The 2023 Inman Connect New York conference started off with a bang Tuesday morning as Inman News founder and owner Brad Inman took to the stage with Compass CEO Robert Reffkin.
In a wide-ranging discussion, which covered everything from the year that was for 2022 housing to how the housing environment over the past decade encouraged the growth of Compass, Reffkin remained optimistic — despite the multiple headwinds facing his firm and the housing market overall.
“It wasn’t the hardest, but it wasn’t the easiest,” Reffkin told the audience in response to Inman’s question about dealing with the 2022 housing market. “I am obsessed about the positive and where we are going, not the negative and what we can’t control. Last year, the Federal Reserve brought mortgage rates from an all-time low in January to a 20-year high in less than nine months. It created a sharper decline in real estate transactions than even the great financial crisis. It wasn’t easy.”
Despite these challenges, Reffkin highlighted Compass being named the largest brokerage in the country by RealTrends, having 18% of the top 1000 agents per RealTrends at Compass, being named a Fortune 500 company, and completing the Compass agent platform as victories.
While Reffkin may be focused on the wins his firm scored in 2022, it is hard not to acknowledge the statistics. During the third quarter of 2022, Compass generated a total revenue of $1.49 billion, down 14% year over year, which the firm said was driven by lower market volumes.
In addition, the brokerage yet again failed to turn a profit, reporting a GAAP net loss of $154 million compared to a net loss of $100 million one year ago. Earlier this month, the firm announced its fourth round of layoffs since June 2022, and it started shopping around to sublease its New York City headquarters near Union Square.
All of this has resulted in Compass’ stock falling from just over $20 a share in April 2021 when the firm went public to hovering around $3.40 a share today. But, despite the sharp decline in the price of stock shares, Reffkin said he has never felt that he and his firm were on the edge.
“Amazon went from $103 a share to $3 a share and now they are worth thousands of dollars, and many great companies have gone from $2 to $20 and beyond. Why shouldn’t Compass be able to do that?” Reffkin mused. “We are entrepreneurs, and we have to shift with the market. With the IPO I invested every dollar I have in the company. I didn’t take money out. I am all in on this company, and I’m there with our agents every step of the way, and I will not be going anywhere.”
Reffkin went on to reiterate an assertion the firm has been making for the last six months, stating that Compass will be free cashflow positive by the second quarter of the year and it would remain so for the rest of the year.
Although profitability has become a bit of a sore subject with Compass, Reffkin is grateful for the economic environment he started the firm in, as he feels it allowed Compass to grow at the exponential rate it did.
“We grew faster than any other company, and that is why we were able to raise $2 billion to invest in our agents,” he said. “If we decided not to grow and instead said, ‘Hey, we are going to be profitable in year two,’ I could not have raised $2 billion. But this last year, the world flipped on a dime and moved from growth to profitability. And just like our agents have had to adapt with the market, I have had to adapt to this shift, and we are now focusing on profit.”
But as Reffkin and Compass turn to focus on profit, they will face quite a few headwinds this year.
“There was a buyer strike in the fall, but I think that is over,” Reffkin said. “Your buyers are going to start coming back to you in the spring and the summer. I think then what is going to happen is that prices are more likely to go up than down over the course of the year, because in November, at the peak of the mortgage rates, prices were only down 2.5% compared to their May peak. I’d love for the market to fully correct and prices to go down 10%, but we have record low inventory in the majority of our markets right now.”
While profitability remains a goal, when looking ahead to the future of Compass, Reffkin believes the level of service the firm extends to its clients, and the services it provides it agents, will be what sets it apart.
“The focus of Compass is simple: How can I help agents as much as possible? How do I give the most support, most marketing, most technology and most Compass concierge services?” Reffkin explained. “I think there are going to be two types of brokerages that are going to emerge: the do-it-yourself firms that are competing on how little they charge and do, like RE/MAX, Keller Williams and eXp, and then the companies like us, Sotheby’s and other leading boutiques on the market, that are trying to compete on giving you more services and support.”