major value to agents – to gradually shift commission splits in the brokerage’s favor.

• Compass’s average commission split is 82/18 (82 percent to the agent, 18 percent to the brokerage).
   

• Shifting that just one percentage point would be worth $56 million to Compass while, on average, costing an agent $1,940 per year (using the same assumptions above).

For an individual agent, being able to secure two additional transactions per year (buy side or sell side) through access to exclusive inventory would, on average, yield $52k in additional income.

• Three additional transactions would yield $78k, which, in either case, far outweighs the $1,940 an agent might give up from a one percent reduction in their commission split.
   

• It’s really a financial win-win for agents and brokerages.

The big question: Is exclusive inventory, or a pre-marketing “soft opening,” good for consumers? Far be it for one author to make that determination for the totality of sellers in the United States.

• At the end of the day, homesellers are choosing whether it’s good for them or not, based on their particular circumstances and the benefits of the program – and in the case of Compass, 55 percent of new listings opted in to the program in February.
   

• Compass is not alone; behind the pro-consumer headlines, nearly everyone – from NAR to MLSs, from big and small brokerages to the portals – has a financial motivation to fight for for the expansion or contraction of exclusive inventory.

Casual, Part-Time Agents Not Going Anywhere

Perhaps counter-intuitively, with fewer transactions in the market there are just as many part-time, casual agents as ever – with the majority of producing agents completing less than five transactions in 2024.

Why it matters: The down market is revealing some key truths about the fragmented nature of real estate – and what happens to agent production when there are a million fewer sales to go around.

• In 2024, the average producing agent completed 8 transactions – down from 10 in 2021.
   

• This analysis is based on data provided by CoreLogic, with 85 percent market coverage: 3.4 million sales and 840,000 producing agents in 2024. Each sale kicks off two transactions: one buy-side and one sell-side.

The market continues to be dominated by casual, part-time agents.

• 40 percent of producing agents only did 1–2 transactions in 2024.
   

• If you consider a part-time agent someone who does five or fewer transactions per year, that number rises to 63 percent. 

And over time, that ratio isn’t changing – part-time agents aren’t going away.

• Since 2021, the number of agents doing 1–2 transactions per year has increased slightly, while the number of agents doing 6+ transactions has dropped considerably.
   

• There are significantly fewer sales in the market which is disproportionately affecting higher-producing agents; the evidence doesn’t support the theory that causal agents disappear in a down market.

As I’ve said in the past, agents are like cockroaches; they’re survivors and tend to stick around.

• Even with 25 percent fewer sales in 2024 compared to 2021, there were only 7 percent fewer producing agents.
   

• Keep in mind this data is from the CoreLogic dataset (85 percent of the market), and does not represent the entire market.

The bottom line: Real estate remains a highly fragmented industry, with a lot of agents doing, on average, just a handful of transactions each year.

• And with a shrinking market, there is not a corresponding decline in the number of producing agents; rather, the average number of transactions per agent is dropping.
   

• Despite challenging market conditions, the survivability of the low-production, part-time agent remains as strong as ever.

The Redfin Experiment is Over

With its acquisition by Rocket, Redfin’s saga as an independent company is coming to a close.

Why it matters: Launched in 2002, Redfin could be considered the original real estate disruptor, featuring discounted commissions, employed agents, and innovative technology – but the business model just never clicked.

• Redfin was rarely profitable, accumulated a large debt load, and was acquired for the same value as when it went public over seven years ago.

After its first day of trading as a public company in 2017, Redfin was valued at $1.73 billion – just shy of its acquisition price of $1.75 billion seven years later.

• Yes, but: After Redfin’s first day of trading in 2017 each share was valued at $21.72, significantly higher than Rocket’s acquisition offer of $12.50 per share.
   

• If you owned $100 of Redfin shares in 2017, they would be worth $58 today – a decline of 42 percent (due to dilution – it’s a thing!).

Redfin was never really profitable: Operating Cash flow, which measures how much cash the business generates, is a good corollary for profitability.

• Since its IPO, Redfin had two profitable years vs. five unprofitable ones, for a combined loss of $368 million (again, this is actual cash flow and not “net loss” which includes non-cash expenses like stock-based compensation).
   

• Redfin innovated in so many areas, from agent compensation to groundbreaking tech products, but at the end of the day it just didn’t make money.

Not only is Redfin consistently unprofitable, but it has a high debt load – $815 million – with steadily dwindling cash reserves of just $125 million at the end of 2024.

• Much of that debt, totaling over $1.2 billion by the end of 2021, was used to fund a pair of expensive acquisitions.
   

• Redfin acquired Rentpath for $608 million in 2021, and Bay Equity Home Loans for $138 million in 2022.

It’s fair to say the acquisitions didn’t pan out as expected.

• Redfin recently announced a deal that effectively outsourced its rentals business to Zillow for $100 million.
   

• And in contrast to Zillow’s growing mortgage business, Redfin had to cut costs; its mortgage headcount declined from over 450 mortgage loan officers in 2023 to 275 in March 2025.

Real estate disruptors have a tendency to “go native” and, over time, end up looking more and more like the companies they were originally trying to disrupt.

• It happened with iBuyers, with the now-defunct REX, and with Redfin, as the company slowly pivoted closer and closer to a traditional brokerage.
   

• This Vox article from 2015 says it best: “Redfin set out to change real estate. Then real estate changed Redfin.”

The bottom line: Back in 2023 I said, “...it appears that Redfin is overstretched with limited resources and up against well-funded competitors…this is a galvanizing moment for the business; one way or another, something has to change.” Well, something did.

• Redfin tried to do a lot: web portal, brokerage, iBuying, mortgage, rentals, title insurance, and more – with just one of those categories being more than enough to occupy a company full time.
   

• In the end, it might be that lack of disciplined focus that prevented Redfin’s success – plus a lack of resource and scale – which the company now has after its acquisition by Rocket.

The Exclusive Inventory Power Play

While the public debate swirls around NAR’s Clear Cooperation Policy, behind the scenes Compass has steadily built up an exclusive inventory of over 7,700 listings.

Why it matters: Exclusive inventory represents a way for agents and brokerages to exert more control over their listings, and has the potential to materially shift existing power dynamics across the industry.

• Compass has more than doubled the number of its Private Exclusive listings over the past seven months – up from 2,500 in July 2024 to over 6,000 in February 2025.
   

• Private exclusive listings (as opposed to Coming Soon) are not publicly advertised; a consumer needs to connect with a Compass agent for access.

Private Exclusives account for roughly 30 percent of all Compass listings; including another 1,400 Coming Soon listings brings that to 35 percent.

• Underlying this push is Compass’s 3-Phased Marketing Strategy, which encourages homeowners to start with a Private Exclusive before listing on the MLS.
   

• And it appears to be resonating with agents and consumers: so far, 55 percent of all new listings in February started as a Private Exclusive or Coming Soon. 

There are broad implications to the rise of exclusive inventory – interestingly reminiscent of the evolution of video streaming.

• There was a time when Netflix, containing nearly all streaming content, was the only game in town – but more recently, other content creators, like Disney and Apple, have launched their own streaming platforms.
   

• On the one hand, it’s more time-consuming and expensive for consumers to visit and pay multiple services to get what they want; the one-stop-shop marketplace is gone.
   

• But on the other hand, consumers now have a choice, and that has spurred platform innovation and billions of dollars in content creation.

Yes, but: video streaming is not real estate, I get it, but it’s an interesting thought experiment.

• Exclusive inventory is the norm overseas: in Australia, #2 portal Domain has advertised exclusive content (or at least a first look at exclusive content).

Dig deeper: In 2021 I wrote about exclusive content being the Top Threat to Real Estate Portals.

• Back in 2019 I wrote about Compass’s End Game (exclusive content).
   

• And Compass isn’t alone; Opendoor is also experimenting with exclusive inventory.

The bottom line: There’s a lot of talk on conference stages and op-eds, but Compass has focused on action by steadily building up a large supply of exclusive inventory.

• Exclusive content has the potential to materially shift existing power dynamics across the industry – it challenges the fundamental assumptions of an open marketplace, but also sets the stage for further innovation.
   

• Regardless of which side you’re on, the rise of exclusive content is inarguably an industry needle-mover, and things are about to get really interesting.

---

Note: The data in this article is all publicly available on Compass.com. I’d like to thank Max Mitchell and my friends at Supergood for their help with the data collection.

87% of Mortgage Business Comes From Referrals and Past Clients

A lot of industry discussion revolves around online lead generation, but when it comes to real estate transactions, especially mortgage, the majority of business comes from referrals and existing relationships.

Why it matters: Online leads are exciting, but the data reinforces how absolutely critical relationships are in the real estate industry.

Dig deeper: The following data from STRATMOR asked 82,000 recent home buyers how they found their lender.

• 50 percent found their mortgage lender from a referral and 37 percent from an existing lending relationship.
   

• That’s 87 percent of new business coming from offline, person-to-person relationships – a loan officer’s sphere of influence.

The theme is international, too: Poland’s second largest mortgage broker, Lendi, reports that in 2024, 60 percent of its 40,000 transactions originated from the loan officer’s referral network. 

• Assuming that equates to a “realtor referral” or an “existing lending relationship” in the corresponding STRATMOR data above, the breakdown is very similar: 60 vs 67 percent.

The power of referral translates to brokerage, too.

• The following data from Austin brokerage Bramlett Partners, consisting of over 750 transactions from 15 agents, shows that 61 percent of closed deals came from an agent’s sphere of influence (referrals and existing relationships).
   

• Note: this is one, small dataset and not necessarily representative of the entire industry – but the theme is similar.

The bottom line: This is a timely reminder that in real estate, it’s not just about what you know, it’s who you know.

• The data reminds me of a previous analysis, Ecosystem Disruption in Mortgage Looking Exceedingly Traditional, that highlights just how important offline is in the mortgage business.
   

• When it comes to mortgages, online lead generation is certainly a piece of the puzzle, but it pales in comparison to the power of referrals and existing relationships.

Chess Without Checkmate: The Portal Wars

As 2024 draws to a close, it’s worth revisiting the Portal Wars in the U.S. – and how little has changed.

Why it matters: It’s a case study that illustrates two important lessons: hype is not the same as reality, and some games just can’t be won.

• The potential disruptor is CoStar, which has invested over $1 billion in Homes.com to challenge the incumbent portals for dominance, with traffic growing alongside a massive advertising spend.

Yes, but: Corresponding revenue growth has slowed and pales in comparison to the established portals.

• In the latest quarter, Zillow’s real estate lead gen revenue was about 20 times higher than Homes.com’s.

Zillow’s lead over the #2 portal realtor.com, as measured by real estate lead gen revenue, has remained relatively constant over time – and if anything, has increased.

• The recent uptick could be a result of strength in a down market, Zillow flexing its Flex muscle, or just slower growth at realtor.com.
   

• But the result is key: the #1 portal’s competitive position tends to get stronger over time.

The same scenario has played out in Australia and the U.K., where the leading portals command a significant revenue lead over their rivals.

• Interestingly, that lead is similar in all three markets – an average of 3.3x and increasing over time.
   

• The #1 portals stay strong and get stronger over time, the beneficiary of network effects, with no examples of that dominant position being eroded.

The bottom line: Real estate portal competition is like chess without checkmate; there’s no winning move, and it’s not a game that can be won.

• There’s a flurry of activity, tactical moves, and strategic plans, but very little actually changes; traffic may increase in a non-zero sum manner, but revenue – the ultimate metric of delivering value to paying customers – remains competitively static.
   

• Portal competition is exciting, but it’s unlikely to materially change the landscape – which is a perfect example of the DelPrete Probability Paradox in action.

Post-Settlement, Buyer Agent Commissions Remain Unchanged

All eyes are on buyer agent commissions after the NAR lawsuit settlement – which, so far, have remained unchanged.

Why it matters: The commission settlement changed the mechanics of buyer agency, giving consumers more choice with agents competing on value; the buyer agent commission is a reflection of that value.

• This data is from the nation’s largest brokerages and represents about 55,000 closed transactions per month – or about 17 percent of the market.

Dig deeper: There has been no change in average buyer agent commissions since the settlement took effect in August 2024.

• Historically, buyer agent commissions fluctuate based on a variety of factors including overall market conditions and seasonality.
   

• For reference, the 0.06% annual decrease in the chart above equates to $245 on a median-priced, $409,000 home.
   

• This data is national and figures will vary by market; the specific number is less important than the vector of change over time.

The bottom line: A big part of the commission lawsuits was about consumer choice; replacing a default path with more transparency and more choice around buyer agent compensation.

• The evidence to-date doesn’t support the hype around this being a seismic shift in the industry – consumers still value a buyer agent the same as before.
   

• It’s still early days and things may change in the future, but this is an important benchmark to set and an important foundational change for the industry.

Portals, Disruptors, and Investing for Mortgage Growth

Even in a depressed market, people are still getting loans and buying houses – and some companies are positioning themselves to capture a larger share of the mortgage market.

Why it matters: Tracking MLO (Mortgage Loan Originator) headcount is a corollary to the size of a company’s mortgage business, and tracking headcount over time reveals who is investing for future growth.

• Three interesting examples are Zillow, Redfin, and Better Mortgage.
   

• Over the past 15 months there has been slow and steady headcount growth at Zillow, an equally slow decline at Redfin, and a rapid rise at Better (a classic hockey stick curve).

Broadening the field of companies and looking at the past three years provides helpful context in terms of growth, decline, and relative size.

• The small disruptors pale in comparison to the portals and established mortgage companies.
   

• Better has been on a wild ride.

As a percentage, Better has grown the most over the past year. 

• Tomo earns a noteworthy mention as the only disruptor to materially grow MLO headcount (but off a small base). 

Mortgage origination volumes typically align closely with MLO headcount.

• Zillow’s origination growth has remained steady as it continues to invest in and grow its mortgage business.
   

• Redfin and Better appear to be riding more of a seasonal wave. (Note: Better’s origination volumes also include a growing refinance business, while Zillow and Redfin are primarily purchase volume.)

The closest metric to measuring overall efficiency would be Origination Volume per MLO.

• Zillow’s has been flat while Redfin experienced a recent uptick in the previous two quarters, the result of a seasonal uplift in volume with a corresponding drop in MLO headcount.
   

• Better’s metrics were materially better, but have been sliding, likely a result of exponential headcount growth outpacing origination volumes (i.e. investing for future growth).

Revenue per MLO is another efficiency metric, and in that category Zillow is winning.

• In Q3 2024, Zillow’s mortgage revenue per MLO was $130k compared to $114k at Redfin and $89k at Better.

The bottom line: The companies that can afford to are aggressively growing MLO headcount in order to capture future market share.

• The mortgage businesses of the disruptors, primarily Power Buyers, remain at a much smaller scale as they've navigated the slow market and pivoted their business models.
   

• The portals are the ones to watch – having acquired mortgage businesses of significant scale – and with Zillow continuing to grow its MLO headcount.
   

• The pure-play mortgage companies are larger, especially Rocket, and well-positioned to execute on growth opportunities in their own adjacent spaces.

To Cumulative Or Not To Cumulative, The Pacaso Story

To me, the truth matters – and a recent example from Pacaso’s fundraising deck reveals the latest example of a company toeing the line between accuracy and what looks good. 

Why it matters: In Pacaso’s case, this is information that retail investors are using to make investment decisions – but more generally, this is about the importance of leading with transparency and accuracy.

Dig deeper: Pacaso recently revealed its financials as part of its crowdfunding campaign, a fascinating peek inside the operations of a high-flying and highly-funded real estate tech startup.

• A point of contention in the release was the use of non-standard “cumulative” financials instead of annual: cumulative revenue and cumulative gross profit.
   

• Making matters worse, the graphs were not labeled, giving the impression that the reader is being misled into thinking they are annual numbers.

Pacaso then updated these graphs, and, in a weird twist of fate, did so in a public Google Slides document that I happened to be viewing, producing a real-time feed of comments as they debated what to change. 

• During this process, the team clearly evaluated a more traditional annual presentation of its financials, but ultimately decided to retain the cumulative charts because the annual ones “don’t look great visually.”

Ultimately, labels were added to the existing cumulative charts in the investor deck, but the same charts remain misleadingly unlabeled on the investor site (note: after first publishing this article, a label was added to the relevant graphs).

Pacaso is not alone; companies have been stretching the truth for years in order to tell a particular story or mislead investors.

• The most common area is reporting profitability, where unprofitable companies have a tendency to highlight “gross profit” or “unit economics,” metrics which exclude many expenses like salaries and marketing (read more: iBuyers Turning Obfuscation of Profit into an Art Form).
   

• Net Profit, EBITDA, and Adjusted EBITDA is another veritable minefield of manufactured metrics that tell a one-sided story, which is why I recently dug into Cash Flow as the ultimate profitability metric.

The bottom line: Information is power, and transparency is powerful – it’s easy to tell whatever story you want by subtly manipulating the display of data.

• It’s one thing to mislead experienced investors whose job is to see through statistical illusions, but it’s another to mislead individual retail investors.
   

• There’s a thin line between painting yourself in a favorable light and outright deception – there may be a short-term benefit, but the long-term consequence is the erosion of trust, arguably the most valuable factor for any person or business.

Portal War ‘24: What $1 Billion in Advertising Buys You

The biggest upstart real estate portal in the world, CoStar’s Homes.com, has comfortably settled into the #2 spot in the U.S. – but at what cost?

Why it matters: Homes.com is a real-time case study of what it takes for a portal to disrupt the status quo, and it appears to take $1 billion in advertising.

• After a year of heavy investment, Homes.com has overtaken realtor.com for the #2 spot for two consecutive quarters.

Dig deeper: In May I asserted that portal traffic was a non-zero-sum game, meaning that traffic gained by one portal (Homes.com) is additive and not coming at the expense of other portals.

• That trend continued into Q2, with the combined traffic of Zillow, realtor.com, and Redfin remaining the same as last year, while Homes.com significantly grew its traffic.

It’s not rocket science; Homes.com’s traffic growth is directly correlated to its overall advertising spend – which is how advertising works.

• The steady increase in traffic during the first three quarters of 2023, the dip in Q4, and the big increase in the first half of 2024 tracks exactly with CoStar’s overall advertising spend.

Astute readers may notice that advertising spend is required to maintain traffic levels, revealing insights around overall advertising efficiency.

• Dividing the overall advertising spend by the number of average monthly uniques provides a rough illustration of advertising efficiency over time (cost per visit).
   

• Not all of CoStar’s advertising budget is going into Homes.com, but considering it was $55 million in Q1 2022 and $234 million in the latest quarter, it’s clearly a lot.
   

• Directionally, this highlights that advertising efficiency isn’t meaningfully changing, traffic is not growing organically (yet?), and that, for the time being, continued advertising spend is required to maintain Homes.com’s traffic levels.

The bottom line: For years, disruptor portals have tried unsuccessfully to unseat market leaders around the world. 

• Becoming the #2 portal has cost CoStar about $1 billion in advertising, but the real question is: how much will it cost to maintain that position (the current math suggests the answer is around $950M in advertising spend per year).
   

• Homes.com is proving that changing the status quo is possible, if you have the cash.

Cash Flows of the Rich and Famous

Cash flows are in for the first half of 2024, and some companies are losing money, some are making money, and some are making a lot of money.

Why it matters: Operating cash flows are an accurate measure of business model health, and a data-driven analysis reveals insights around various models and market dynamics.

• Operating cash flow is a metric that cuts through the hype to measure the actual profitability of the core operating business model: does it make money?

Dig deeper: eXp Realty, a real estate brokerage, and Zillow, a tech company and portal, both generated the same amount of cash – a surprising result given the very different business models.

Industry incumbent Anywhere has moved away from being a big cash generator, likely a result of the challenging market; its business model is less resilient.

Meanwhile, eXp Realty has grown its cash generation abilities during the same period of time – and in the same market conditions.

• As I said in a recent keynote presentation, while a rising tide lifts all boats, a receding tide reveals.

Adding real estate portals from around the world – Germany’s Scout24, the U.K.'s Rightmove, and Australia’s REA Group – reveals just how profitable those businesses are.

• Rightmove and REA Group are the most profitable real estate portals in the world.

Considering market size, as measured by population, when comparing real estate portals reveals a thought-provoking data point.

• Real estate is similar around the world, but market dynamics and business models are very different, as highlighted by operating cash flow per capita (per capita means “per person”).

REA Group is world-class in its ability to monetize its market – with an operating cash flow per capita 16x higher than Zillow.

• Australia is the market that CoStar points to when talking about its monetization plans for Homes.com.
   

• But the markets are very different: Australia doesn’t have MLSs and has vendor funded advertising (for more, check out my Real Estate Portal Strategy Handbook).

The bottom line: The market is tough but it doesn’t mean all businesses are struggling, and real estate portals remain some of the most profitable businesses in real estate.

• The U.S. market is huge, but market size does not always correlate to profit potential – it has more to do with local dynamics.
   

• In the end there will be winners and losers – companies generating cash and burning cash – which is an accurate reflection of business model efficacy.

Secret Shopping: 47% of Online Property Inquiries Are Ignored

This report presents the results of 100 secret shops in real estate, a strategy used to evaluate a business's services, products, and real customer experience.

Why it matters: The results highlight significant areas of opportunity for brokerages and agents in the fundamentals of customer service.

The research: We conducted over 100 secret shops across the U.S., managed by a team of experts who used a standardized method conducted in a professional, repeatable manner to evaluate each brokerage.

• Online inquiries: we inquired about specific, median-priced properties on individual brokerage websites (not Zillow), primarily through online forms or similar calls to action.
   

• Open houses: our secret shoppers walked into local, median-priced open houses across the nation and collected specific data points about their experience.

Table stakes for an online lead is simply receiving a response – and nearly half of all inquiries went unanswered. 

• On average, it took 8 hours and 17 minutes to respond to an online inquiry, although the median time was a more reasonable 39 minutes.
   

• All of our inquiries were made during normal business hours on weekdays.

Open homes didn’t fare much better: 42 percent of the time the hosting agent never asked a shopper for their contact information.

• Of the 58 percent of agents that did ask for contact information, a third of the time the agent never followed up with a phone call, email, or text message.
   

• The net result is that 62 percent of in-person, open home shoppers – which some may argue are fairly high intent customers – had no follow-up after touring a home.

We secret shopped over 25 brokerages across the country, shopping each between two and three times.

• By far the most significant observation, for each brokerage and across brokerages, was that most interactions were consistently inconsistent.
   

• There was no rhyme or reason to the level and quality of follow-up – or even if there was any follow-up at all; it was a roll of the dice each time.
   

• More details, comprehensive data, and examples will be included in an upcoming report.

The bottom line: This is a perfect illustration of real estate’s Last Mile Problem – and lays bare the immense opportunity in simply getting the basics right: following up with people in a consistently structured way.

• In other industries, best practices include secret shopping yourself and your competitors on a regular basis.
   

• If you want to hire a team to understand what your real customer experience is like, drop us a line.

My New Keynote: Probably

The less likely something is to occur, the more attention it gets -- it's easy to get swept up in the hype of new trends, technologies, and market shifts. Join me as I take a look at the industry through the lens of probability, and reinforce the power of remaining focused on what's within your control. Presented at Inman Connect Las Vegas 2024.

Debt, Debt, Debt, Debt, Debt

The title of this analysis contains the word “debt” five times – the number of times it appears in eXp Realty’s 2023 annual report – compared to 207 times in Anywhere’s and 254 times in Opendoor’s annual reports.

Why it matters: Word count in annual reports isn’t a scientific measure, but it is an interesting reminder of the critical role that debt plays for some real estate tech companies.

• Mentions of debt, and amounts of debt (not the focus of this analysis), vary greatly between companies.

Some companies, like Anywhere, have large amounts of long-term debt that needs to be paid back over time (plus interest).

• From Anywhere’s annual report: “Our liquidity has been, and is expected to continue to be, negatively impacted by the substantial interest expense on our debt obligations.”
   

• Anywhere goes on to summarize the risks of high debt: “...a substantial portion of our cash flows from operations must be dedicated to the payment of interest on our indebtedness and…is therefore not available for other purposes, including our operations, capital expenditures, technology…”

Companies like Opendoor, on the other hand, utilize short-term debt as a core component of its business operations (purchasing houses).

• From its annual report: “We utilize a significant amount of debt and financing arrangements in the operation of our business.”
   

• For Opendoor, the risks are less about repayment of debt, and more about exposure to changing interest rates: “Our leverage could have meaningful consequences to us, including increasing our vulnerability to economic downturns, limiting our ability to withstand competitive pressures, or reducing our flexibility to respond to changing business and economic conditions.”

The number of mentions over time presents a rough corollary to the role that debt plays in the operation of a business. 

• Debt has been a critical component for Opendoor and Anywhere for years – and as a brokerage, Anywhere has a more intimate relationship to debt than its peers like RE/MAX, Compass, and eXp Realty.
   

• Zillow’s debt mentions fluctuated as the company got into, and then out of, iBuying.

The bottom line: Some companies have debt, some don’t, and some have a LOT of debt, which comes with its own set of consequences.

• There’s nothing inherently wrong with debt, but it does come with risks and needs to be well managed.
   

• And for those companies saddled with debt, it can limit their ability to invest for future growth (read more: Cash Flow is King).

Cash Flow is King

Profitability can be reported in a variety of ways: Net Profit, EBITDA, Adjusted EBITDA, Adjusted Net Profit, Gross Profit, and cash in the bank are just a few possible metrics.

Why it matters: While each is important, none really measures the actual profitability of the core operating business model.

• Because before debt repayments, stock buybacks, and acquisitions, what really matters is how much cash the business generates, and that metric, buried in the Cash Flow Statement, is net cash provided by operating activities.

Using net cash provided by operating activities as the baseline, it’s possible to compare the business models and relative profitability of the top publicly-listed real estate companies.

• The measure here is business model efficacy – cut through the hype, misleading metrics, and adjacent financial maneuvering to look at the core business: does it make money?

In 2023, Zillow and eXp Realty, followed closely by Anywhere, were all cash-generation machines. 

• Zillow often gets lambasted as being “unprofitable” (on a net profit basis) and eXp’s business model has been questioned for years, but both generate a lot of cash.
   

• Opendoor’s financials are unintentionally obfuscated behind the massive cash inflows and outflows of buying and selling real estate – this analysis excludes those cash flows for all iBuying activities.

Historically, these companies are generally either consistently profitable or unprofitable.

• Zillow, HomeServices of America, eXp, and, for the most part, Anywhere, have all been profitable since 2018, with 2021 a notable highpoint.
   

• Opendoor, Compass, and Redfin have all been generally unprofitable during the same period (Redfin was briefly profitable in 2020 and 2021).

Over the past six years, the most profitable companies have deployed their free cash in very different ways.

• Zillow and Anywhere, two very different companies whose only similarity is that they’re both in real estate, have each generated about $2 billion in cash since 2018.
   

• Zillow used that cash to grow, investing over $1B in acquisitions, while Anywhere used it to pay off about $1B in debt (only $2.3B to go!).

The same trends continue into 2024 with Zillow and eXp continuing to generate large amounts of cash, with a few other noteworthy outliers. 

• Compared to the same time last year, the biggest improvement in cash flows has been at the most unprofitable companies (Opendoor, Compass, and Redfin), which have been energetically cutting costs and reducing expenses.
   

• The large Q1 cash burn at Anywhere is seasonal, and highlights the fluctuations of a traditional brokerage business (eXp, however, still generated cash).

The bottom line: It may sound elementary, but a real business needs to have a business model that works – and that’s consistently making more money than it spends.

• It is those businesses – generating free cash flow – that are able to invest for growth, give returns to shareholders, and use the profits to launch new ventures to add value in the real estate ecosystem.
   

• Even with plenty of cash in the bank, companies whose core business is unprofitable are much more constrained in their operations and can’t survive forever; either the business model pivots or the company will cease to exist.