Table of Contents
New markets require new approaches and tactics. Experts and industry leaders take the stage at Inman Connect New York in January to help navigate the market shift — and prepare for the next one. Meet the moment and join us. Register here.
In a refreshingly honest interview, Los Angeles luxury broker Jason Oppenheim said that Compass’s long-term focus on revenue, not profit, is problematic not only for the company, but scarred the entire industry’s visage.
The focus on favorable splits and large investments in technology may look good in recruiting appeals, but they upend a business model that really never needed to be fixed, Oppenheim said.
“You’d think that investors would have learned their lesson because of [what I viewed as] such an obvious smoke-and-mirrors show of revenue growth, and then the promise of future profits,” he said. “But for anybody who understood the brokerage model, we all knew that there were going to be [little] future profits because you’re now in a situation where you have overhead, unsustainable overhead, and your income is fixed at whatever percentage the commission split is with the agents, so there’s no fixing Compass. [In my view], it’s unfixable.”
In a rebuttal, David Schlichter of Schlichter Team at Compass in Denver, Colorado, said Compass isn’t broken, it’s simply not profitable yet.
“The fact that Compass is not currently profitable, accordingly, is not a fundamental problem,” Schlichter said.
“Contrary to what Oppenheim suggests, the kind of dynamic leadership on display at Compass is exactly what is needed, in my opinion, at brokerages across the country in this rapidly changing macroeconomic environment.”
Schlichter is right that real estate needs new forms of leadership, and that dynamic individuals like Robert Reffkin can dislodge the traditional experience. It’s critical someone does, because consumers are overtly saying that what’s happening now isn’t the best way to buy and sell a home.
Are consumers looking for an alternative to business as usual?
Inman reported in June that according to a survey conducted by Clever, a real estate consumer resources and data firm, people are willing to take $45,400 less for their homes to avoid the current home sale model, especially if they get to choose a closing date, and that 65 percent of homeowners would consider selling their homes to an iBuyer.
Moreover, in a blog post on Q3 performance from major brokerages, industry analyst and technology consultant Mike DelPrete noted that eXp outperformed a number of competitors in a few metrics.
“Compared to last year, most brokerages experienced a significant revenue decline in Q3 (remember, 2021 was an outlier). The exception is eXp, which is benefiting from tremendous growth in agent count, transaction volume and market share,” he said. “EXp’s year-over-year growth stands in notable contrast to industry heavyweights Anywhere and Compass, which both experienced year-over-year declines in revenue.”
Whatever side of that debate you land on in regard to how consumers prefer their real estate services, there is proof that some good is emerging from the industry boat race that Compass created. Its wide, frothing wake helped other alternative brokerage messages reach the surface, and agents are responding to it.
“Well, what will come out of [Compass’ impact] is that the model will have to become more brokerage centered. Brokerages will have to spend, unfortunately, less money to provide less services and then have to charge their agents more of a commission,” Oppenheim said.
Brokerages can do exactly that by reducing expenses and supporting agent autonomy, among other tactics. The most important thing though, according to the Selling Sunset star, is “excellent service to buyers and sellers.”
How office-less brokerage brands can do more with less
Office-less brands like eXp and Real, for example, aren’t as burdened by the same recurring overhead that Oppenheim said has sealed Compass’ fate. While eXp’s presence in the industry has been felt for some time, Real’s ramp-up has been nothing short of impressive. The company absorbed Canada’s 90-agent Redline Real Estate Group in November, a move that helped it reach its agent growth goal for 2022, which has swelled by 82 percent this year to more than 7,000, Inman reported.
However, like Compass, Real is making serious forays into developing proprietary systems to power its teams and agents, deploying a full-scale enterprise operating system built from the ground up, centering on transactions, and helping agents.
In an interview with Inman, Real CTO Pritesh Damani said that his team’s software enabled nine transaction coordinators to oversee more than 11,000 deals, and that number of TCs has remained the same throughout recent growth spurts.
“For every $100 we spend, $70 of that goes to automation, generally speaking,” Damani said.
Summarized, agents are provided a comprehensive transaction data input and oversight solution that includes dynamic, agent-based payout breakdowns with appropriate splits, fees, payouts and all other bookkeeping minutiae tightly presented for all stakeholders. There’s in-app deal-based communications, checklists, deal progress trackers and personal dashboards for every agent outlining current CGI, cap limits, goal tracking, side volume and all other pertinent aspects that matter between a broker and an agent. It’s impressive; and more is on the way.
Real’s business ecosystem is the result of leadership — Poleg — allowing Damani and his team the freedom to create. Without that, Damani said, the engineering talent for such projects wouldn’t come.
“I told [Real CEO] Tamir [Poleg] that I didn’t want to come on board just to link together a bunch of products, to be a plumber,” he said. “I love to build meaningful things.”
Providing a menu of options for agent services rather than a one-size-fits-all stack
Working with meaning was also the impetus for Sam Sawyer, CEO of Pinnacle Realty Advisors, another remote, agent-centered brokerage with momentum.
Sawyer worked with The Collective in Dallas, which in 2018 was acquired by Compass.
Sawyer isn’t as hard on Compass as Oppenheim, but admits he wanted something different. And though he describes his company as the “anti-Compass,” he harbors no ill-will.
“I was always in the traditional model.” Sawyer told Inman. “But this couldn’t be any more different, and I couldn’t be more excited about it.”
Sawyer said he didn’t get a lot value from brokerage models that operate under traditional structures. Sawyer also worked for Sotheby’s, served as a team leader, and has been a top producer for a number of years.
“This model gives a lot of power back to the agents, they make a lot more money,” he said.
Pinnacle is a 100 percent commission model, and agents choose among a few monthly subscription levels. Those fees cover access to a number of third-party technology tools under its PinnacleHQ, such as Updater, Chime, Placester, Inspectify and SkySlope for transaction oversight. The company continues to add services and benefits to HQ, which Sawyer likens to Upwork, a marketplace of freelance creative and technology professionals.
“It’s really separating brokerage services from add-on services,” Sawyer said. The intent is to avoid agents paying for services they don’t need.
“I used my own CRM [while at Compass], and wondered why I should pay for their CRM if I wasn’t using it.”
He calls Pinnacle, “brokerage as a service,” with agents being able to pick and choose what they’ll need.
“At legacy firms, there are lots of politics,” he said. “At my level, I got a lot of services, but I know the $10 million producer was frustrated. To us, you’re worth as much as every other agent.”
Sawyer believes that legacy firms are like flipped homes. Maybe the exterior looks different, but the foundation has forever been the same.
“Models like us, and Real, are rebuilding the whole thing, this is a new construction home. There are a lot of foundational differences,” he said. “It’s not about commissions splits, it’s the whole mentality.”
Oppenheim’s take, easily construed as a comment on the wave of newer, tech-focused upstarts, is that trying to provide too much for your agents will likely lead to failure.
“The goal of the brokerage industry, the real estate industry, should be to provide excellent service to buyers and sellers,” Oppenheim told Inman. In other words, brokerages are best as they are, focusing on buyers and sellers.
While a consumer-first approach sounds great to MBA candidates and as Sawyer labels them, most legacy brokerage leaders, Compass, Real, Pinnacle and others, recognize that agents are also customers. They, too, are owed excellent service.
And you can succeed in providing it.
Email Craig Rowe