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Can tech point Compass in the right direction?

The brokerage has spent hundreds of millions of dollars on technology. But does it really make the brokerage stand out?

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Compass Robert Reffkin

Steve Clark joined Compass in 2016, and became an instant believer. 

“Their technology is amazing,” the Pasadena real estate agent said over the phone. “There is a great search tool. It is very collaborative to the client. And the app is a one stop-shop.”

“What they set out to do for the most part they accomplished,” Clark added, praising Compass co-founder and CEO Robert Reffkin. “He did what Elon Musk did for electric cars. Maybe Tesla is not the best, but it was an industry disruptor. He really pushed the limits with tech.”

But the brokerage’s app designed for agents ultimately held little sway over Clark’s career path. He joined white-label brokerage Side in April.  “I’m more of a boutique kind of guy. When I started Compass was a small company, and then it became a very big company because of acquisitions. It was no longer a good fit.”

Today, Compass is the biggest U.S. residential brokerage by transaction volume, according to RealTrends

Since starting in 2012, Compass has presented itself as a technology company. Compass is a “technology-enabled brokerage,” per its annual report

Compass critics pounce on this description. “They are a disruptor in capital, not in ideas,” real estate appraiser and Compass competitor Jonathan Miller has said. (Miller prepares market reports for Compass rival Douglas Elliman. Compass has raised $1.9 billion, including from its initial public offering.)

The reality is more complex. Compass’s technology platform is no mere marketing ploy. It is respected, even adored.

But Wall Street has consistently valued Compass as a pure real estate company with no extraordinary technology offering. 

And the tech may not be enough to lift the company –  which has lost $682 million over the last five quarters and laid off about 450 workers in June – out of financial struggle. 

“They were probably the first movers,” said Ken Johnson, a real estate professor at Florida Atlantic University and former agent. “But there is nothing there that others couldn’t quickly replicate.” 

Inside the app

“Agents are our customers,” declared Rory Golod, Northeast and West Region president at Compass, while sharing his computer screen with a reporter. “The tools we’re building are being built and have been built for them.”

The “tools” is really one multifaceted tool, an app or online dashboard. Golod first exhibits a part of the platform called Collections, “a visual portfolio of the buying process,” in which agents grab data from the local Multiple Listings Service, and listings internal to the Compass network, and share properties with homebuyers. 

“Think of this almost as a Pinterest board for the client,” Golod said. 

Golod demonstrates how agents can manipulate images for desired properties, and set up a touring schedule for their clients. 

“I can share this with my client and in one click create a beautiful PDF that outlines everything we’re going to do that day,” he said. “So you can see we went from searching properties via Collection and creating a tour without ever leaving the system. It’s all in one place.”

Golod displays data on past sales and current listings that is powered through an artificial intelligence. Then he walks through the customer relationship management system, or CRM, and the Marketing Center, which allows agents to create email blasts, videos, digital ads, postcards and brochures. 

Golod calls the app “intuitive,” and he appears to have a point. There is an evident ease in bouncing around from tasks – importing Multiple Listings Services information, setting up automated marketing messages, creating the aforementioned home touring plan – that are quite different from one another. 

Wayne Hitt, a Compass agent in Baltimore, said that at his prior brokerage, WSK Properties, “Everything was siloed,” requiring him to download one app for contract writing, another to construct a listing agreement, and another still to check production numbers.

Within this singular dashboard are easy to assemble rows and columns that provide nuance for agents. “I love the CRM and am very diligent about keeping that up to date,” said Thebe Warren, a Houston-based Compass agent. “I also love the business tracker. It separates buyers and sellers into those I have made initial contact with, those who I am nurturing, and those who I have just worked with.”

Separating serious clients from dark horse leads can be particularly effective for agent teams. Compass, like many other brokerages, has “teams,” which simply means that one agent can say they are the leader for a group of agents. Depending on the set up, the leader coordinates tasks among the group and creates team branding. With Compass, the team leader is the “principal agent.”

“What I like about business tracker is that it’s a platform that my entire team can be on,” said Dana Green, head of the Lafayette, California-based Dana Green Team. “If we’re listing a house then we can upload our listing checklist and we can go in and see where we are on that checklist or where conversations last left off with the client.” 

Another app feature is “likely to sell.” As with categorizing the promise of leads, agents praised how potential clients are ordered. “It tells me who has a high likelihood of selling, who is medium, and who is low,” said Warren, of Houston. 

With the likely to sell component, “I literally sent out a few emails to people on that list and in a two-day span, I got four transactions,” said Todd Armstrong, a Compass agent in San Diego. 

The Compass app, Armstrong said – echoing most agents interviewed for this story, “Has been huge for me.” 

No one else is even trying 

“We have the only in-house, proprietary platform in brokerage,” Golod said in a later interview. “No one else is even trying.” 

Really?

What about eXp? The company runs on Virbela, a virtual work world. And, United Real Estate, which has a proprietary, truly cloud-based system?

What about @properties? The Chicago company has @platform, a one-stop shop for its agents that has been around since 2012. 

In addition to its CRM and transaction management functions, the brokerage Monday announced the rollout of MoveLogic, a feature similar to Compass’s “likely to sell.” MoveLogic compares contacts in the agent’s CRM to the behavior of past homebuyers, sellers and nonmovers to identify contacts possessing a propensity to move. According to @properties, the product was built in-house. 

And what about Keller Williams? Gary Keller began refashioning Keller Williams as a technology company back in 2015. Keller Williams in December launched KW Command, which they claimed is the “first real estate platform to connect agents, clients, data and systems.” 

“Maybe KW has an in-house CRM,” Golod conceded. “They do have some engineers.”

But Golod argued that Compass has not just the most informative, user-friendly, or quick to evolve all-in-one app for its agents, but the only such app in the industry. 

“There are other firms that may have solved one thing you need,” he said. “But we have solved 10 to 12 things you need.” 

It is tantamount to Elon Musk not just saying Tesla has the best electric car or was a pioneer in electric car making, but Musk accusing all his rivals of still only making Dodge Challengers and Pontiac Grand Prix with V8 engines. 

In fact, 54% of real estate agents receive a CRM platform from their brokerage affiliate, according to the National Association of Realtors’ 2021 technology survey. Fifty percent are provided with transaction management platforms; 32% have digital marketing platforms; and 31% receive lead generation tools. 

Perhaps these platforms are located in different apps instead all in one. Maybe they’re not very good. But the NAR survey suggests other brokerages also foot resources to be something besides archaic. 

Compass has probably spent more resources, a point Golod made. “It has required hundreds of millions of dollars in continual capital,” he said. 

This money has gone to acquire tech-focused companies, like the customer relationship management, or CRM, platform Contactually, Glide, which is used by the California Association of Realtors to digitize the administrative paperwork of home sales, and Modus Technologies, a title platform that Compass shut down last month as part of the company’s sweeping austerity measures

It also went to hire “a team of over 1,500 highly experienced product and engineering professionals based out of our innovation hubs in New York, Seattle, Washington D.C. and several cities in India,” according to the 2021 annual report, filed with the Securities and Exchange Commission in February. Compass declined to specify for this article how many tech employees were laid off as part of its June layoffs. 

The platform requires a “tremendous amount of engineering and capability. The workflow is so nuanced and unique.” 

Compass spent $273 million in overall research and development expenses for 2021, and $144 million in R&D costs in 2020. 

The R&D money is a significant outlay for a company not only losing money, but one that sees over 80% of its revenue go out the door in agent commissions. Compass’s 2021 revenue after “commissions and other related expenses” was $1.1 billion.

To spend that much money – “Other companies are spending a fraction of us on research and development,” Golod said – Compass is raising the bar to not just have an app agents prefer, but an app agents wildly prefer, an app that will keep producers at the firm even after the bonus money and unsustainably favorable commission splits run out. 

That – industry pros have contended in the past year – is perhaps the company’s chance at turning its financial ship around. 

“The theory is that the platform will be so good and ‘sticky’ agents won’t be able or won’t want to leave, even when their splits get dialed back,” said Matt McCormick, executive vice president at TTR Sotheby’s International Realty and a former senior managing partner at Compass.

Is the juice worth the squeeze? 

Compass must contend with two different kinds of agents that, for them, are an obstacle toward any turnaround. 

The first is someone like Beth Wexler of @properties, who is perfectly happy with her current brokerage’s technology.

“The technology offered by @properties is really an investment in their agents,” Wexler said. “The backend systems, when we are listing something or putting something under contract it is just very seamless. And they really listen to our feedback and everything we ask for.”

The second kind is typified by Clark, now of Side, or Tracy Do. 

A high-profile agent in Pasadena, California, Do joined Compass in 2015 and enjoyed using Compass’s technology. She also – like other current and former Compass agents interviewed – found the branding appealing. 

“The overall look and marketing approach appealed to me,” Do said. 

But, technology, Do said, is not just very important. 

“For all this so-called innovation, residential real estate remains a sit-down, face-to-face job,” she said. “Buying and selling a home is personal and emotional, and no amount of technology is going to change that.”

In fact, at a certain point, Do became turned off by Compass’s technology boosterism, a feeling that reached its breaking point during last month’s layoffs at Compass, as well as self-styled tech brokerage competitor Redfin

“That they are downsizing as the market cools, I find it distasteful and unconscionable,” she said. “Lives are being impacted, simply because they thought they could ‘disrupt’ and dominate the real estate industry, which was never going to happen and in my view never will.”

In June, Do moved over to Coldwell Banker

How many Wexlers and Dos are out there is a critical question to Compass, because agents are the only ones left to buy the tech the brokerage is selling. 

The other audience, of course, was investors. But while Compass was a darling to the SoftBank Vision Group, and other venture capital firms, stock investors are unmoved. 

As of Tuesday, Compass had a market capitalization of $1.83 billion, or exactly the amount it raised from investors. That’s somewhat better than Anywhere’s $1.25 billion market valuation, and a little worse than eXp’s $2.17 billion market cap. 

Compass expected Wall Street to treat it like a tech company, one whose app could transcend the vicissitudes of housing cycles and lift the company beyond the laundry list of brokerages. The firm set its stock to trade at $23-$26 a share, before it went public last April. The Compass stock today trades at $4.60 per share. 

“There is nothing that fancy about Compass’s technology,” Johnson of Florida Atlantic University argued. “Others can mimic it in short order.”

But, now, in a bear market, it’s time to move beyond proclamations and see if Compass’s tech can pull it through hard times. Compass can still prove itself a well-performing tech-enabled brokerage. 

“Given where capital markets are today, where the world is right now,” Golod said, other companies won’t be able to muster the resources to compete with Compass. 

“That’s why we continued to push and continued to innovate,” he later added. “We are still investing significantly more in software than every other real estate brokerage combined.”

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