Compass Unveils Lead Referral Program, Transaction Fees

Compass is kicking off the year with a set of new policies — including one that bears resemblance to a rival’s playbook.

The brokerage introduced its own lead generation program, allowing listing brokers to refer leads to Compass buyer agents and collect a 10 percent fee if a sale closes within 24 months. Listing agents that choose to participate in the program will have prospective buyers that reach out about listings on Compass’ website sent to eligible Compass buyer agents.

The program follows the rollout of a fixed transaction fee paid by buyers and sellers to the firm’s agents around the country — a move a spokesperson for the brokerage billed as a “standard practice” in markets such as Chicago, Philadelphia, Washington, D.C., and parts of Florida. The fee varies state by state, but is typically around several hundred dollars.

The two initiatives come a month after Compass closed its acquisition of Anywhere Real Estate, the holding company for brands like Corcoran, Century 21, Coldwell Banker and Sotheby’s International Real Estate. As part of the deal, Compass agreed to assume $2.6 billion of Anywhere’s debt. Prior to its closing, Compass raised $1 billion through a convertible note offering to help pay down that debt.

The deal combined the two largest brokerages in the country by transaction volume, and the industry has since been watching to see how the combined brokerage throws around — and manages — its new heft.

But the new fee structures represent opportunities for Compass to improve its bottom line, with more money earned per deal through the transaction fee, and on average, through deals funnelled through its referral program.

A familiar referral structure

Compass has positioned its referral structure as an antidote to Zillow’s lead diversion model, which brokerage executives have criticized as harmful to consumers and agents. But Compass’ new program mimics some features of its competitor’s offering.

“For too long, platforms that do not represent the seller’s best interests have removed listing agent information and sold buyer inquiries to the highest bidder,” CEO Robert Reffkin said in a statement. “This program creates a better system — one that rewards the real estate professional who did the work to win the listing and generate buyer demand.”

The program differs from Zillow’s lead diversion model in key aspects, according to a Compass spokesperson. The listing agent remains prominently displayed on the listing, has an opportunity to earn money from the lead, and has more choice in how their lead is handled.

“The industry standard referral fee listing agents receive when unvetted online inquiries go to buyer agents is 0 percent,” Reffkin wrote in a LinkedIn post. “We’re making it 10 percent because listing agents create the value and they should always benefit from it.”

The referral program also comes after Reffkin launched a crusade against Zillow’s business model, culminating in a lawsuit the brokerage filed against Zillow over its policy threatening to ban listings not uploaded to Zillow. Yet Compass’ new program mirrors aspects of the aggregator’s diversion model that the brokerage’s own executives have spoken out against.

In its complaint against Zillow, Compass called the portal’s model harmful to buyers, who are funneled to a “Zillow-affiliated buyer agent who charges the buyer an incremental commission to show the property.”

“Every time a buyer requests a tour on Zillow, Zillow redirects the buyer away from the listing agent of the property, who would not charge the buyer an incremental commission,” Compass’ initial complaint states. “They put a toll booth on a road that otherwise worked fine, adding friction and cost to the process because the money goes to them.”

By default, listing agents are given a 15-minute window to respond to a lead before the system routes the inquiry to a Compass buyer agent, according to an email from Reffkin to Compass agents obtained by The Real Deal. However, a Compass spokesperson said agents can choose to opt out of the referral program, which means any inquiries about their listings on the Compass website will remain directly with them.

Buyer agents that receive leads also pay a 25 to 35 percent referral fee directly to Compass, which is relatively standard practice in the brokerage industry. That referral fee also resembles the fee Zillow charges agents who receive leads from its diversion program — a policy that came under fire last year when buyers in Washington state sued the portal over its program, claiming the company never disclosed the fee to consumers and resulted in higher commission costs.

Zillow’s critics have also raised concerns that the portal buries listing agent information on its website in an effort to direct consumers towards a buyer agent in its referral network, something Compass emphasized its platform will avoid.