Above, Phillip Cantrell
In early March, Keller William’s accepted an investment by private equity firm Stone Point Capital—the same people who own Lone Wolf and CoreLogic, among others.
Being a privately held company, KW has not disclosed the size of the investment or what percentage control was transferred. Given that a new CEO was immediately installed, it was most likely a majority stake. Since KW had been falling further and further behind on the market-share race, after an apparently failed attempt to reformat as a “technology company,” my guess is that this liquidity event was more of a recapitalization than anything.
I do not believe KW was in trouble but given the leadership personality running the show over there, industry appearances seem to have an inordinately strong influence on most of their actions.
Last week, Rocket Mortgage acquired Redfin for $1.75 billion in STOCK. It is important to note that no cash changed hands, and this valuation was a mere $10M more than their IPO valuation SEVEN years ago. Plus, it came just a few days after analysts had downgraded Redfin once again.
Clearly this was a bold move by Rocket toward full vertical integration and attempting to control the top of the funnel all the way to the last mile to the house. Whether or not they can achieve that result remains to be seen. As Zillow discovered, it is that last mile to the house in a transaction—the part handled by human relationships—that determines success.
The glaring difference in the Rocket move and Zillow’s previous attempts is the connection to that last mile—the individual agent. Zillow was attempting it with independent contractor agents. Rocket is now attempting it with W-2 employee agents. This will give Rocket MUCH greater control over the service delivery at the point of need than Zillow could have ever achieved. Putting the two organizations together is a huge integration problem (really, really huge) but if they can pull it off, it could have a huge impact on our industry and perhaps even how real estate is done in the U.S.
The flip side of that is Redfin has not been all that successful in obtaining market share dominance via the W-2 model to date, so controlling the top of the funnel to feed the network may not range as far in impact as it appears.
Even though it is being denied by the CEO of Berkshire Hathaway HomeServices (BHHS), it appears Compass and BHHS may be coalescing into a mega conglomerate. Still with a traditional 80/20 split model and very high expenses. If they can pull it off, this move will bring together nearly 100,000 agents under one brand, and bring to the forefront the concept of the private listing network that Reffkin has been promoting.
On a side note, if this turns out to be a rumor started by Compass, then this is a clear SEC violation and could cause some serious financial penalties for Reffkin, and possible jail time for the individual who ends up being the scapegoat. Coming on the heels of the $57.5 million settlement payment due soon, the blow to credibility will be tremendous—perhaps unsustainable. My belief is they were close to a deal, and for some reason it went south. Now everyone is scrambling to save face.
Compass likes to use old numbers to entertain investors. For example, here in Nashville, Compass acquired a large firm in June 2024. By the end of 2024, agents who were with the newly acquired firm representing over $2 billion in annual sales had walked out of Compass and joined another brokerage. However, in reporting their end-of-year gross sales for Compass Nashville, those sales numbers and transaction count were included in all the news releases as if those agents had remained all year.
It’s going to be interesting to see how all this falls out and how long the investors will keep plying Compass with additional cash. Net profits seem to be a foreign concept to these companies. The common feature is that they are all companies who have experienced rapid growth and then became fading stars. In the end net profit is what sustains longevity.
Looking ahead, I am certain that we are on the cusp of the biggest wave of mergers and acquisitions our industry, and possibly the country has ever seen. Hate to admit it but there were a few of us who saw this coming and shifted our model to meet it. We are ready. Bring it.
