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Compass brokerage

Compass’s Licensing Agreement Shift Shows That the Brokers Have the Power

Technolocally-minded brokerage Compass just did an about-face on the new technology licensing strategy that they announced at a recent Inman Connect conference. They have now announced that they are terminating the deal that they made with Massachusetts brokerage Leading Edge Real Estate.

Having to change course only a week after announcing their “Powered by Compass” initiative is a sign that something didn’t go according to plan. There is a good chance that the pressure that caused this course correction could have come from the brokers themselves.

Compass was always very open about the potential conflicts that could arise when giving their technology to competing brokers. They were very clear to say that they were not bringing it to “core markets” but this might not have been enough. After all, the company was able to grow at an incredible rate because they were able to lure top brokers from other firms with streamlined tools and generous commission splits.

This turned out to be a brilliant move as bringing over agents was much cheaper than trying to go directly to the buyers and sellers, somethgin that Zillow and Redfin are already battling for. Compass used this impressive growth to convince some of the biggest venture investors in the world, including SoftBank, to make them one of the most well funded real estate “startups” in the world. All in all, they have raised $800 millionin various rounds of financing.

Since the last huge cash injection of $450 million, they have been on a spending spree, buying brokerages in Chicago, San Francisco, and Miami. The CEO even went on the record saying that his company was willing to pay four- to six-time earnings multiplesfor brokerages, which is not bad considering most brokerages are not much more than the sum of the brokers that bring in the revenue.

Representatives at Compass have been tight-lipped about the reasons behind their decision to end the licensing program. It might be that Massachusets has become, in their mind, a core market and more licensing of more remote areas could still be in the future. Or, it could be that the very brokers that made Compass such an attractive investment for the tech world don’t want to see the technology they were promised given to a competing agent, no matter where they might practice.

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