Is Compass the next WeWork?

David Goldsmith

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Like WeWork, Compass is backed by billions in VC money and claims to be a "tech company" rather than a Real Estate firm. But also like WeWork, there doesn't really seem to be any revolutionary tech involved, and they seem to just be throwing tons of money at acquiring market share. In addition, a lot of what are being bought as "assets" are somewhat ethereal - you buy a Real Estate Brokerage with X number of agents, but none of them have binding contracts or non-compete agreements so you could lose them at any time.

Historically when the market goes down and agent's income decrease, the first place they seem to blame isn't the market or themselves, but the firm they work for, and as a result a lot jump ship. You also see a lot leave the business altogether in favor of more mainstream jobs where they are not independent contractors and receive benefits, don't pay double FICA, etc.

Now they seem to be losing the executive talent they recruited as wunderkind and scrambling to get new talent in new positions while not filling the vacated job slots

If the entire market sees a huge drop in transaction volume (which is looking more likely every day under this Coronavirus/Credit Crisis/Global Recession/Stock Market meltdown) can a firm seems to be following in WeWork's footsteps survive?

David Goldsmith

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And their main competitor:

"In 2019, Realogy shares dropped to new lows amid competition and pressure on margins. It also hit a few bumps, including one after announcing “TurnKey,” a partnership with Amazon, and another after it filed a wide-ranging lawsuit against rival Compass. The suit accused the SoftBank-backed firm of predatory poaching and other illicit business practices.
But the stock closed at $5.51 per share on Friday, down 57.7 percent from $13.04 per share on February 25. Year over year, the stock is down 52.1 percent; it’s down 78.8 percent since March 2017. On Monday, Realogy stock plummeted to a new record low of just $3.96 per share. Its market cap sank to $452.9 million, down from more than $7 billion several years ago."

David Goldsmith

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I find this interesting because from what I understood this was the single biggest edge being enjoyed by the firm's agents:

Compass to scale back lending programs
Brokerage “temporarily” suspends bridge loan advances

Amid a global pandemic and massive economic uncertainty, Compass is scaling back its Concierge and Bridge Loan services, The Real Deal has learned.

The SoftBank-backed brokerage is “proactively” restricting the programs at the behest of lending partners, according to a March 16 email to agents that was seen by TRD.

“We partner with leading financial institutions and lending partners to drive the Concierge program and based on what they are seeing in the overall market, they have strongly recommended making these temporary adjustments,” read the email from Mark McLaughlin, president of Compass California.

According to the email, Compass is restricting approval for Concierge — which fronts money to homeowners who want to renovate their homes — to $30,000 on homes under $3 million. The program will no longer be available in certain-second home markets, including Napa and Sonoma counties and Malibu.

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Compass faces a reckoning
VC-backed firm has ascended the ranks nationally. But with spendthrift days in the past, it faces an uphill battle in over a dozen markets: TRD analysis
It was an audacious goal from the start.

Five years after Compass hired its first 10 agents in New York City, CEO Robert Reffkin pledged the company would have 20 percent market share in 20 major U.S. cities by 2020.

“That means we’re going to expand,” he told agents who gathered in New York for an all-team meeting in 2017. “We’re going to expand to Seattle, San Diego, Phoenix, Dallas, Austin, Houston, Atlanta, Philadelphia and Chicago.”

Having raised $1.5 billion from investors, Compass ended 2019 with 15,500 agents across 325 offices. It now has a presence in California, Seattle, Chicago, Colorado, Texas, Nashville, Atlanta, Florida, Washington D.C., Boston and the New York metropolitan region.

But a closer look at Compass’ track record across the country reveals uneven growth, even as the SoftBank-backed firm — now valued at $6.4 billion — has ascended the ranks nationally.

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Compass lays off 15% of staff
Company expects 50% revenue drop over next 6 months, CEO tells agents

Compass laid off 15 percent of its staff on Monday, The Real Deal has learned.
With the economy reeling from the coronavirus pandemic, the Softbank-backed brokerage said it was projecting a 50 percent drop in revenue over the next six months.
“We aren’t just facing an economic recession, we are facing an economic standstill,” CEO Robert Reffkin wrote in an email to agents. “The best we can hope for is a V-shaped recovery as opposed to an extended recession.”
In the letter, Reffkin said Compass took steps over the past week to reduce costs before announcing the layoffs — many of which took place via video because of social distancing.
“Today was not an easy day for Compass,” he wrote. “While the timing of the economic recovery is uncertain, we are certain that by making these hard decisions today, our company’s future is secure.”


David Goldsmith

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Compass has long claimed to be a "technology company" but like WeWork it seemed that was largely puffery. But now under the shifting dynamic brought on by the COVID-19 crisis they may have found themselves forced to live up to those promises. Necessity is the mother of invention.

Compass to agents: It’s (virtual) show time!
Brokerage unveils virtual services to cope with lockdowns

With real estate agents largely sidelined by shelter-in-place orders, Compass said Wednesday that it is rolling out a set of virtual tools ranging from 3D video tours to targeted mobile ads.
In a company-wide email, CEO Robert Reffkin said the firm’s new “virtual agent services” are a combination of existing and new products that were piloted in Houston over the past few weeks. Last month Compass also launched a virtual open house template.
“It’s not just virtual open houses, it’s more of a well-rounded approach to every touch point for buyers and sellers,” said Sabrina Evans, Compass’ Houston regional marketing director, who led the firm’s compilation of products.

For both agents and firms, keeping deals flowing during the coronavirus pandemic is a key concern given the prospect of lost commissions.

Last month, citing an “economic standstill,” Compass laid off 15 percent of its staff. At the time, the Softbank-backed brokerage said it was projecting a 50 percent drop in revenue over the next six months.
The virtual agent services toolkit includes enhanced 3D staging, location-based mobile listing ads, digital listing brochures and virtual neighborhood walks.
Over the past few weeks, with states including New York ruling that real estate agents are not essential workers and therefore cannot go out to work, demand for virtual services has skyrocketed.
Listing giant Zillow reported a 191 percent increase in its 3D home tours and discount brokerage Redfin touted a 494 percent spike in requests for video tours. Smaller New York City firms, such as Keyo, Urbane Brokerage and Ideal Properties Group, also launched video tours. More recently, deals have also started to close virtually.

Though it’s not alone in embracing all things virtual, Compass’ new offering builds on a mobile-friendly platform it launched last year called Compass Anywhere.

The program lets agents work remotely with access to a virtual assistant, Compass laptop, courier services and on-demand printing at Compass-vetted print shops. They can also work from designated Anywhere spaces.

It’s unclear how many Compass agents enrolled in the program, but sources put it at roughly 20 percent, according to one published report. Offering agents increased mobility, and Compass saved the expense of opening more brick-and-mortar locations.

A Compass spokesperson said although there are overlaps between Anywhere and virtual agent services, the latter focuses on helping agents stay connected to clients.

“Compass was already a place where agents were able to work virtually,” said Evans. But in this “new world,” she said, agents are finding efficiencies, such as sharing virtual tours with many buyers at once instead of conducting individual tours. “In this new world, as we look further out,” she said, “it may be a place where they prefer to work virtually.”

David Goldsmith

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Compass: We can survive slump of 6 to 9 months
SoftBank-backed brokerage laid off 15% of staff in March

Compass is one of the richest residential brokerages, fortified with $1.5 billion in venture capital. Now facing an uncertain economic future, the company said it has enough cash to withstand a slump of two or three quarters.

“We can sustain a downturn for six months, eight months, nine months,” CEO Robert Reffkin said during an interview on Los Angeles agent Danny Brown’s podcast, The Deal. “We have the capital to be able to do so.”

Reffkin’s comments come as the SoftBank-backed firm faces a potential 50 percent drop in revenue thanks to the coronavirus pandemic. The firm, valued at $6.4 billion, sold $88 billion worth of real estate last year, up from $45.5 billion in 2018. As of October 2019, it was projecting $2 billion in 2019 revenue and said it had run-rate revenue of $3 billion.

Last month, Compass laid off 15 percent of its staff — roughly 375 people — in anticipation of an “economic standstill.” At the time, Reffkin projected a steep revenue decrease over the next six months.

On the podcast, he said Compass was in a lucky position, and that firms that are not so well capitalized are likely to pursue mergers or partnerships to stay afloat.

He noted, too, that Compass has seen an uptick in agents joining the firm. “We’re able to onboard agents virtually,” he said. “The great agents always gain market share in a downturn. It’s a question of how much market share you can gain.”

Residential firms around the country have laid off and furloughed employees in recent weeks, as have other VC-backed companies in real estate, including WeWork, Lyric and Sonder.

On the podcast, Reffkin predicted the residential market is likely to bounce back as early as this summer. He said that he personally made two offers on property last week. “I know the buildings, I know the neighborhood,” he said.

David Goldsmith

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Start-up Compass Promised to Revolutionize the Real Estate Business. It Hasn’t Happened.

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

Last year, Compass’ approximately 15,000 agents completed about 112,000 transactions worth $88 billion. The company says that it’s now the largest independent brokerage in the country. But the richly valued Compass remains far behind Realogy, whose 300,000 agents closed 1.4 million transactions worth $505 billion in 2019.

“They are a residential real estate brokerage, just like everybody else,” Susquehanna analyst Jack Micenko says of Compass. “They make their money the same way Realogy does and Re/Max does.” Re/Max Holdings (RMAX) is a franchisor with some 130,000 agents operating under its brand.

Some former Compass employees say that the company’s technology falls short of being a disruptive force in the industry or providing a significant advantage to agents. Former Compass employees and real estate professionals with knowledge of the company’s operations told Barron’s that Compass often struggles to get its own employees to use its technology.

A Compass spokesman declined to answer questions about the company’s tech platform or the productivity of its agents. As a private company, Compass isn’t required to disclose financials, and it declined requests to make financial data available.


  • 15,000
  • $88 B
    2019 Transactions
  • $6.4 B
    2019 Private Value

Co-founder and CEO Robert Reffkin has said that his goal is for Compass to be a “platform to power 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.

Using the Compass platform, real estate agents and prospective buyers are able to share listings and ideas. The realty 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’s. Compass considered any agent who used its technology for at least one minute, once a month to be an active user, the document makes clear.


  • 300,000
  • $505 B
    2019 Transactions
  • $384 M
    Market Value

The company declined to provide other usage metrics to Barron’s.

Compass’ plan to upend residential real estate using technology comes as WeWork, another highly valued SoftBank realty investment, struggles to fulfill its own technology promise. In trying to go public last year, WeWork told potential investors that it had “the power to elevate how people work, live, and grow.”

The company’s S-1 filing said, “Technology is at the foundation of our global platform.” But the same filing disclosed massive losses. WeWork ultimately pulled its planned initial public offering and needed a rescue plan from SoftBank, which later took a $4.6 billion write-down on its WeWork investment.

Compass could face its own reckoning, especially with Covid-19-related shutdowns putting a crimp on real estate transactions. The company’s current value is likely to be a fraction of its July 2019 fundraising figure, given changing private-market dynamics and the performance of public companies in the residential brokerage arena. WeWork’s struggles have weighed on overall private-company valuations, while Covid-19-related shutdowns are hurting 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 in a profitable way. Zillow Group (ZG) and Redfin (RDFN), as well as SoftBank-backed Opendoor, have poured a huge amount of resources into remaking real estate. Zillow, which grew as a new way for brokers to advertise their services, has pushed into buying and selling homes outright, a service it calls Zillow Offers. The company has lost money in seven consecutive years on a generally accepted accounting principles basis, and Wall Street analysts expect it to lose $427 million in 2020. And that forecast came before the full impact of Covid-19 was modeled in.

In a statement to Barron’s, Zillow said: “We are operating within the investment framework that we laid out for ourselves as we have scaled our Zillow Offers business, and our core business has generated strong earnings that we have been able to invest in making it easier and more seamless for our customers to move.”

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

The travails of these realty operations show just how resistant the U.S. residential real estate industry is to fundamental change. The core of Compass’ pitch to venture capitalists is straightforward: Real estate agents are expensive, and the whole home-buying process is a hassle. To reshape the industry, Compass says it focuses on making agents better at their jobs. The company claims its technology can help agents sell properties more quickly than the competition. “One of Compass’ competitive advantages is that every employee has a singular focus on agent productivity,” CEO Reffkin told Barron’s in 2018.

The company declined to make Reffkin available for this article.


I believe many Compass agents opted to receive stock options in lieu of cash as it relates to commissions. In hopes of an eventual IPO. I wonder how those agents are feeling now...

David Goldsmith

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This ought to help with employee morale.

Compass slashes payroll, but keeps recruiting
Product and engineering teams not impacted

A month after laying off 15 percent of its staff, Compass announced widespread pay cuts on Wednesday, even as it continues to recruit agents.
The SoftBank-backed brokerage, which has raced to slash spending in the wake of Covid-19, said it would reduce salaries by 10 to 50 percent, according to an internal document reviewed by The Real Deal.
According to the internal document, Compass said the pay cuts will be temporary, impacting three months’ worth of pay. Reductions are being done in tiers: 10 percent cuts for those making under $75,000, 20 percent for those earning $75,000 to $150,000, and 30 percent for those making $150,000 or more. Some executives will see pay cuts of 50 percent. CEO Robert Reffkin previously said he would not take a salary for the rest of the year.
Employees will get the equivalent of their lost wages in the form of restricted stock on August 1, the document said.
“We are unfortunately taking steps to preserve as many jobs as possible during this unprecedented economic downturn,” the document said. “We thought we’d be working from home for weeks, with agents unable to show and sell home for weeks, and now it looks like a matter of months.”
The company declined to comment.
The pay cuts follow a round of layoffs last month, when Compass laid off roughly 375 people in anticipation of a projected 50 percent drop in revenue. At the end of last year, Compass had 15,500 agents nationwide and 2,500 staffers.

Despite raising $1.5 billion from investors to date, Compass has found itself in the same boat as other residential firms, whose agents are prevented from doing in-person showings during the pandemic. All are being forced to drastically cut costs while offices are closed, though some virtual closings are taking place.
Earlier this month, New York’s biggest firms, including the Corcoran Group, Douglas Elliman, Brown Harris Stevens and Halstead, laid off or furloughed staff.

David Goldsmith

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The dominoes keep falling.

Compass’ chief people officer is out
Sara Patterson leaves after three months; firm hires new general counsel

Sara Patterson, the top human-resources executive at Compass, is out after just three months at the residential brokerage.
In an email to staff Wednesday seen by The Real Deal, CEO Robert Reffkin said the brokerage hired Brad Serwin, a Glassdoor executive, as general counsel. But he noted that the firm also “parted ways” with Patterson, a former Walmart and Gilt executive, who was hired as chief people officer in February.

Serwin replaces David Carp, who left in April. Serwin, Reffkin said, “will help us continue to grow while laying the foundation for an eventual IPO.”
Reffkin also noted that Patterson would be replaced by Margaret Smith, who has been at Compass for three years and most recently served as head of talent.

Compass slashed spending after the coronavirus shut down activity in key markets. In March, it laid off 15 percent of its staff after projecting a 50 percent drop in revenue for the next six months. It also reduced salaries by 10 to 50 percent.
Last year, one of its biggest departures was COO Maelle Gavet, who left just a few months after Compass’ top marketing and product executives resigned or were forced out.

Having raised $1.5 billion from investors, most prominently SoftBank, Compass was valued at $6.4 billion in July. But that number has come under scrutiny after WeWork’s botched IPO. The co-working firm, once valued at $47 billion, was this week valued at $2.9 billion.

During an appearance on CNBC on Wednesday, Reffkin conveyed optimism in the market and in his own firm’s prospects. Year-to-date revenue is up 47 percent year-over-year, he said, adding that “we’re seeing an accelerated shift from traditional companies to tech-enabled companies.” In the email to staff, Reffkin noted that Compass was starting a cloud-based initiative that would allow them to support “customers” virtually and “launch in new markets more quickly and in areas we might not have previously considered.”

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Defaulting on lease payments.
Compass used Covid-19 to get out of lease: lawsuit
Brokerage used “form letter” to seek rent relief for Brooklyn office, landlord alleges

A Brooklyn landlord is accusing Compass of capitalizing on Covid-19 to get out of its lease.
In a lawsuit filed Tuesday, landlord Stuart Venner said the residential brokerage used the pandemic to ask for rent relief — and ultimately walk away from its office — at 384 Atlantic Avenue in Boerum Hill. Although Compass told the landlord it was “reducing its real world footprint,” Venner cited the firm’s $1.6 billion in venture funding as evidence that it should be able to pay its rent.

“They are simply, and reprehensibly, capitalizing on the current tragic situation to disguise their intentional and unlawful breaching [of] the valid lease,” according to the complaint.
Compass declined to comment.
The office in question is one that the SoftBank-backed firm inherited when it struck a deal to buy Stribling & Associates last year.

According to the suit, Stribling signed a 10.5-year lease in 2012. If Compass walks away, it would owe $792,129, based on current monthly rent of $24,633 and future increases, the suit said.
According to Venner, Stribing (and then Compass) paid its rent with no issues prior to Covid-19. On March 31, the landlord received an “unsigned, anonymous form letter” from Compass stating that because of the pandemic, it had to close its office. For that reason, “it is unclear that rent is due,” according to the letter.

In addition, Compass’ letter claimed, the circumstances warranted some sort of rent relief. “We believe the situation is still too uncertain to begin concrete discussion regarding rent abatements, and waiver of other conditions, but we look forward to discussing these issues in the near future,” it said.

But Venner rejected the claim, expressing surprise at Compass’ request in light of venture backing. Since 2012, Compass has raised more than $1.5 billion from investors, and it was most recently valued at $6.4 billion valuation.
“As the Coronavirus crisis evolved, we thought that due to the combined strength of Stribling and Compass, your lease payments would be timely and uninterrupted,” he wrote in a letter to Compass executives. Venner added that he was “somewhat perplexed by the ambiguous position you took with respect to rent,” given Gov. Andrew Cuomo’s position that cash-strapped tenants can’t be evicted, but still owe rent.

“We respectfully request that your financially-strong organization understand the pressures that local landlords and businesses are under and not add to our financial stress,” Venner wrote, according to the suit.
Like other residential firms, Compass had to make painful cuts in the wake of coronavirus, when many states shut down non-essential businesses. It cut 15 percent of its staff and slashed salaries to cut costs.

According to the suit, Compass is also evaluating its office footprint. In response to Venner’s demand for rent, Compass asked the landlord to apply a portion of Stribling’s security deposit to its April and May rent. Compass later confirmed its intention to consolidate agents from the Atlantic Avenue office into a new, 11,000-square-foot office at 333 Schermerhorn Street.

In the suit, Venner said when offered a deal of reduced rent, while its commercial brokers found a new tenant for the old space, Compass demurred. On May 8, a Compass executive told Venner “that, immediately upon the lifting of the various orders in place in New York State, Stribling/Compass would be vacating the Premises, they had nothing further to offer and that he had no more time to deal with this.”

Compass’ first acquisition in New York City was anything but typical. Instead of swallowing the smaller firm wholesale, Compass has allowed it to operate as “Stribling at Compass” at the behest of some veteran agents. Stribling’s offices have been another matter. Last month, Stribling founder Elizabeth Stribling sold the firm’s former office at 340 West 23rd Street in Chelsea for $7.55 million.

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Cash, no stock: Compass aims to cut down any Avi Dorfman windfall
Brokerage would rather pay in cash than shares if it loses lawsuit

With a jury trial looming, Compass is trying to lessen the windfall Avi Dorfman could reap if he proves he co-founded the firm.
The brokerage has asked the court to restrict Dorfman’s damages to cash instead of stock. Further, it urged the court to base Dorfman’s damages on Compass’ value in 2012, when he claimed to have worked with CEO Robert Reffkin.

“Dorfman’s recovery should not vary based on fluctuations in the value of Compass stock during the nearly eight years since his claim accrued,” the company, last valued at $6.4 billion, argued in an Aug. 31 motion.

Dorfman sued Compass in 2014, claiming Reffkin used a concept they worked on together in 2012 as the foundation for the brokerage. Dorfman said Reffkin reneged on an early job offer and 2.5 percent stake in the company; Compass maintains that Dorfman turned down the offer only to seek a “do-over.”

This summer, the case took a turn when Judge Andrea Masley said valuation questions would not be part of the trial. Rather, she said, the jury would decide whether Dorfman is entitled to “present … shares” of Compass stock.
The brokerage has raised more than $1.5 billion from investors, including SoftBank. The New York-based firm has more than 15,000 agents nationwide and claimed to have sold $88 billion in real estate last year.

When it comes to Dorfman, the brokerage says equity should be off the table. “He has consistently sought money damages — and only money damages — in this case,” its Aug. 31 motion said.
But Dorfman’s legal team claims that is simply not true. “We believe a jury will find that Avi Dorfman was a founder of Compass, and as a founder he’s entitled to equity in the company,” said Jonathan Harris.

A spokesperson for Compass said the firm looks forward to its chance to “disprove Mr. Dorfman’s false claims that he should receive any compensation for the limited hours of work he alleged to have performed in 2012.”
In the tech world, founder disputes are not new.

Facebook’s Mark Zuckerberg fought off several, including one from Eduardo Saverin and another from brothers Cameron and Tyler Winkelvoss, who settled for just $65 million. Martin Eberhard, a former CEO of Tesla, threatened a defamation suit over CEO Elon Musk’s founder title.

In general, such suits allege breach of contract and the plaintiff, if successful, is compensated with monetary damages.
But in situations where cash is deemed insufficient, the court may award other forms of damages, said Jonathan Gworek, a startup attorney at Morse, Barnes-Brown & Pendleton in Waltham, Mass.
An impending IPO could be one reason a monetary award is deemed insufficient, Gworek said.

“I can see the plaintiff saying, ‘If you give me cash, I won’t be able to turn around and buy the stock. So I’m not going to benefit from the run-up in value when it goes public,’” he said.
For Compass, the financial stakes are high either way. Randall Baron, a partner at Robbins Geller Rudman & Down, surmised the firm is probably “trying to deny him the appreciation” of its shares over the past few years. Sources said the firm may be betting that a jury will have a harder time awarding a staggering sum than mere shares, even if they are just as valuable.

But there are other drawbacks to Compass awarding new shares.
After six years of litigation, the brokerage likely wants to avoid a fiduciary relationship with Dorman. With shares, Dorfman would be empowered to request financial information, and it’s possible his vote would also be needed to approve a company sale. “If the court awards him cash, their relationship is contractual and short-lived. They rip the Band-Aid off,” said Ed Zimmerman, chair of the tech group at Lowenstein Sandler.

What’s more, issuing new equity could have a “cascading effect” by diluting the ownership of other shareholders, Gworek noted. In all likelihood, the company would have to issue additional shares to investors to preserve their position. “That could wreak havoc on the company’s capitalization table,” he said.

In an Aug. 24 letter to the judge, Compass’ attorneys said as much. “While Defendants disagree that Dorfman can recover ‘the current valuation’ of Compass stock as opposed to its 2012 value, the point remains that Dorfman was clearly seeking the value of the shares as money damages, not the shares themselves,” they wrote.

The original complaint, however, says Dorfman was denied a piece of the company and seeks compensatory damages.
In the original suit, Dorfman didn’t specify the value of his damages, only that he originally believed he was owed 5 percent to 10 percent of a founder’s stake. Compass offered 2.5 percent, then 1.8 percent, which Dorfman turned down because they were insulting. Experts hired by Dorfman said in 2019 he could be entitled to 2.5 million shares.

According to court documents, Reffkin paid only $335.50 for 3.355 million shares in 2012. The value of his shares today isn’t clear given that they were likely diluted over time. Compass’ $370 million Series G priced shares at $154.27 apiece, according to Pitchbook.

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If you're a Compass agent this statement has to concern you:
"Two years ago, Reffkin said by 2028 he wants agent commission to account for only a fraction of their earnings — with the rest coming from a vast “referral economy” of services."

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Brown Harris Stevens jumps into the "Concierge" program space with "Curate."

Brown Harris Stevens to offer loans to clients​

Brokerage partnering with lenders to front staging costs, bridge loans for sellers

Brown Harris Stevens is debuting a suite of lending programs to front cash to its brokers’ clients.
Programs the firm announced Tuesday include a pre-market home improvement and staging service for sellers called Curate and a bridge-lending option for buyers who would otherwise have to sell their current home before buying.

The company said the services would launch in all its markets this month. The debut comes as some lenders are balking at providing loans particularly in dense urban markets such as New York City.

In the first months of the pandemic, rival brokerage Compass scaled back similar lending programs before restarting them in the summer with a few caveats, such as suspending agents from the services if two or more clients failed to list or repay the funds.
Matt Leone, BHS’ head of business development, said this was the right moment for the new lending services because sellers needed help in this “economically challenging time.”

“[It] allows our clients to have more options,” he said.

Leone noted that the expansion was in the works prior to the pandemic at the request of agents, but that it took time to find the right partner. That partner is concierge platform Zoom Casa and its lending partners.

Notably, BHS’ bridge lending will have the capacity to offer buyers credit up to $25 million at interest rates averaging around 6.5 percent. Zoom Casa will facilitate these loans from other lenders, Leone explained. He said the roster of lenders behind the bridge loans is still being finalized.
For projects such as renovating kitchens, installing flooring, painting and decluttering, BHS’ Curate will cover the costs, vendor selection and project management of pre-market improvements through Zoom Casa’s platform.

Both lending programs will be available to clients who sign an exclusive agreement with BHS agents. For sellers who opt to use Curate, the loan will be due upon the termination of the exclusive listing agreement with BHS agents.
Compass’ lending programs launched in 2018 with a home-improvement service called Concierge that covered sellers’ staging costs and recouped funds when the home sold. Last year it began offering bridge loans to sellers.

Those services have been a boon for the brokerage’s recruiting. Last summer, major BHS producer Rachel Glazer moved to Compass, citing its Concierge program as a big factor.
“No other brokerage offers anything like that,” she said at the time.
Compass said that Concierge was used on 17.5 percent of its listings last year and agents who use the program increase their listings by 47 percent, on average, over three months.

Until now, Compass was the only brokerage in New York City offering lending to its agents’ clients, but nationally a growing number of brokerages are launching bridge loan programs. The rationale is that the service allows buyers to purchase a home before their old one sells, making them more competitive buyers.
When asked whether BHS launched its lending programs as a way of retaining agents in the city, Leone said, “I think everything we do is a recruiting and retention tool. … I call it doing your job.”

“We’re doing it solely because agents have said it’s important,” he said.

David Goldsmith

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How Compass Became the Bane of Real Estate

The high-tech real estate startup boasts SoftBank backing, a $1.6 billion war chest, and plenty of skeptics. Now it’s cashing in on the pandemic real estate boom.​

“None of us knows how long this crisis will last,” pleaded Robert Reffkin in a letter to Nancy Pelosi and her Republican counterpart Kevin McCarthy in March. Reffkin, CEO of real estate startup Compass, was urging Congress to include independent contractors like real estate agents — some 2 million of them in the United States, according to the National Association of Realtors — in its economic stimulus package. In his plea, Reffkin cleared up any misconceptions about the professionals: They were entrepreneurs and small business owners who represent the backbone of the U.S. economy, personify the American dream, yet typically only earn less than $41,800 per year. “We do know that for real estate agents, the economic pain will last even longer than it will for those in many other professions.”
The heartfelt missive on the plight of his industry during a pandemic — he even mentioned his mother, who works as an agent for his firm — came during a particularly bleak moment for Compass and its more than 11,500 independent contractor agents who depend on it. With the backing of $1.6 billion in venture capital, including a $450 million infusion from SoftBank in December 2017, Compass had been on a growth streak, grabbing market share in the nation’s most expensive housing markets and becoming a major player in high-end residential real estate. But as everything, including real estate sales, ground to a halt in late March, it left a commission-dependent workforce desperate for signs of life.
Reffkin sent his letter on a Thursday. The following Monday, he laid off 375 of his full-time staffers, characterizing the moment as an “economic standstill” and forecasting a 50% revenue decline over the next half a year. By mid-April, after stay-at-home orders and shutdowns froze the economy, new weekly home listings in New York City, one of the company’s largest markets, were down 89% year over year. Worries of hollowed out, abandoned urban centers began to take hold, a particularly grim scenario for a luxury urban real estate company.
By this summer, Compass hadn’t just recovered, it was posting record-breaking monthly revenue every month from June to October.
While the urban exodus story was largely a myth, wealthy families would begin relocating to bigger, more spacious homes, or purchasing second homes. All of this made Reffkin’s letter seem as dated as a sepia-toned dispatch in a Ken Burns documentary. By late spring, home buying had started to swing back with a force no one had anticipated. Since then, real estate sales, particularly expensive single-family homes, have been booming, hitting a 14-year high in October, per the National Association of Realtors, the same month the number of homes on the market priced over $1 million doubled and the median home price jumped 15%, setting a record high.
By this summer, Compass hadn’t just recovered, it was posting record-breaking monthly revenue every month from June to October. In June, July, and August, agents netted 50% more revenue than the same period last year. Since April, it has brought on 3,500 more agents to meet demand. Compass competitor Redfin found that luxury home sales, defined as homes in the top 5% in the market, are up 42% year over year in the third quarter of 2020, and showings, both virtual and in-person, have skyrocketed in recent months, up 64% year over year in September. The surge has been most pronounced at the highest end. “New listings for what we define as affordable homes is up just 2.8% in Q3,” says Daryl Fairweather, chief economist at Redfin. “For luxury, inventory is up 45%.”
Now, rapidly expanding during a historic upswing in home buying, Compass is using its billion-dollar war chest to build on that momentum with new technology and its army of agents. Compass, first launched as an apartment rental site called Urban Compass in 2012 co-founded by Reffkin and serial tech entrepreneur Ori Allon, is aiming to build a brokerage with the valuation of a tech giant.
With the SoftBank backing and massive valuation, there have also been no shortage of Compass comparisons to WeWork.
While well-funded upstarts taking aim at large established industries is nothing new, few asset classes boast the value of U.S. homes, worth more than $30 trillion dollars. Compass’ strategy has been to develop what its chief technology officer Joseph Sirosh told Marker is an “operating system” for the antiquated real estate industry. Things like bespoke customer relationship management tools that use predictive A.I. to tell agents who and when to target; computer vision and machine learning to examine pictures of your home and tell you what upgrades you need to make to increase the sales value; and a slick smartphone app that lets an agent create customized video clips for social media to help one client sell their home, send a bottle of champagne to another happy customer, and generate and send itineraries for tomorrow’s home tour, all in minutes. The aspiration is that with every agent interaction tracked, it will eventually be able to recommend which strategies work best. “The nature of our platform is that it’s like Shopify or Salesforce,” says Sirosh.
The narrative of the tech-first disruptor is a well-tread path. Salad giant Sweetgreen, which has raised nearly half a billion dollars, has shown the value of casting itself as a technology firm that just happens to sell lettuce. While Compass is currently valued at $6.4 billion, it’s been met with skepticism, often withering, especially from established industry players. Its valuation is 10 times that of Realogy, the giant conglomerate of marquee firms such as Sotheby’s and Coldwell Banker that dominates the U.S. real estate market and has almost six times more annual revenue and 20 times more agents. When asked by business journalist Andrew Ross Sorkin why it appears that his company is actually seeing growth from rolling up small and large real estate firms as opposed to tech investment, Reffkin responded with the pithy “Is Amazon a retailer or tech company? Is Uber a transportation or tech company?”
With the SoftBank backing and massive valuation, there have also been no shortage of Compass comparisons to WeWork. (While Reffkin and Allon declined to speak to Marker, Compass fiercely resists those comparisons, underscoring that unlike the co-working giant, it has no debt.) According to The Real Deal, Compass has acquired more than a dozen brokerages, including a San Francisco-based firm with $14 billion in annual sales. It expanded from 37 to 122 markets in 2018, reportedly seducing brokers with unsustainably high commissions. A real estate executive in New York City who doesn’t compete with the firm says the startup’s greatest strength isn’t technology — but good old-fashioned brute force. “They’re a disruptor by capital, not innovation,” he says. “It’s amazing it’s gotten this far. They’re a brokerage that doesn’t offer anything different; they’re just better at selling an idea.”

Real estate has largely defined the history of America, from land grabs and westward expansion to the growth of cities, suburban sprawl, and today’s McMansions. But the actual realty profession is little more than 100 years old, born, according to Jeffrey Hornstein, author of A Nation of Realtors, of the early 20th century progressive-era drive to encourage entrepreneurship and escape the yoke of corporate servitude.
Beginning in the late 19th century, real estate salesmen created professional groups as a reaction to the dubiousness of the then relatively unregulated career path. Prospective sales agents, nicknamed curbstoners, would compete by placing multiple signs and placards in front of a for-sale property brimming with modern conveniences, the public left hoping to choose an agent with scruples. It was an “open listing” market filled with speculators; a seller could work with as many agents as they wanted to, only paying the one who brought them a buyer.
Realtors saw professionalization as a route to more sales and less consumer skepticism, and pushed a narrative of moral salesmanship to the public. The home, according to Hornstein, was fast becoming a focal point of consumerism, and consumers needed expert guidance to find the right one. To help combat the reputation of agents as bamboozling sharks, realtors pushed for state licensing requirements and formed multiple listing services; sellers would offer agents exclusive rights to their property and pay them commission for sales.
Throughout the economic booms and busts, the hot market of the 1920s, and the vast post-WWII homebuilding spree, realtors would continue evolving their business practices and organizational structure, taking advantage of the government’s explicit backing of homeownership as an economic good (one that was, and still is, severely restricted for people of color). Before the Great Depression, a down payment for a home may have been as much as half the home’s value. But the New Deal and postwar boom in government loan programs, revolution in credit availability, and dramatic increase in supply due to suburbanization and a booming economy meant that consumers saw their paychecks rise while home prices stayed relatively flat between 1950 to 1970. By 1928, one in every 80 Californians had a real estate license.
Over the past 50 years, the two biggest factors upending real estate was the cultural obsession with it — and the internet.
While marketing methods would change, a formalized industry began to take shape. In 1925, a broker in Fort Wayne, Indiana, had a “brand-new sales idea” to show completely furnished homes. In the ’30s and ’40s agents created sales networks so they could show prospective buyers multiple options. (Before, it was typically one agent moored to a single home.) In 1952, a realtor in Dallas began using the model house concept, to sell the future vision of a home. Century 21, founded by a pair of Orange County agents in 1971, set out to create the franchise “McDonald’s of real estate” model. Alongside firms like Coldwell Banker, initially founded in 1906 in San Francisco, Century 21 would rapidly expand in the ’70s and ’80s, corporatizing and scaling the franchise model, comprised of independent contractors as agents, to improve sales and salesmanship. In the ’80s, brokers would provide access to MLS books, huge, telephone-directory-like collections of local listings agents would thumb through for listings, often making photocopies to take into the field.
Over the past 50 years, the two biggest factors upending real estate have been our increasing cultural obsession with it — and the internet. Beginning in 1999, Home and Garden Television began airing House Hunters, the first in a long series of shows featuring what writer Kate Wagner, who founded McMansion Hell, called “sledgehammer-driven makeovers,” and the underlying idea that smart renovations can inflate values and transform property. (The home-flipping boom would soon follow.) Zillow, which launched in 2006, became a portal of real estate information and an aspirational time-suck for millions, one in a wave of websites and services that would democratize access to real estate data.
Where realtors previously were experts with rarified knowledge and insider information, by the 2010s, they were mostly engaged in customer service and facilitation, less oracles and more operators and advisers connecting buyers and sellers (though they still make relatively the same commission amount they did decades ago, according to a 2019 Brookings study, a nice cut when average home prices have skyrocketed). During a 2006 interview, Zillow founder Richard Barton said, “Realtors currently sit at the middle of the transaction. I think in the future they will sit more on the outside offering specific services.”
But the process — endless paperwork, applying for mortgages, working with inspectors and escrow, and, yes, the old-fashioned signs — make it seem behind the times, lending a car salesman vibe.
This sidelining has only been compounded by what real estate tech investor Clelia Peters has coined “the white T-shirt problem” — a consumer is more heavily tracked and analyzed, and experiences a more technologically savvy checkout process, when they purchase a plain shirt, she argues, than when they make the most expensive and potentially consequential purchase of their lives: a home. And then there’s the diminishing reputation of the profession. Top residential real estate brokers are skilled professionals, juggling million-dollar-plus deals in certain markets. But the process — endless paperwork, applying for mortgages, working with inspectors and escrow, and, yes, the old-fashioned signs — make it seem behind the times, lending a car salesman vibe. It makes sense that in 2020, young brokers, given the choice between an old-school established real estate firm and a hot tech company, will probably choose the latter.

All of this made the industry a prime target for Ori Allon, an Israeli-Australian serial entrepreneur and computer scientist. Allon had sold companies he’d founded to both Google and Twitter, each boasting proprietary technology that became core parts of how both tech giants operated. (In 2005, when he was 25 pitching to Google in San Francisco, he started by saying, “I’ll show you the future of the world of search.”) He used some of the proceeds to buy his hometown basketball team — Hapoel Jerusalem — a perennial also-ran, and turn it into a championship contender. Along with Reffkin, a former chief of staff for the president of Goldman Sachs and White House Fellow who ran nearly 50 marathons, who he met during dinner at an American Academy of Achievement conference, Allon launched Urban Compass in 2012.
Allon initially saw the real potential in real estate in the data. There are more than 600 versions of the Multiple Listing Service, the shared data platform that lists homes for sale, across the country. Allon believed that by bringing all these data sources under one roof, creating a system that could parse and analyze, seeing trends faster than a human agent, he could create a more efficient, and ultimately more lucrative, sales process. In 2014, he told the New York Times that he loves to “fix things with technology, and real estate needed to be fixed.” It was a challenge “way more interesting to me than what I’ve done in the past,” and his target demographic was “every person that can operate an iPhone or website.”
Allon’s vision for a real estate tech company did tap into a colossal problem faced by the industry. The work of agents is very inefficient. As M. Ryan Gorman, CEO of Coldwell Bankers (part of Realogy), puts it, they are the “quarterback of every transaction,” and responsible for so much marketing and prospecting work that happens out of the eyes of a consumer. Coordinating with escrow companies, prepping homes for showings, creating marketing material, scheduling tours, and even setting up renovations can add hours of work before factoring in face-to-face conversations with clients. But Gorman says both consumers and agents had been resistant to taking the human touch out of the largest transaction most of them will ever make.
In 2018, the firm, flush with SoftBank funding, launched a massive acquisition campaign in cities across the country, poaching agents with the goal of grabbing 20% of 20 markets by 2020.
Other tech companies had already digitized pieces of the process. Whereas Zillow made home values more accessible and transparent, and Redfin created a digital-first brokerage, Compass, bolstered by technology, would aim to make the sales process more efficient. To get there, Allon and Reffkin swung in a bunch of directions. Initially, the firm touted its agent-side technology. Then, in 2016, it launched an app for consumers that provided agents and buyers and sellers constantly updated market information. The company would continue to ping-pong back and forth between being an agent-focused and consumer-centric platform, eventually settling on trying to be all things to all people. Now, according to Rory Golod, president of Compass’ New York region, the platform is “B-to-B-to-C” (business to business to consumer), with the agent at the center.
Compass began with an $8 million seed round in 2012, with investments from Goldman Sachs and Founders Fund, among others, and by 2016, had raised $208 million with a valuation of $1 billion. In 2018, the firm, flush with SoftBank funding, launched a massive acquisition campaign in cities across the country, poaching agents with the goal of grabbing 20% of 20 markets by 2020. Candy Evans, a Dallas-based publisher who runs a local real estate news site CandysDirt, says that “high-end brokers were quaking in their boots, and everyone perked up” when Compass came to town. Agents tend to prefer firms with more expensive property and better commission splits, which enable them to make more money on each sale. This was especially important amid increased competition: The National Association of Realtors found that while the number of brokers nearly doubled from 760,000 in 2000 to 1,359,000 in 2018, the number of total transactions actually dropped, from 5.99 million to 5.96 million.
Across the country, agents spoke about getting generous fee splits from Compass, or signing bonuses some rumored to be in the seven figures. Compass said they do not poach; Realogy, which has a pending lawsuit in New York accusing the company of just such an action, disagrees. Matt Spangler, Compass’ chief marketing solutions officer, says Compass’ retention rate is the best in the industry, and they’re “not paying people any more money than anybody else.” (“You’re not poaching anyone; you’re attracting someone,” he clarifies.) Investor Peters, who sits on the board of trustees of Side, a VC-backed brokerage in San Francisco, says that an explicit part of their strategy is to lock up as many good agents as they can for as long as they can, so the ecosystem of other options for them will be limited. “Is that innovation?” she says. “To me, that seems more scorched earth.”
But agents like Evans say that while Compass’ aggressive splits and signing bonuses work in the moment, agents are mobile by nature, and when one- or two-year contracts are up, they often return to their old firms. She believes the spree of acquisitions, bonuses, and favorable terms is about market share, more than anything else. “You can keep your revenue split at 90 or 95%, what agent wouldn’t want to go there?” she says. In Dallas, Compass took on legacy firms such as Briggs Freeman and Ebby Halliday, and now, according to Evans, are on nearly equal footing. “They did find the agents,” she says, “but here’s the rub: How are you going to turn a profit when you’ve given them almost all of their commission? They have a beautiful office. Their marketing has expensive signs. But how are you going to turn a profit?”
At the end of 2018, Compass made a splashy hire with its new CTO, Sirosh, Microsoft’s former CTO of artificial intelligence who had also created a fraud detection system for Amazon. He’s helped introduce Compass Lens, which determines which upgrades will raise the sale price the most, and the custom CRM software that tells agents when it’s better to get in touch with contacts. He’s opened up Compass tech campuses in Seattle and India and hired hundreds of coders and A.I. experts to help improve Compass’ technology, all while the company has gone on an acquisition tear, buying up Contactually (customer management), Detectica (A.I.), and Modus (digital title and escrow services, core parts of a real estate transaction).
Over Zoom in mid-October, Sirosh explained that Compass’ technology could handle all the grunt work, with agents doing more transactions with less cost, and reach more customers with Amazon-level service quality. As co-founder Allon — who has no day-to-day role at Compass, but currently serves as executive chairman — once said, “bringing the science to what has for too long been only an art.”
Tony Accardo has been a realtor for the last 12 years, working the Los Angeles beachfront and Palos Verdes. He saw Compass as the only player that’s “looking forward, not backwards” in an often stodgy business. When the company came to L.A., he saw them growing at such a fast pace, he told his wife, “If I don’t do this, I’m going to miss the train.” He joined in 2018 and now 90% of his day is spent behind the Compass dashboard, looking at market data, seeing which properties his clients click on. It’s a “portal that provides everything, cohesively branded and well thought out.” He says it makes him much more efficient with his time, and his 2020 sales are triple what they were last year.
Victor Lund, a real estate tech consultant, says that as Compass continually adds more data points to better understand the market and its clients, it’ll create a longer-lasting relationship with the high-end buyers and sellers making up an increasingly large part of the market. “In terms of raving fans, Compass agents we speak to often refer to their CRM and marketing tools as the best they have encountered,” he says. “I tend to agree. Compass has already passed their peers who have fumbled quite significantly in the core tools provided to agents, but the next iterations of Compass tech that leverages data as an asset to improve agent effectiveness and client services will reveal an entirely new landscape for the industry.”
Lund believes other tech solutions for real estate — Keller Williams’ A.I.-powered virtual assistant Kelle, for example, which is focused on teams and associates, and various iBuyer options, which use an algorithm to place a competitive bid on a property — just aren’t as focused, and loyal, to the agent as the one being built by Compass.
But when pressed for specifics and stats to confirm the effectiveness of its technology, Sirosh won’t go beyond vague. When asked if he had data on how the agent tools impacted sales and performance, he noted that the top third of agents are growing at amazing rates year over year, but “it’s hard to say whether it’s correlation or causation, but either way, it’s a good story.” Could he provide more details, or hard numbers or statistics that proved the efficacy of Compass technology? Sirosh suggested the company was growing too fast, and changing so quickly, it was hard to quantify. “It’s all good and positive and big numbers, but with hockey stick growth in the number of agents, there’s limited history around any specific thing. Meanwhile, a multilayered study by real estate tech expert Mike DelPrete from this spring showed that on an array of different measures, from production to transactions, Compass agents lagged behind the competition.
If there were a ubiquitous symbol of real estate in need of a high-tech reimagining, Compass believed it was the for-sale sign sitting on someone’s front lawn.
J Maggio, a top-producing agent with Conlon, a Chicago boutique firm that operated in the city and nearby suburbs, was courted by Compass in 2017, says he got the “horse-and-pony show,” but turned them down, only to become a Compass agent in 2018 when they bought out his firm. “I’ll say this as politely as I can: Compass had a cool software presentation, but none of it saved me time, made me extra money, or made my life easier,” he says. The tech he used until he left the firm in March of this year was worse than what he’d used at other brokerages. “Compass has a young, swaggy vibe, but the tech wasn’t fully baked for what I needed it to be.”

If there were a ubiquitous symbol of real estate in need of a high-tech reimagining, Compass believed it was the for-sale sign sitting on someone’s front lawn. “The real estate sign, for years, was very stagnant, a missed opportunity,” says Johan Liden, an industrial designer at Aruliden, a global design firm hired by Compass in 2017 for the makeover. “It needed to be a true icon that people can interact with.”
When Compass unveiled the reinvented sign in the summer of 2018, it seemed like the perfect totem of the rapidly expanding brokerage: A sleek, black extruding aluminum wand, backlit by LED lights and wired with an accelerometer, temperature sensor, and Bluetooth connectivity, it announced, like an upside-down exclamation point, that the house was a must-see — walk right up, scan a QR code, and take a virtual tour with your phone. Fast Company hailed Compass for the innovation, which was set to hit the front yards of its properties that fall.
But it never made it past the first batch of 1,000 signs. Which was probably a good thing. “I thought a $1,000 digital sign was a waste of money,” says Maggio, the Chicago broker who left Compass this past March after two years. “This was like the show Silicon Valley where an idea really doesn’t need to be improved upon; it’s for the wow factor.”
As Compass tries to make the financial case for its technology-juiced business model — with the eventual goal of taking the company public, which Reffkin indicated in September — it needs to prove it’s more than just flashy packaging. “What’s happening now with the acquisitions and the scrambles is they’re attempting to reposition themselves as a tech company,” says investor Peters. “Is the market going to buy that story?”
The first wave of post-pandemic home buying was more impulsive, with families jumping to the suburbs looking for more space. But as time goes on, and the pandemic continues, and decisions about remote work and lifestyles may harden, Redfin’s Fairweather expects more and more buyers to make a move. She points to Sacramento as a key example; it’s long been attractive to Bay Area residents looking for a cheaper, more spacious home, and saw a massive spike in high-end sales, 86% year over year across the metro area. As people look for more long-term housing solutions, she thinks smaller, secondary markets like this may be more popular, such as Portland, Oregon, or West Palm Beach, Florida.
Brokers say the suburbs are on fire. In the New York region, the Hudson Valley, Long Island, Westchester, and the Hamptons are seeing homes disappear as soon as they go on the market. Maggio in Chicago says this luxury buying spree means a lot of the larger, older suburban homes — McMansion-like properties that may have gone out of style in the rush toward downtown — are suddenly in demand. “This is as liquid as the market is going to be,” he says. “There’s a big push by agents to get people to sell because buyers are coming from the city, and homes need to be on the market now.”
Meanwhile, Reffkin, who purchased his new home in New York City during the pandemic, is as bullish as ever about his city’s housing market. While Manhattan’s office space continues to empty out — it hasn’t had this much available since 2003 — Reffkin believes that as soon as the vaccine arrives, companies and workers will change their tune. Plus, he says Compass’ elite slice of the market is continuing to boom — at least for now. “In the $20 million-plus listing market we’re seeing more activity driven by wealthy and savvy investors looking for opportunity, and in the sub-$2 million market, we’re seeing a font of new first-time buyers being driven by record low interest rates,” he recently told CNN. “And they want to take advantage of it while it lasts.”


David Goldsmith

All Powerful Moderator
Staff member

Compass poached brokers with bait-and-switch, ex-agent alleges​

$10M suit contends agents “were pressured to give up hard-earned money” to invest in brokerage

A former Compass agent has accused the New York brokerage of using “bait-and-switch” tactics to lure him and other agents from competitors.
In a lawsuit filed in California last week, J. Gregory Maffei alleged Compass utilizes “unfair, unlawful and fraudulent business practices” designed to gain market share by recruiting agents with an “empty promise.”
The complaint, which seeks class-action status, demands $10 million in damages and reimbursement for unpaid commission and expenses.

By including Maffei’s contract, the suit further pulls back the curtain on Compass’ recruiting tactics, which have been the subject of other lawsuits from competing firms, including Realogy.
Maffei’s suit claims Compass has leveraged “more than $1 billion in funding from venture capitalists to support its ‘bait-and-switch’ tactics and to account for the losses Compass has incurred by overpaying and poaching its competitors’ real estate agents.” The filing was first reported by Inman.

According to the suit, Maffei joined Compass last year after 14 years at RE/MAX Estate Properties in Los Angeles.
Compass offered an “amazing compensation package,” including a $16,800 signing bonus, 90 percent split and a $49,000 “launch” marketing budget to get Maffei up and running, the suit claimed. It also promised restricted stock units.

Maffei claimed Compass didn’t tell him he’d receive restricted stock in the company, not common stock. Restricted stock units are subject to vesting and other restrictions.
Since 2018, Compass has allowed agents to invest commission payments into company stock, which agents hope will be valuable once the company goes public. Having raised $1.5 billion from investors, including SoftBank, Compass hired bookrunners last year to lay the groundwork for a potential IPO.

But Maffei alleged the model is nothing more than an “unlawful Ponzi scheme or a get-rich-quick scheme,” the complaint read. “Compass’ agents were pressured to give up hard-earned money to invest in Compass.”
According to the complaint, Compass also breached agents’ independent contractor agreements, in part by exercising a level of control of agents that should warrant employee status. It also paid out commissions based on a net commission number that includes deductions for expenses. And it engages in price-fixing by collecting its share of earned commission “based on the industry standard of 5 percent,” even if the seller and agent negotiated a lower amount.

Compass didn’t immediately respond to a request for comment. [Inman]

David Goldsmith

All Powerful Moderator
Staff member

Compass files confidentially for IPO​

Residential brokerage has been laying groundwork for public offering for months

Compass has filed confidentially to go public.
The residential brokerage, which has raised $1.5 billion from investors including SoftBank, said it submitted a draft registration statement with the U.S. Securities and Exchange Commission on Monday.

Compass did not disclose the size of the offering. The firm’s last valuation was $6.4 billion in July 2019, when it raised a $370 million Series G.

The impending IPO has been the subject of intense speculation in the real estate world.
Over the past year, Compass been laying the groundwork for a public offering by rounding out its C-suite and building up an independent board. The firm reportedly hired bookrunners last year.

Founded by Robert Reffkin and Ori Allon on New York in 2012, Compass burst onto the scene by hiring top agents across the country and gobbling up market share. Even as rivals criticized aggressive recruiting tactics, Compass grew to more than 18,000 agents.
In 2019, it ranked as the No. 3 residential firm in the country with $91.3 billion in sales, according to Real Trends.

Like other real estate firms, Compass was forced to make cuts when Covid hit, and in March it laid off 15 percent of staff. But as the housing market bounced back, Compass reported record revenue in June, July and August.
In an email to agents last month, CEO Robert Reffkin addressed the rumored IPO. “Being public will allow Compass to raise capital that we can invest in more tools and more support to help you,” he wrote.

Earlier this month, Compass was sued by a former agent in California who accused the firm of using “bait-and-switch” tactics to lure him and other agents from competitors. In 2019, real estate giant Realogy accused Compass of “predatory” poaching and unfair business practices. That suit is ongoing.