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It has only been six months since Compass ascended to the top of the real estate mountain, dethroning Anywhere as the largest brokerage in the U.S. by sales volume, but times have certainly changed over the ensuing months.
Back in April, when Compass won its top spot, it was already clear that the boom market of the last two years was shifting. But mortgage rates were then hovering around 5 percent and most observers were arguing that home prices might slow their growth, not drop. Today, on the other hand, mortgage rates have surged past 7 percent and economist say home prices are going to fall in the near future.
This rapid shift has caused vast amounts of chaos in the housing industry. Demand for new loans has plummeted, for instance, and thousands of real estate workers have lost their jobs.
These challenges put Compass in a unique spot. On the one hand, the company’s large size means it can harness the advantage of scale in a way no other company can.
But on the other, tough times mean the brokerage is also being tested in a way it never has been before. On top of that, Compass is also grappling with a struggling stock price, and with fundamental changes to its business model. And the company has not been immune to layoffs, in June cutting 10 percent of its workforce.
It’s against this backdrop that the company is convening this week in Atlanta for its annual fall REtreat conference. The event spans three days and a number of sessions from top-performing agents sharing tips on how to make it in the housing business. For those not attending, though, the most significant session will happen Wednesday morning when CEO Robert Reffkin takes the stage. His segment is titled “Reflecting on 10 years of Compass with Robert Reffkin.”
It remains to be seen what speakers at the event will discuss, but it’s safe to say that Compass has never held a gathering in an environment quite like this before. Here’s what to know, and what Inman will be watching for:
1. What’s going on with the economy?
The market shift, ongoing inflation, rising rates and other factors have been crashing into the economy for months now. Reffkin himself even cited several of these factors in his email about June’s layoffs.
So it’ll be significant to see what Compass leaders now think about the strength of the economy, how long the hard times might last and how the brokerage is responding.
Gatherings like this can also offer unique insights into executives’ moods; last week for example, Keller Williams cofounder Gary Keller said at his company’s conference that he expects 2022 to be the “second worst” year for real estate deals in history. So it’s worth watching to see if Reffkin offers any similarly direct takes on what’s happening to the economy.
2. Is ditching cash and stock incentives working?
One of Compass’ most significant moves this year happened in August when the company announced it was ditching cash and stock incentives for new agents.
The news mattered because Compass grew to become the largest company of its kind in part by luring top-performing agents via generous incentive packages. The announcement prompted a debate over whether Compass could sustain its rapid growth without those incentives.
The big insights on this topic will likely come via Compass’ next earnings report. But given the magnitude of the incentive announcement, it’ll be worth watching this week’s event for clues on how agents have responded to the change, if there has been any impact on recruiting, and how leaders feel the shift is going.
If nothing else, any time Compass comes up there will be questions about how it plans to defend its spot atop the real estate heap without the tactics that got it there in the first place.
3. What about share prices and private equity takeovers?
A report earlier this month suggested Compass was a potential target of a private equity takeover. The brokerage quickly and strenuously denied the rumors, and pointed out that they were sourced anonymously.
Still, the idea rippled through the industry. Part of the issue is likely that Compass stock has been on a downward trajectory basically since the company went public in April 2021. Falling share prices have become an acute problem of late, and as of the close of the market Monday Compass stock was hovering near its all-time low price. Companies can forge ahead even with low share prices, but as a company’s value falls it does become a more viable target for takeovers.
Falling share prices are also a unique problem for Compass because up until earlier this year it was providing stock to agents as part of their compensation packages. If that stock losses most of its value — as it has over the last year and a half — it could have impacts on agents’ relationship to the brokerage.
As a result, it’ll be worth watching Compass’ conference for any hints about how leaders view the share price situation, and if there are any new responses to the private equity rumors.
4. What is Compass going to do about technology?
In addition to incentives for agents, Compass also grew over the last few years by positioning itself as a technology company. There is a reason, after all, that it attracted investment from tech-loving Japanese venture fund Softbank.
Compass continues to tout its technology, but earlier this year the company let go of its chief technology officer and distributed his duties to other executives. At the time, Compass also issued a statement describing its tech platform has already having had a successful role out, and noted that the company was entering “its next phrase.” Not long afterward, Chief Operating Officer Greg Hart told Inman Compass was “reaching a major milestone.”
The episode hinted that Compass sees at least some of its work with technology as being complete. Questions that remain now have to do with how well that technology works, what kind of an allure it holds for agents, and what kinds of investments Compass is still making in the space. Any hints on these topics will offer insight into where Compass thinks it is headed, and how it might continue to grow.
