Salaried Redfin agents are telling longtime referral partners that they’d love to send them business. But they just can’t. Maybe they can give them 1 out of 4 deals. But the rest are bound for Detroit. From there, the loan might go to a call center, mortgage broker or a Rocket Local LO.

Here’s an example: An LO in the DMV area was at the 1 yard line w/ a client & longtime agent referral partner, but the deal fell apart over an inspection. The LO found out a few months later that the client did end up buying the house w/ help from the agent. Unfortunately for him, the agent had joined Redfin & then sent the deal to… Rocket. “He calls the agent like, ‘What the hell,’” the branch manager recalled to The Scoop. “And the agent says, ‘I have to send almost all of it to Redfin or they'll fire me.’”

Even non-Redfin real estate agents might be muscled out on a client’s next purchase. Sources in other markets said that Rocket had begun contacting likely sellers directly & offering discounts if they used its suite of services. It’s a smart play — once customers get pulled into Rocket’s orbit, they rarely leave. The lender has an unmatched 97% client retention score, & the lifetime value of origination, servicing, title & agent fees is worth the acquisition cost. Sure, there are grumbles from rivals. But if Rocket can offer customers a better deal, what’s wrong with that?

Barely 2 months into the Rocket-Redfin era, we’re already witnessing a more aggressive, stickier strategy that could finally, once & for all, solve Rocket’s historic underperformance in purchase. Rocket declined to make an executive available for an interview, but in a prepared statement, Redfin CEO Glenn Kelman confirmed they are synergizing leads.

“Where Rocket banking customers need a real estate agent, we've connected them to Redfin agents because our data indicates that, on the whole, those agents serve customers better for a lower fee,” Kelman said. “Even though this is true on the whole, there are many Rocket partners who likely outperform individual Redfin agents.” 

With more performance data will come “more nuanced decisions about the agent most likely to serve that customer well,” Kelman added. 

What Kelman describes isn’t so much a wholesale shift in strategy as much as it is a sharp refinement. In the Rocket Homes days, Rocket regularly tried to entice customers w/ discounts on commissions & incentives. But its call-center approach to purchase has often let Rocket down & some agents don’t consider a Rocket preapproval worth the paper it’s printed on.

What’s ahead looks potentially very different. Rocket-Redfin features 62M monthly website visitors, 3M buy/sell contracts & 15K LOs & agents that could lap up $200B+ in purchase originations every year, the company told investors in the spring. That’s about 16% of the market.

Sources told The Scoop that Rocket has more leads than they can execute on & they’re being funneled to sales staff across every channel. Bay Equity is essentially Rocket Local now, & sources said it’s going to be built out so that Redfin agents have mortgage partners on the ground. Bay Equity/Rocket Local currently has a fairly small footprint; Rocket will be recruiting distributed retail LOs from competitors, sources said, though it’s not yet clear how ambitious they’ll be.

Rocket mortgage broker partners will also be distributed leads from Redfin. Further details are expected to be announced at the Rocket Pro Experience event in Detroit next week. (Reminder: Rocket being on ARIVE is also a v big deal.) The call center w/ Rocket bankers will be a smaller piece of the purchase puzzle. But they’ll be plenty busy with Mr. Cooper’s 1.5T servicing book.

The jury’s still out on how serious Rocket is w/ purchase. Transitioning to more distributed retail LOs & brokers would mean increased costs & lower margins. While Redfin.com brings leads, its agents are often dismissed by the industry as “starter pack” due to the salary & lead model. Rocket would need to make further inroads in the broker community & hire distributed retail LOs to support the lead flow. Brokers might chafe at that dynamic.

"They're building a siloed ecosphere," commented one IMB executive. "They've got the name. And with Dan Gilbert's money behind it, I think they turn into the Amazon of mortgage.” 

The biggest obstacle that they will continue to run into is that it’s consumer direct real estate, the same way it's consumer direct mortgage, he said. “They're going to do well in the discount buyer, rate-shopper arena,” he added. “But they're going to have a lot of problems in the 'I got a guy' culture of real estate."

The attorneys behind one of the big real estate commission lawsuits are going after Zillow’s Flex referral program, which is central to Zillow’s mortgage play. In exchange for getting higher-intent leads in “Enhanced Markets,” agents must use Zillow’s tools (ShowingTime, Follow Up Boss, Zillow Home Loans, etc.) to complete the deal. When the deal closes, Zillow charges agents up to 40%. The suit argues that because agents are paying such a hefty vig, the costs are being passed down to their unwitting clients.

If buyers were directed to a listing agent instead of the Zillow Flex agent, “they would be better positioned to negotiate a lower purchase price, because the seller would not have to pay commissions to the seller’s agent & the buyer’s agent,” lawyers from Hagens Berman & Cohen Milstein said. “It also incentivizes Zillow Flex agents to prioritize receiving his/her full commission at all costs, even if the buyer loses the bidding process. Since the Flex agents only effectively receive a 1% commission from the purchase of a home (after paying the Hidden Zillow fees & commissions to their firms), they have no practical flexibility in negotiating a lower commission,” the filing states.

For all the talk about Rocket & its funnel, I think Zillow is the scarier firm for mortgage executives. First of all, 2/3 homebuying journeys start there. Second, whereas Zillow makes roughly $5,000 in revenue per transaction from agents, mortgage revenue is estimated to be more than double that at $11,500. In Q2, Zillow Home Loans had double-digit adoption rates across its Enhanced Markets. While it only did about $1.1B in purchase volume in Q2, it’s now in about 100 Enhanced Markets. You do the math.

It’s true that Zillow has been at this since ‘06 & hasn’t figured out how to turn traffic into profitability. But if they expand Flex further & get the attach rates up to 20% (Redfin’s was roughly 27% prior to the Rocket acquisition), they’re suddenly a massive player in mortgage. We’ll have more on Zillow’s mortgage ambitions in a future article - email me w/ tips re Zillow Flex & what your agent referral partners are doing.

Compass is buying Anywhere. Yep, the country’s largest real estate brokerage is buying the #2 real estate brokerage in a deal that values the combine firm at $10B. We’re talking 340K real estate pros who last year combined for roughly 1.2M transactions & $450B in volume.

There are also major mortgage implications. Both Anywhere and Compass have mortgage JVs w/ Victor Ciardelli’s Rate. Sources told The Scoop that Guaranteed Rate Affinity, the largest JV, is likely to absorb the other JVs (ProperRate, OriginPoint, etc.) when the deal closes late next year.

“The Rate companies share a lot of the same resources anyway,” said an LO who was on the company-wide call. “Tech support, benefits management, etc.”

The source said both GRA & OP are so lean that they won't conduct layoffs. Ciardelli has also already given the green light to proactively go after Compass offices, the source added.

Programming note: We’ll be off on Wednesday for Rosh Hashanah ✡ & back on Friday.

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