Here’s An Inside Look At How Redfin, Zillow and Compass Make Money

If you’ve ever looked for a house or an apartment (which is basically every adult), you’ve most definitely heard the names the best home buying sites like Redfin, Zillow, and Compass. While all three of them play a similar role for buyers looking for properties on the market, their back-end monetary incentives affect the way these companies interact with you. In this blog, we’re taking a deeper look to see how each of these big-name brands in the real estate industry actually makes money.

1. How Redfin Makes Money

For potential buyers, you likely think you’re going on Redfin just to peruse listings, maybe send them to friends and enjoy looking at cool real estate. But while you’re innocently searching and browsing dream homes, they're trying to get you to click a button that says ‘Contact Agent’. Why? Redfin is a real estate brokerage, not just a real estate search engine. Their goal is to get you to buy or sell with their in-house agents. Their primary value shtick is, “Hey, if you buy with us, we're going to throw you a little bit of our commission, and if you sell with us, we're going to offer a much lower commission.” Their real goal is to get you to both buy and sell with them, and they're going to incentivize you with more money.

The big difference between Redfin's model and other traditional brokerages is that their real estate agents work on salary, not commission, so their incentives are different from the average real estate agent. Each individual transaction (buyer or seller) doesn't mean quite as much to them because they’re going to make their money no matter whether or not they sell your property or help you buy one.

They're something that we call a “discount brokerage.” They're trying to minimize costs across the board, which means when you hit that button that says contact agent, you'll meet someone who will show you the property, but that's not actually going to be the person who you work with throughout the entire transaction. You're going to meet with a showing agent, a transaction agent, a transaction coordinator, and you're not gonna have this very high touch concierge level experience a top agent can show you.

Talk to any agent, and I guarantee they have hundreds of stories about their dealings with Redfin. I'm not making a characterization if it's good or bad, but it's completely different from what the average agent is used to.

2. How Zillow Makes Money 

To the typical internet user, Zillow is a place where people browse pictures of cool listings or rentals and see what's available in the surrounding area. That's very true, and it’s how Zillow is attracting the average potential buyer to come around and click on their website. But the big question is, how are they making money, and what is the Zillow business model? Because you clicking around isn't making them any revenue.

For example, let's say you like my listing, and you click this button that says ‘Contact Agent’. What's going to happen is your call will be connected to an agent who has paid for your call in that zip code — and it's not usually the listing agent.

That agent's job is to try and win you as a client, so it's a really big win for the agent and, hopefully, the consumer — the potential buyer gets to meet someone that they normally wouldn't have met. The agent gets face time with new potential customers and, ideally, more sales.

Real estate agents like me are Zillow's consumers, not the person browsing listings. What Zillow offers is leads — we're the consumer, and you're the product. So really, every time you're clicking around on Zillow, your information is being sold, literally, to me. We're one of the biggest spenders on Zillow, so we can meet quality sellers and buyers in the areas that we want to be working in. 

3. How Compass Makes Money

So…where does Compass fit into this picture? Compass is trying to play the middle. Redfin is trying to be a discount brokerage. Zillow wants to be your first interaction with real estate via search. In the best-case scenario, you're starting your search on Compass.com, and you're also finding your agent on the Compass platform.

But what Compass is also trying to do is streamline the sales process. Not only can you search like Zillow (our user experience is really, really great), but you can also have your agent, like me, collaborate with you in one easy-to-see place. 

So the real question is, how does Compass make its money? Their revenue model is much more similar to a traditional real estate brokerage, like Coldwell Banker or Jameson Sotheby's, or Berkshire Hathaway — some of those names that people associate with a traditional residential real estate transaction. Similar to those brokerages, Compass' is playing a volume game. They want to have many top agents under their umbrella and charge a small portion of their commission in exchange for the technology and resources to serve buyers and sellers more easily.

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