Search & Display vs. Trust

I shared this memo with the Compass community yesterday about Rocket’s acquisition of RedFin.

Team Compass: 

Rocket, having closed over $100 billion in loan volume in 2024, announced its planned acquisition of RedFin, having sold $27 billion in real estate in 2023, compared to Compass selling $217 billion in 2024. The transaction is to close in Q2 or Q3 2025. 

Combining real estate lending (mortgages) and real estate brokerage is not at all new in the industry. Brokerage companies have been in the mortgage business for decades. What is new is the direct to consumer nature of the Rocket business model. 

Inside Rocket’s corporate infrastructure is Rocket Homes, which on January 22, 2025 joined Rocket Mortgage to create one consumer-facing site for home search and mortgage origination.

RedFin has been one of the most popular “search and display” sites in the industry over its 20-year history. The combination of Rocket and RedFin will create a new portal-like presence in the residential real estate industry.

RedFin has not been successful in converting its search and display traffic (~ 50 million monthly users) into clients or customers. The vast majority of RedFin users call their trusted real estate professional and say, “I saw 123 Main Street on RedFin, I’d like you to help me buy it.”

The relationship of a client with RedFin is based on search and display. The relationship between a client and Compass is based on the trust the client has with our Compass real estate professional.

The emergence of an alternate portal presence will create additional tension with Zillow, Realtor.com, Homes.com etc. This, we see as a healthy tension.

Since 2019, Rocket has been focused on a Direct-to-Consumer channel, roughly 50 percent of its loan volume in 2024. Rocket’s average loan size is consistent with the average sales price of a home in the USA, roughly $475,000 in 2024.

The planned merger states an estimated $200 million in synergies by 2027. This represents around 40 percent of RedFin’s annual expense run rate. The estimated synergies represent a nearly complete dismantling of infrastructure at RedFin.

Rocket’s consumer-facing channel has been very effective, again generating nearly 50% of its business. Rocket originates more than 70,000 real estate brokerage referrals every year, taking a 40 percent referral fee and 11 percent conversion rate. It seems the RedFin acquisition will continue Rocket’s expansion of its top-of-the-funnel lead generation and the expansion of its referral network.

We do not expect to see Rocket running a traditional brokerage business or a discount brokerage company like RedFin. We expect Rocket to continue creating a lead generation and referral network.

Compass's average sales price is approximately $1 million. Compass & RedFin have very different client segments and value propositions.

Compass positioning is strong and based on a different market segment. Compass Three Phase Marketing programs and Compass One offer buyers and sellers distinct advantages not otherwise available in the market.

This is Where We Are Now!

Thanks!
Mark