The real estate industry is buzzing about the fate of Compass. Rumors, innuendos and hearsay have spread like a viral video of a naked celebrity.
Sorting out the truth is tricky.
One thing is certain: Compass has a bullseye on its back because it has become a threat to some of the largest brokerages in the country.
Recruiting, lawsuits and YouTube videos
The company is using its venture capital and private equity stockpile to raid top producing real estate agents in big markets across the country. It’s the biggest reign of terror on the industry since Re/Max declared war on old school real estate companies in the 1980s with its 100-percent commission model.
Initially, Compass came out swinging as a disruptor, but it has figured out how to grab market share from competitors by using a traditional model and lots of money.
And the consequences are showing up on brokerage bottom lines.
“Our agents are some of the top talent in the industry, and as such, historically have been targeted by the competition,”said Tony Hull, Realogy’s executive vice president, chief financial officer and treasurer, in the August earnings call. “This trend has recently become more pronounced as new entrants to the industry as well as assorted, established firms use short-term economic incentives to build market share.”
Compass was not specifically mentioned on the call, but insiders say that is who Realogy execs often name.
Legacy real estate companies are now taking aim at tripping up the four-year old company. They have filed numerous lawsuits against Compass and reported what they claim is bad behavior to state real estate regulators.
A group of brokers have created an anonymous hit piece slide show and a YouTube video with allegations about the company’s business practices and finances, trying to discredit Compass and to get the attention of the press.
Inman did not report or share the video or slideshow because the creators chose to remain anonymous.
Rumors of change
It is no secret that many news organizations — including Inman — are trying to chase down the rumors that are flying around like flies on a humid summer day in Mississippi.
We have all talked to disgruntled agents who have spun through the revolving door from traditional brokerages to Compass and back to old-school companies. And some have been vocal about their criticisms of the start-up.
But Realtors moving from firm to firm with spirited opinions about each are as old as the MLS. A couple of fired employees are also talking up a storm, but journalists must carefully sort through personal acrimony and facts in these cases.
The latest scuttlebutt is that Compass will soon undergo a big management shakeup, allegedly spearheaded by its new big funder Wellington Management Capital, which led a $75 million round on a staggering $1 billion valuation just a few months ago.
Compass CEO Robert Reffkin told me three times “no one is leaving Compass” when I tried various ways to ask him questions about a possible management shakeup.
(Technically, “leaving” does not preclude a reshuffling of titles and responsibilities.)
And furthermore, a couple of the statements that I have heard from brokers have proven to be untrue.
For example: “XYX recruiter has called XYZ executive to be the new CEO of Compass.”
I know the unnamed exec well — who denied getting a call from a recruiter, and who would not lie to me.
The XYZ recruiter has also denied having an assignment with Compass.
But, heck, who knows — at this level of power and wealth, games are played with words, actions and intentions. Parsing perfection.
So what’s the truth?
One of two things could be happening.
Without some changes, the Compass enterprise could face collapse because of wild spending on expensive leases, lawsuits, outsized overhead and its bloated agent recruitment costs.
Seventy-five million dollars is a lot of money, but it is amazing how quickly big bank accounts can sink to zero when spending habits are blazing out of control.
The tech industry is littered with examples of well-funded start-ups who weave a big story and attempt a land grab on a traditional industry, but then fizzle out quickly when reality does not match up with their dreams.
It is also true that wild spending sprees are common for tech companies who race to gobble up share with losing money as an afterthought. Remember Zillow?
Alternatively, this is a ginned-up industry assault on a legitimate competitor. Brokers are running scared and turning their attack dogs on the aggressive Compass recruiting monster.
Going back decades, fearful brokers have done crazy things to stop aggressive newcomers — just ask Dave Liniger, the iconic founder of Re/Max.
They were vicious. Reffkin should consider himself lucky.
My guess is that this story will play out in one of two ways: a colossal crash-and-burn or a tale like Liniger — success beyond anyone’s wildest imagination.