Real estate broker Joe Rand feels envy and frustration when he reads about the financial valuations of companies like Compass and Redfin — or even ZipRealty when it sold to Realogy for $166 million in 2014. Zip was valued at six times top-line revenue, while the valuation arithmetic for traditional brokerages — like Rand’s profitable Better Homes and Gardens brokerage — is only four to five times net income.
- Some real estate companies are valued using different standards than others -- top-line revenue instead of net income or vice verse.
- This leads to sky-high valuations for some companies -- but there could be bumpy roads ahead for tech startups.
- Deals are still getting done though -- and the goal is to be a "cockroach," a self-sustaining company that doesn't need huge valuations and funding rounds to survive because it is continuously profitable.