Compass Just Became the World’s Largest Brokerage. Now What?

Last Friday, Compass, the largest brokerage in the country, acquired Anywhere Real Estate, making it the largest brokerage in the world. Its merger with Anywhere, the second-largest brokerage in the U.S., brings Corcoran, Sotheby’s, Coldwell Banker, and Century 21 under Compass’s umbrella, which already included Christie’s and some prominent local firms, including Stribling & Associates in New York. It’s a stunning coup for a company that was launched barely a decade ago and has struggled to turn a profit for years. With this deal, Compass is now estimated to control more than 40 percent of residential sales by dollar volume in New York and San Francisco and about 20 percent nationally, according to an analysis published by The Wall Street Journal this fall.

The $1.6 billion, all-stock deal closed unusually quickly — government approvals took just a few months after the initial September announcement — and did not involve the scrutiny typically involved in a merger of this scale. It also proceeded despite the objections of the Justice Department’s anti-trust division, which felt that the merger of the country’s two largest brokerages merited an investigation. (The next-largest brokerage in the country is the much smaller eXp Realty, followed by Berkshire Hathaway.) In December, senators Elizabeth Warren and Ron Wyden wrote a letter to the Federal Trade Commission and Department of Justice asking that the deal be closely evaluated for potential anti-trust and civil-rights issues, but it was approved by the Justice Department a few weeks later. Typically, such investigations can take up to a year and involve examining company documents and interviewing outside firms to learn about how the market operates. In the absence of this process, and given the speed with which the deal closed, there’s little concrete information on how, exactly, the move will affect the real-estate industry. What might a mega-Compass mean for buyers and sellers, as well as the brokers who represent them?

One of the largest issues brought up by the merger is the expanded use of private listings networks, something that Compass has been championing over the last year. The listings networks allow sellers to first list their homes discreetly in a Compass-only network while buyers working with Compass agents ostensibly get a jump on anything good before the broader public sees it. There’s a clear advantage for Compass, especially in competitive markets where it now controls almost half the sales: Buyers will feel that if they work with a different brokerage, they’ll be missing out. It also allows the brokerage to double dip, collecting commission cuts from both sides of the deal, something that it has insisted isn’t its intention.

Compass argues that using the networks, which isn’t mandatory, allows sellers to test out pricing and possibly find a buyer without plastering photos of their home all over the internet. But they also make it harder for buyers to know what’s actually on the market and how long a property has been for sale, and potentially limits exposure for sellers, who often get the highest price when their homes are on the open market. Sellers and buyers will be more reliant on their brokers to give them accurate information on pricing, availability, and negotiations. (And if their agents aren’t Compass agents, they might not have that information either.) While buyers have been able to do more of their own research on portal listing sites like Zillow and StreetEasy over the past few decades, such sites may no longer reflect everything that’s available on the market, especially after Zillow banned private listings last year in an attempt to stop Compass from using them. This brings us to our next prediction:

With the merger, a total of 340,000 agents are now under the Compass umbrella. Compass has said that the Anywhere brands will maintain their independence and identities within the new shared network, but as the Times pointed out, Anywhere will be a “wholly owned subsidiary of Compass” according to an SEC filing from the day of the merger. In practice, Jonathan Miller, of appraisal firm Miller Samuels, believes this will mean more rainmakers — top-performing brokers — will decamp for boutique brokerages where they can collect the higher commission splits they’re used to. But for most buyers and sellers, the person handling their real-estate transaction is increasingly likely to be a Compass broker.

After the merger, it’s likely that the transaction costs of selling a home, including the costs of filing paperwork and arranging showings, will go down, according to Tomasz Piskorski, a real-estate professor at Columbia Business School. “There are lots of inefficiencies in real-estate brokerages and it’s costing homebuyers and -sellers literally billions of dollars a year,” he says. Compass, known for its tech, particularly the Compass One software that debuted last year, has the potential to make the process less clunky and more streamlined. Miller pointed out that despite Compass’s tech being reportedly very good, many Compass brokers have yet to adopt it. That may change after the merger makes it industry standard. But that doesn’t necessarily mean costs for buyers or sellers will fall. Both Piskorski and Miller said they expected Compass to bundle in more fees and services for things like title insurance or mortgage-broker referrals to help it cover the acquisition costs of merging with Anywhere and to deliver profits to shareholders.

Americans pay some of the highest sales commissions in the world, typically 5 to 6 percent, split between the buyers’ and sellers’ agents. While many consumer advocates were optimistic that the National Association of Realtors settlement in 2024 would significantly reduce the cost of selling and buying a home, neither commissions nor home prices have fallen.

After the merger, Compass has the ability to command more lucrative commission splits from agents — that is, the cut that the agent is obligated to give the brokerage on every deal. Brokerages have typically allowed top-producing agents to keep bigger cuts of their sales, banking on their star power and their headline-making deals to draw and keep other agents and sometimes taking so little that they even lose money in the process. But Compass’s increased size means agents will now have less leverage to negotiate compensation and benefits. It’s not yet clear how that will impact buyers and sellers. If anything, having to give the brokerage a bigger cut could make agents more reluctant to lower commissions for clients. But even if commissions do fall, it would benefit sellers, not buyers. “The argument that lower fees mean lower prices is logically incorrect,” says Piskorski. “It may actually mean higher prices. Homes are not consumer goods; they are durable goods.” If a home costs less to sell, he explains, it becomes more valuable, not less. Any other falling transaction costs are also expected to benefit existing home owners, not buyers, pushing up real-estate prices rather than making them drop. In other words, Compass’s new status is not likely to translate to financial benefits for the average homebuyer.

Consolidation has been happening across the real-estate industry for decades, with a big recent wave of consolidations in listings sites, such as Redfin and Zillow’s partnership last year and Redfin and Rocket Mortgage’s merger. This has made it harder for smaller and midsize players to compete, especially those who don’t fill a particular niche — i.e., celebrity and high-net-worth clients in Manhattan — and arguably to offer alternatives to Compass that buyers may need or want. But since the pandemic, there’s less activity overall in the residential market, making it harder for brokerages to turn a profit. As Piskorski noted, that environment makes mergers and the cost savings associated with them even more appealing.

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