Photo by MOHD AZRIN on Unsplash
 

Flogging real estate isn’t easy right now. In the United States, there are over 1.5 million members of the National Association of Realtors – brokers who liaise between buyers and sellers of homes – but only around half that many active sale listings, per data from the St. Louis Federal Reserve. That level of competition, plus rising rates and falling values, doesn’t bode well for the realtor industry. Companies like Redfin, Compass, Re/Max, and Zillow are at an inflection point: The town isn’t big enough for the four of them.

Last week, Insider reported that private equity firm Vista Equity Partners is interested in buying Compass. The $1.1 billion realtor group, which went public in March 2021, promptly said it hadn’t received any buyout interest. Still, rivals angling to scoop the company up would be smart to circle: Shares had fallen more than 85% from its initial public offering prior to the report.

Compass’ peers have performed similarly. The industry faces an unavoidable struggle, with the average interest rate on a 30-year mortgage jumping from just over 3% in November to 6.7% now, according to St. Louis Fed data. Getting a mortgage hasn’t been this expensive in 20 years, and so the housing market is stalling.

A cooling market means fewer transactions and fewer fees on those transactions for realtors. Redfin, Re/Max, and Compass work with traditional brokers who take cuts on each deal. With business dwindling, they can continue to duke it out or merge.

The best buyer would be the $7 billion Zillow, which is far larger than any of them. Its app allows any user to search for any home on the market anywhere in America – for free – and makes money from realtors who pay it to help them land and facilitate transactions.

This has effectively commoditized the business of touring a home – once the exclusive purview of realtors. That’s left them struggling to justify their existence and frequently pushing back against Zillow. With their business a mess, though, Zillow could quickly and easily cull a group of realtors by gobbling up its publicly traded peers.

If it doesn’t want to get involved, the other three could just join forces. That means individual brokers in their respective cities might find themselves without a job. Chances are, they were probably out of work anyway.

More By This Author: