Agents and brokers can gird for another shift in the real estate landscape as startups like Compass try to sway investors that they can reshape the home-buying process through the use of technology.
Compass offers a dashboard showing neighborhood data and a Pinterest-like app for organizing home listings would make real estate agents more productive and therefore, more profitable.
The pitch caught the attention of Fidelity Investments, which made a rare bet on a private company, valuing the business at $1.8 billion.
While Compass might look like another other broker, with more than 2,000 agents, who take a percentage of the selling price and gives 15 percent to 30 percent to the company, it lures the industry’s top talent with lavish signing bonuses and specializes in high-margin, luxury homes in upscale, coastal markets.
The much-touted technology is, according to several agents, not that different from what other brokers provide.
However, Ori Allon, co-founder and executive chairman of Compass, said the company will use part of the $100 million from the new funding round to invest more in research and development. About a quarter of the company’s 500 employees work in software development and design, he said. Allon brushed off criticism about Compass’s technology and questions about the lofty valuation.
Compass generated $188 million in revenue last year, and Allon estimated it will hit $400 million in 2018.
Redfin Corp., a real estate broker that went public in July, is expected to generate $365 million in sales this year, according to analyst estimates compiled by Bloomberg. Redfin’s market value is $1.87 billion, and it has yet to turn a profit.
However, the seeming vote of confidence from Fidelity is attention-getting. Like other mutual fund managers, Fidelity has been reducing the number of investments in late-stage startups. Compass was the 11th for Fidelity this year, half the amount from 2015, according to data from research firm CB Insights.
Compass software allows agents to see property assessments, school quality and other public data inside the Compass system. Agents can also use the company’s tools to assemble collections of properties to discuss with clients and book appointments with sellers. There are also market analysis and data tools for evaluating home prices.