Compass in New York City Raises $800 Million to Break Nationwide

Posted by Nathan McAlone — September 23, 2015

Originally published in Business Insider

1443026861NEW YORK CITY, NY - Compass cofounder Ori Allon says real estate is one of the last sectors of the American economy that hasn’t been transformed by data and technology.

He says when he talked to buyers, sellers, developers, and agents, everyone felt they were getting the short end of the stick. And when everyone feels like they are getting screwed, the market is probably inefficient.

Launched in 2013, Compass (formerly Urban Compass), has already shaken up the real estate industry in New York and DC. Now it's raised another $50 million to expand all over the United States.

The funding raise, which was led by Institutional Venture Partners (IVP), brings total funding to $123 million and values the company at $800 million, according to a source familiar with the matter.

Allon is a startup veteran, having already sold two companies — one to Google and one to Twitter. But Compass is far-and-away bigger than both combined.

Here's how it works.

Compass helps people find neighborhoods and places to live — either renting or buying. And while there is a sleek interface on the user side, IVP General Partner Todd Chaffee says what really impressed the firm was the agent-side technology. This tech has attracted over 350 agents to the company already, with more of half of them in New York.

Allon says what makes Compass special is that it can significantly reduce the amount of time it takes to find a home and it’s a cleaner experience than alternatives like Craigslist. Compass listings appear on a Google-like map, which also includes pictures of the homes. And if you want to see an apartment, you can schedule a viewing on Compass, which will put together an itinerary for you.

Compass acts as a broker, and the service (including fees for the agent) totals 0-15% per completed rental deal. Fees are significantly less for homebuyers, and at 6% (taken on the seller side), are in line with most high end brokerage firms.

Screen Shot 2015 09 14 at 6.23.13 PM

In places like New York City, where renters are used to paying large broker fees, this is standard. The market is pushed by the ultra-low vacancy rate in Manhattan, about 1% percent, according to The New York Post. But broker fees, even in New York City, can be a sore subject. And some renters could be looking for an innovative tech company to try and do away with them altogether.

One way Compass wants to bring extra value to its users is by opening its products up to all different types of people involved in the real estate industry. Allon wants to bring developers, mortgage bankers, appraisers, and more onto the platform. The idea of a one-stop-shop for real estate is one of the big factors that drew IVP to the investment, says Chaffee.

This focus shows how Compass is innovating from both sides of the product — both consumer and agent. It’s not just creating a slicker way to view listings, like PadMapper, but trying to build a whole new technological ecosystem for real estate. And at this point, Compass is mostly focused on homes for sale, not rentals.

Compass cofounder and CEO Robert Reffkin says saving time is at the heart of this new ecosystem. The average New York City agent spends 89% of their time performing administrative tasks, he told The Real Deal. And perhaps if the time spent per client can be drastically altered, the fees will come down as well.

The model is built on removing obstacles, Allon explains. Now we'll see how well it scales.

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