Its name has evoked a mix of emotions in the real estate industry for years. To some, the company is an innovator bringing the brokerage model to a new level with tech, marketing and an “agent-centric” model. To others, it’s a controversial entity leveraging Wall Street dollars to lure top-performers into its camp.
Regardless of where you sit on that spectrum, it’s difficult to argue that Compass Inc. hasn’t been a conversation starter in real estate. That proved to be evident recently as the company announced that it was nixing several recruiting perks that have been instrumental in the brokerage’s surge to nearly 29,000 agents in over 70 markets nationwide.
While that surge of growth has garnered praise and scrutiny, it is also indicative of a persisting interest among agents to give the brokerage a try. Be that as it may, there are still a lot of questions surrounding Compass, which is in its second year as a publicly-traded company.
Is the tech-focused company truly an innovator or is it a novel spin on the traditional brokerage model that it has tried to disassociate with?
Understanding the business model
Launched in 2012 by Robert Reffkin and Ori Allon and going public in 2021, Compass has built its reputation on its ability to lure top-talent agents as a “technology-enabled brokerage” that provides a mix of resources and support to improve the lives and businesses of their agents.
At the forefront of that premise—and its branding—is the Compass Platform.
Arguably the New York-based firm’s most significant value proposition, Compass agents are given access to an end-to-end suite of software and tools packaged into a seamless “one-stop-shop” that they can use to run their business.
Christian Wilhelm, an agent with Compass in the Pittsburgh area, tells RISMedia that the platform has helped him save time because of its user-friendly features—admittedly a challenge he has experienced at other brokerages he worked at before Compass.
“Compass has found a way to keep their tech and our files and business organization in one place, so you don’t have to go too far out of the platform,” Wilhelm says. “It’s one portal where you have your marketing and business tracker and all that stuff.”
For Wilhelm, Compass and its team of support staff helped mitigate much of the “paper pushing,” and have allowed him and his team of agents to focus on working with clients.
Since joining the brokerage in July 2021, Wilhelm says Compass has been everything that they pitched to him “and more.”
“Compass has found a way to really power agents and puts people and tools in place to help us execute,” Wilhelm says.
That goes beyond the tech, however, as Compass has a workforce of dedicated support staff—referred to as Agent/Office Experience Managers—that assist their assigned agents and teams. The concept is aimed at taking some of the non-transactional work like marketing off an agent’s plate so they can focus on working with clients.
Compass also complements its platform with adjacent services aimed at helping agents better serve their clients. That includes Compass Concierge, a program that provides sellers access to interest-free capital to front the cost of home improvement services to clients preparing their homes for sale.
While some may have pedestaled Compass’ tech and tools as its primary appeal, others contend that the firm’s success—at least in recruiting agents—through the years is a product of timing.
That was evident in the years prior to the pandemic, according to a former agent, who asked that their name be withheld so they could speak candidly about their time at the company—referred to as Agent X in this article.
With an industry that was “ripe for change,” the former agent says Compass offered a “fresh and new” environment that they were looking for.
“It seemed, at the time, as if they understood the gripes of the agent, which was one of the important reasons I went over there,” they say. “The industry had this one, very linear way of operating, and a lot of us didn’t believe the companies we were with took those concerns seriously.
“It didn’t hurt that they were giving large splits and setting up bonuses and, in some cases, stock options,” the agent continues, adding that they were offered an 80/20 split and stock options.
Compass has been known to offer stock options as part of its compensation package, through an Agent Equity Program. According to an SEC filing, the company offers affiliated agents the ability to elect to have a portion of their commissions earned during a calendar year to be paid in the form of restricted stock units (RSU).
However, company executives indicated at the end of 2021, that it was winding down the use of equity to recruit agents as January reports showed that less than 10% of the agents recruited elected to receive shares in lieu of commissions.
Company officials doubled down on that effort in a recent announcement claiming that Compass would be sunsetting its use of equity or cash incentives to recruit new agents in the future—arguably a significant expense that has hindered the New York company’s pursuit of profitability.
During a recent call with investors, Compass executives indicated that new agents would be required to adhere to a standard commission split that the brokerage offers for a given market.
When asked how the cutbacks on recruiting with financial incentives would impact commissions, Reffkin said “we decided that any agent that we started talking to as of last Monday we would give no financial incentive in any way, and that they would be on our policy for that market.”
“If their split is better than our policy split, they can have that for one year and then they go to our policy,” Reffkin added.
Despite rumors, and critiques, surrounding the commission splits that Compass has offered agents, the company has kept that number close to the vest.
Compass Regional President Rory Golod, in an emailed statement to RISMedia, claimed that the brokerage’s commission splits “have and always will be determined upon a number of factors, including industry market standards and agent production history.”
In its latest earnings report, Compass reported that it raked in $1.397 billion in revenue for the first quarter of 2022. Among its list of operating expenses, the brokerage paid $1.146 billion in agent commissions and other related expenses.
Based on rough calculations—dividing the commissions paid by revenue—Compass appears to provide an 82/18 split in favor of its agents, similar to high-performing agents as reported in RISMedia’s Contract and Commission Study. This could vary depending on the individual contract negotiations, however.
Compensation and financials have typically been a significant—and at times controversial—aspect of Compass’s business model. According to Wall Street Journal reports, some agents received all the sales commission, with nothing going to Compass, on as many as eight of their first deals.
Reports also indicated that the New York-based company fronted sellers’ money for staging and cosmetic work, so agents wouldn’t need to foot the bill.
Bill Fowler, who served as Compass’ Senior Director of Industry Relations from May 2018 to January 2022, tells RISMedia that the tactics mentioned in the Wall Street Journal report were accurate.
“I know that they were accused of buying agents, which is an interesting concept because everyone has always done this,” Fowler says. “You offer incentives and it worked.”
While he was insulated from much of the company’s contract negotiations, Fowler admits that the agent perks and commission splits were often handled on an individual basis and institutionally.
“Compass took the stance that we’re going to go out and get the best and brightest and we’re willing to pay for it and it’s worked,” he says.
The company arguably succeeded in that endeavor as it quickly expanded its business in size and production and shot to the top of the list of U.S. brokerages in terms of sales volume last year.
“Compass has deep pockets,” Wilhelm says. “In my opinion, they buy market share, which is genius. Sometimes I’m like, ‘will they ever make their money back on these agents?’ because they do pay well percentage-wise in my opinion.”
While Wilhelm indicates that he is unable to comment on the split that he agreed upon with Compass—due to contract stipulations—he notes that the company’s financial perks go beyond the commissions.
As part of his contract, Wilhelm tells RISMedia that Compass provided him and his team a budget for marketing and fronted money to cover lost commissions that they were missing from a previous firm in order to recruit them.
“If they didn’t give me that lost commission program, we would’ve lost hundreds of thousands of dollars,” Wilhelm says. “I was able to bring over my whole team and keep everyone together because everyone was treated fairly, and was made whole.”
Those perks don’t come without their stipulations, according to Wilhelm.
“As a team leader, I had a very big decision to make because they said ‘hey, we’re going to give you this lost commission and the things to help you get your business up and running, however, we want a commitment from you to us,’” Wilhelm says.
Money talks and so does tech
With all the bells and whistles it advertises, at the end of the day, the lifeblood of Compass’ business model is the agents. The company has invested heavily to reel in top-performing talent through the years.
It also doesn’t hurt that Compass was offering higher initial splits and footing a hefty marketing budget to agents, according to another former Compass who also asked for anonymity in this article—referred to as Agent Y.
“They also offered several thousands of dollars in the first year toward the marketing budget,” they say, adding that they were also offered stock options and the opportunity to purchase stock with part of their commissions.
“This was pre-IPO, and the implication was that agents who bought in pre-IPO would make much more money,” they say, adding that they declined the option.
While working under the Compass banner, Agent Y says they were given an 80/20 commission split in their original contract with Compass. However, the former agent notes that their commission dropped 5% in their second year with the company.
According to Golod, in an emailed statement, Compass doesn’t adjust an agent’s agreed-upon commission split before the agent’s contract is up.
“Anything that is outlined in a contract is adhered to just like with any contract,” he says.
While many would argue that high financial perks have played a role in Compass’ surging market share, Golod and company executives maintain that the Compass Platform is the primary factor bolstering Compass’ ranks.
“There’s a massive technology deficit in terms of a single platform that allows agents to grow their business and operate efficiently,” Golod says. “One of the things we think about as we are working side by side with agents to build a platform is how do we help unlock business growth for them and business efficiency.
According to Jeff Shelton, broker and co-founder of Florida-based Hughes Shelton Group with Compass, that was enough of a selling point for him and his partners to join the New York Brokerage.
“Overall, I had a good enough experience at Compass, but it just seemed like a whole lot of bull**** about how they were disrupting the industry with technology when in reality they’re just doing the same thing all of the other big brokerages are doing.” – Former Compass agent
Since joining the company in the fall of last year, he says the Compass Platform complements his business.
“It gives the agent the ability to access all the technology and work in conjunction with your database and your own business,” Shelton says. “Everything kind of integrates together, so it takes a lot of unnecessary steps out for the agent.”
By that measure, Shelton says that it’s worth joining the brokerage and paying “nominal fees” to access Compass’ resources and technology.
“What they actually give you so exceeds what’s in the industry,” he says. “For the first time I felt like I was actually getting something for the fees I was paying.”
According to documents Compass filed with U.S. Securities and Exchange Commission (SEC), the company charges agents “resource fees” that are either transaction-based—collected at the closing of a real estate transaction—or in the form of periodic fixed fees, which are reflected in the agent’s commissions and “other related expenses.”
While the SEC document didn’t show a number amount, Agent X tells RISMedia that Compass charged them anywhere between $1,300 to $1,400 annually.
Related: Read about fee structures, referral rates, commission splits and more in RISMedia’s Contract and Commission Study for Premier Members.
This spring, RISMedia took an exclusive guided tour of the Compass Platform with Golod to delve into different backend tools and resources that he says allows the firm’s agents to run their business from anywhere.
Sure, the platform provides some of the industry basics—an internal CRM, business trackers and client communication tools, for example—but some of the more advantageous features focus on improving agent production.
At a time when inventory is tight, tracking down listings is a critical component of every agent’s business. Compass attempts to mitigate some of these challenges with features like Compass Exclusives and its “Likely to Sell” software.
Starting with the former, Golod told RISMedia that agents receive an “inventory advantage” by accessing a cache of pocket listings sourced from agents nationwide.
“Because of our market share, we have hundreds of listings that are private exclusives that only Compass agents have access to in our system,” he says, adding that the advantage comes from having access to more inventory in a centralized place.
Compass has caught some flack for allegedly trying to carve out market share using office exclusives in the Bay Area. That was evident when the mega brokerage was explicitly called out during a recent Harvard panel focused on housing issues.
With “Likely to Sell,” Compass provides its agent with an “AI-driven client prospecting software” that recommends clients within the Compass network that have a “higher likelihood of selling their home” based on several factors, including transaction volume in the market and home appreciation value.
“This is helping agents sort of answer that age-old question, ‘I’ve got thousands of contacts, whom do I call today, and they can go in, look at their different Likely to Sell recs, and reach out directly,” Golod says.
While some view Compass as an innovator and disruptor in a seemingly archaic industry, Agent Y tells RISMedia that the New York-based brokerage offers very little that is not already provided by other brokerages in the industry.
“Overall, I had a good enough experience at Compass, but it just seemed like a whole lot of bull**** about how they were disrupting the industry with technology when in reality they’re just doing the same thing all of the other big brokerages are doing,” they said.
The former agent acknowledges that Compass’ home search app was a helpful tool. However, they also indicated that getting agents and clients to use the app was challenging instead of other products already available in the industry.
“Compass sells itself as a groundbreaking real estate tech company disrupting the real estate industry, but the tech is already out there in similar variations with other companies,” the former agent says.
However, a unique appeal is that all of the software and tools are in a centralized platform, he says. If nothing else, Golod asserts that the Compass platform helps save its agents valuable time by offering a streamlined tech stack in one location.
“Right now, to do this, if you’re not at Compass, you need 12 different programs to do what we have,” he says
The push for profitability
Compass bills itself as a tech company that happens to be in real estate—arguably an attempt to differentiate from its competitors—but the reality is that it is cut from the same cloth as the traditional brokerages that it has tried to separate from.
That said, the allure of Compass that has appealed to many agents through the years has been its ability and willingness—with the help of Wall Street dollars—to focus on what matters most to agents: their bottom lines and ability to serve clients better.
With 25 years of experience, Shelton says joining Compass didn’t eliminate the identity that he spent his career building. Instead, he and his team have received flexibility to integrate their brand with Compass’.
“For us, it’s been a pretty seamless transition because they’ve allowed us to brand ourselves in front of Compass,” Shelton says. “It’s kind of given us both strengths, if that makes sense—so for me, they have met every expectation I thought of.”
While Agent X admits that they believed the company wanted to do right by its agents—and still do—they also felt that Compass may have “bit off more than they could chew.”
“I feel like they promised more than they were willing to deliver, and those signs showed very quickly,” says Agent X.
While Compass tried to offer agents everything they’d need to focus on transacting, the former agent states they noticed an “acceleration of the company and cutbacks” in some of the services and support resources.
As Compass continued growing as a company, the former agent says that support staff was being spread thin.
“This is a typical feeling in the industry itself—that support staff isn’t enough,” Agent X says. “But, when you come to Compass, and you have that, it kind of throws them back into the pool of the others.”
Going public and the effort leading up to that IPO launch may have had a lot to do with a shift in culture at the Compass, the former agent claims. They tell RISMedia that the change was around agent productivity and hitting certain marks.
“You could see things like you may have been an agent who does a certain of business, and if you’re down at a certain point of the year—let’s say 30% and that’s half of the year—you’d have six months to do that business and more,” Agent X says.
According to the former agent, Compass “took a very hard line” when renegotiating their contract based on the amount of business they did and would do in the future.
“It was bluntly said, ‘we’re going public and we can’t have agents not meeting their marks and still paying agents the high splits,’” Agent X says. “What they were trying to do, in my case, was cut back my splits below what industry standard would have been anywhere else at any other major brokerage.
“The culture was no longer about quality; it was really about making the deadlines and revenue points, which became a concern of mine,” Agent X continues, explaining that this was a significant driving factor for them leaving Compass.
It’s not uncommon for companies to undergo a culture shift after going public, especially when answering to shareholders. Compass has been no exception, according to Golod, who says that the brokerage has had to be “thoughtful, prudent and conservative” during the changing housing market and economic uncertainty.
“We are living in a new world with regard to investor expectations,” says Golod. “We believe that we need to operate with the scrappiness we have demonstrated many times over the last nine-plus years to get to where we are today.”
Since launching its IPO in April 2021, Compass has seen its stock dwindle from roughly $20 to just below $5 a share based on recent reports.
Compass raked in $6.4 billion in revenue in its first year as a public company. However, the brokerage still recorded nearly half a billion dollars ($494 million) in a net loss leaving an arduous path toward becoming a profitable company—admittedly a goal that Robert Reffkin and company have started working towards.
“The management team and I are committed to executing our plan to deliver strong EBITDA and free cash flow,” Reffkin said during a Q4 earnings call last year. “We are committed to increasing profitability and prioritizing free cash flow in 2022 and beyond.”
Despite tallying a net loss for 2021, Compass claimed it achieved profitability based on the company’s adjusted EBITDA instead of net income. By that measure, the company excluded things like stock-based agent compensation, which accounted for the lion’s share of its losses last year.
During that call, Reffkin signaled that the company anticipated being “free cash flow positive” next year while also saying that Compass is committed to reaching profitability by 2025.
“This would imply more than $1.2 billion in adjusted EBITDA by 2025,” he said, adding that Compass expects free cash flow to be 8% to 9% of revenue by 2025.
Compass has a few measures it is looking to implement to make that happen, including recruiting agents based on commission splits that are more economically favorable to the brokerage.
In a chart featured in a Q4 2021 shareholder presentation, Compass outlined its expected trajectory, which was predicated on “improving agent economics and growth of adjacent services.”
The chart highlights several points where Compass could see increased profits through a “medium-term” and “long-term” agent tier mix.
As Compass continues recruiting and hiring agents, Golod tells RISMedia that Compass expects to see a “massive margin improvement.”
This arguably signals that the New York-based company is looking to recruit newer agents at lower commission splits—more favorable to Compass—in the future as it pushes towards profitability.
It’s uncertain how this may impact Compass’ appeal as a landing point for agents, but Golod maintains that the appeal of the tech platform and the company’s support services will continue to drive recruitment in the future.
“All of the big brokerages try to leverage technology to make things easier for their agents,” says Agent Y. “All of them offer some sort of app, a website, a CRM, and email and social media templates. Every brokerage aims to help its agents do their jobs as best they can.
“Another thing that the analysts seem to gloss over is that Compass’s growth, while impressive, is mostly due to buying market share with signing bonuses and excellent splits versus doing something fundamentally different than the other traditional brokerages.”
Jordan Grice is RISMedia’s senior editor. Devin Meenan, RISMedia editorial assistant, contributed to the development of this report.
