Real estate company

Real estate company Compass struggles to keep its big tech promise

Last summer, the SoftBank Vision Fund and other venture capitalists invested $ 370 million in Compass, a real estate company promising to shake up the residential brokerage industry. The deal valued Compass at $ 6.4 billion, which at the time made it 10 times more valuable than

Realogy Holdings

the public company which owns Century 21, Coldwell Banker, Corcoran Group and Sotheby’s International Realty.

Compass argued that its technology would make its agents more productive and profitable than traditional brokers. But so far, the company, which was founded in 2012, has not fundamentally disrupted the real estate industry, and it continues to catch up with industry leader Realogy (ticker: RLGY).

Last year, approximately 15,000 Compass agents completed approximately 112,000 transactions worth $ 88 billion. The company says it is now the largest independent brokerage house in the country. But the highly regarded Compass is lagging far behind Realogy, whose 300,000 agents completed 1.4 million transactions worth $ 505 billion in 2019.

“This is a residential real estate brokerage firm, like everyone else,” Susquehanna analyst Jack Micenko said of Compass. “They make their money the same way Realogy and Re / Max do.”

Re / Max Holdings

(RMAX) is a franchisor with some 130,000 agents operating under its brand.

Some former Compass employees say the company’s technology is not a disruptive force in the industry or provides a significant advantage for agents. Former Compass employees and real estate professionals familiar with the company’s operations said Barron that Compass often struggles to get its own employees to use its technology.

A spokesperson for Compass declined to answer questions about the company’s technology platform or the productivity of its agents. As a private company, Compass is under no obligation to disclose financial data and has refused requests for the provision of financial data.


  • 15,000
  • $ 88 billion
    2019 operations
  • $ 6.4 billion
    Private value 2019

Co-founder and CEO Robert Reffkin said his goal is for Compass to be a “platform for all real estate decisions” made by buyers, sellers and agents. His operation, he says, is unique in the real estate industry because it creates a network effect through technology that focuses on both agents and consumers.

Through the Compass platform, real estate agents and potential buyers can share listings and ideas. The real estate company also provides agents with technology tools to help with marketing.

In September 2018, the month in which the company announced a $ 400 million investment from SoftBank, the Qatar Investment Authority and others, Compass classified two-thirds of its agents as active users of its technology, according to an internal document reviewed by Barron. Compass considers any agent who has used their technology for at least one minute, once a month, to be an active user, the document said.


  • 300,000
  • $ 505 billion
    2019 operations
  • $ 384 million
    Market value

The company declined to provide further usage metrics to that of Barron.

Compass’s plan to shake up residential real estate with the help of technology comes as WeWork, another popular real estate investment from SoftBank, struggles to deliver on its own technology promise. Trying to go public last year, WeWork told potential investors it has “the power to improve the way people work, live and grow.”

The company’s S-1 brief said, “Technology is the foundation of our global platform. But the same file revealed massive losses. WeWork eventually withdrew its planned initial public offering and needed a bailout from SoftBank, which then took a $ 4.6 billion write-down on its investment in WeWork.

Compass could face its own calculations, especially with Covid-19-related closures putting the brakes on real estate transactions. The company’s current value is likely to be only a fraction of its revenue in July 2019, given changing private market dynamics and the performance of public companies in residential brokerage. WeWork’s struggles have weighed on overall valuations of private companies, while closures linked to Covid-19 hurt real estate stocks. Shares of Realogy and Re / Max have fallen 62% and 41%, respectively, this year.

Several new entrants have struggled to disrupt the real estate market profitably.

Zillow Group
(ZG) and

Red tuna

(RDFN), as well as Openoor, backed by SoftBank, have invested a huge amount of resources in the real estate overhaul. Zillow, which has grown as a new way for brokers to advertise their services, has moved into buying and selling homes, a service he calls Zillow Offers. The company has lost money for seven consecutive years based on generally accepted accounting principles, and Wall Street analysts expect it to lose $ 427 million in 2020. And that forecast came before that the full impact of Covid-19 is not being modeled.

In a statement to Barron, Zillow said, “We operate within the investment framework that we have set for ourselves as we have grown our Zillow offerings business, and our core business has generated solid income that we have been able to invest in. make it easier and more transparent for our clients to relocate.

Smaller Redfin also struggled to generate a profit; in 2020, analysts expect the company to lose $ 80 million for the second year in a row.

The difficulties of these real estate transactions show how resilient the US residential real estate sector is to fundamental changes. The heart of Compass’s talk to venture capitalists is simple: Realtors are expensive, and the whole process of buying a home is complicated. To reshape the industry, Compass says it is focusing on improving agents in their jobs. The company says its technology can help agents sell properties faster than the competition. “One of the competitive advantages of Compass is that each employee has a special focus on agent productivity,” said CEO Reffkin. Barron in 2018.

The company declined to make Reffkin available for this item.

Mike DelPrete, a real estate technology researcher-in-residence at the University of Colorado Boulder, says Compass has struggled with improvements in productivity. “I haven’t seen any evidence yet to show that Compass’s technology makes its agents more productive than the industry average,” he says. “Regardless of the measure, Compass is among its peers, whether it is traditional brokerage or luxury brokerage. “

Micenko, who covers Realogy, Redfin and the homebuilding industry for Susquehanna, said he was shocked by a demonstration he saw in January of Compass’s customer relationship management, or CRM, technology platform. Despite the hype and resources invested in the project, Micenko recalls thinking, “You can buy it off the shelf for $ 2 million a year. Realogy and Re / Max and everyone else has a CRM too.

Rather than impressing with technology, Micenko says Compass recruits agents by offering more attractive allocations on commissions. “There is always a food battle for the best agents,” he says. “The market was, say, 60% to 70%, and then Compass came in and hired people for a two-year contract period at 85%, 90%, 95% allocation,” he says. “What’s going to happen is you’re going to bring in a lot of agents to sell houses, but you’re not going to make any money with it.”

Compass has experienced a frenzy of acquisitions in recent years. Its purchases have included real estate companies Pacific Union in the San Francisco area and Stribling in New York, as well as Contactually, a customer relationship management software company based in Washington, DC. Compass now has over 15,000 agents and an enviable market share in some locations, more than 40% in San Francisco.

But the Covid-19 crisis halted expansion plans. At the end of March, Compass laid off 15% of its employees, or around 375 people. In a letter to his staff, Reffkin said he expected a 50% drop in revenue over the next six months.

As recently as September, Reffkin was still talking about a “likely” IPO in the future. These plans are now in doubt. Existing home sales could drop 40 to 50%, year over year, through the third quarter of 2020, Micenko warns, adding, “This comes at the worst time of year for a cyclical business.

Write to Ben Walsh at

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