Are you thinking of switching your real estate brokerage firm?
Or maybe you are a new real estate agent and have heard of the tech-focused venture capitalist-funded brokerage called Compass Real Estate?
Or maybe you are just curious because you might have heard of Compass Real Estate as taking another tech-based approach.
No matter your motive, I got you covered in today’s article.
In this article, I will discuss…
…what Compass Real Estate is
…who the owner is
…how it works and how it is different
…whether it’s legit or even a pyramid scheme
…if the company is in trouble and will survive
…whether it is good for new agents, their commission splits and reviews
If this sounds good to you, then I invite you to read the rest of this article.
What is Compass Real Estate, and Who is the Owner?
Compass Real Estate can be called a proptech or realtech company based on its origins. Today it is a licensed real estate broker with a strong focus on using tech in its operations.
The focus on tech in their operations can be observed by the fact that all agents working for the company use a proprietary mobile app.
It currently has more than 25,000 agents who earn a commission-based income that is split with Compass Real Estate.
Their main focus is on luxury homes across the U.S. in 20 local markets such as South Florida, Boston, Washington D.C., New York, Philadelphia, Los Angeles, Aspen, Santa Barbara, The Hamptons, Dallas, Newport Beach, and more.
Compass Real Estate is the 4th largest real estate brokerage in the U.S. In 2020 it had over 144,000 transactions.
By volume, it is in second place with more than $151 billion in sales (source).
The founders of Compass Real Estate are Ori Allon, Avi Dorman, and Robert Reffkin.
The company was founded in 2012, and its founders previously worked for companies acquired by Twitter and Google, Goldman Sachs, the White House, McKinsey & Company, and Lehman Brothers.
Since Compass Real Estate has been a public company since March 2021 (listed on the New York Stock Exchange), the owners are now the shareholders.
So there is no one owner but one main shareholder.
And the main shareholder of Compass Inc. to date is a UK-based corporation called SoftBank Investment Advisers. They hold 34% of the shares (source).
How Does Compass Real Estate Work, and How is it Different?
When you ask how Compass Real Estate works and how it is different, you are basically asking about their business model.
In my opinion, the best way to structure a business model is by applying the business model canvas.
According to the business model canvas, a whole business can be structured in:
- Value proposition
- Customer segments
- Customer relationships
- Channels (reaching the relevant audience)
- Revenue streams
- Key activities (how problems will be solved)
- Key resources
- Key partners and business boosters
- Cost structure
Let’s dissect Compass Real Estate by applying this structure as best as possible. Bear in mind that some information is only available to insiders for good reasons, so I can’t guarantee completeness here.
That’s particularly the case for key activities, key partners & business boosters (unfair advantages), and channels (marketing channels).
1) Value Proposition
At its core, Compass Real Estate matches real estate brokers with buyers, renters, and sellers and assists during and after the respective real estate transaction. You could call it a heavily data-driven multi-sided platform with additional services.
Additional services are, for example, a concierge service for sellers that include kitchen and bathroom upgrades, staging, decluttering, and roofing repairs, just to name a few.
Sellers can also participate in a “Coming Soon” program that enables them to list a property before it enters the market.
Transactions can also be done in a more exclusive way such that not all information needs to be disclosed. This use case is relevant for wealthier and often more “famous” clients.
2) Customer Segments
The actual customer segments are buyers, renters, and sellers in the high-end real estate market segments.
3) Customer Relationships
Since Compass Real Estate operates in the high-end real estate niche, it’s pretty picky when employing new agents.
And since it wants its customers to have a guided one-on-one experience, we can safely assume customer relationships are dedicated personal assistance.
4) Channels (Reaching the Relevant Audience)
As already mentioned, this one will be tricky to find out. It’s the question of how the company reaches its potential customers.
The only ones that will have exact information about where most of the seller, buyer, and renter leads come from will be the ones in the marketing department.
But I can approach it a bit with an estimated guess.
According to SimilarWeb compass is found in 50.22% by Google searches and 43.65% by direct traffic.
Since the main keywords used in the searches are related to their brand name and the direct visits are at 43.65%, the company has a high brand recognition factor.
This is due to marketing done over many years.
In terms of social media, their main traffic comes from Facebook (60.95%), followed by YouTube.
It is unclear if this is paid traffic or organic traffic. But I guess it’s organic traffic because of the strong brand they have already.
5) Revenue Streams – How Does Compass Real Estate Make Money?
The lion’s share of Compass Real Estate’s revenue streams are commissions, and they earn a commission from each lead they generate that results in a transaction.
There are sales commissions and commissions that result from bridge loans.
A tiny revenue share comes from additional services such as escrow, title, and concierge services.
6) Key Activities (how problems will be solved)
Since Compass Real Estate heavily uses tech to ensure brokers and consumers have a top-notch experience when it comes to selling, renting, or buying property, the key activities are likely to be found in developing new tools and maintaining old ones (bug fixes, support, etc.).
Other activities are likely mediating, supporting, and managing consumers and brokers, onboarding and managing employees and brokers, marketing campaigns, and making shareholders happy (reporting).
7) Key Resources (Required for Value Proposition)
The key resources will be the server infrastructure, the technical staff, of course, the broker partners, and new funding/investing from shareholders.
8) Key Partners and Business Boosters/Unfair Advantages
Here I can only make an estimated guess, and I assume that one of their “unfair advantages and key partners are the following:
- The tech they apply to all their operations needs to be used by their agents to be more efficient and productive.
- Key partners in the luxury real estate niche
- Key partner through the past connections of the founders to well-known organizations and government institutions
- Their high brand recognition today.
9) Cost Structure
Since they are a publicly-traded company, I checked the quarterly results from the fourth quarter of 2021 (source).
The main costs involve commissions, sales and marketing activities, operations and support, research and development, general and administrative tasks, depreciation, and amortization.
The lion’s share of costs are commissions and related costs.
How Is Compass Real Estate Different?
One of Real Estate Compass’ main differences compared to other real estate brokerages is their approach and application of real estate tech in their day-to-day operations.
In the tech they use, a lot comes down to data sourcing, data warehousing, and data analytics.
This data is used on the one hand to support real estate decisions for their customers but also to make their real estate brokers and agent partners more efficient.
Via a mobile app, real estate agents, for example, get access to additional property data and local market data such as outstanding liabilities average sales prices in a particular area. They can also manage all potential buyers from this app.
Is Compass Real Estate Legit or just a Pyramid Scheme?
Compass Real Estate is legit and definitely not a Pyramid Scheme because they don’t have a hierarchical setup with new recruits at the base of the Pyramid providing the “returns.”
As already mentioned above, the company is publicly traded at the New York Stock Exchange and has different shareholders.
The main revenue doesn’t come from people at the base of the Pyramid (these would be real estate brokerages).
The returns come instead from real estate commissions and service products.
Is Compass Real Estate in Trouble?
According to the Q4 report of 2021, Real Estate Compass had a net loss of $174.8 million dollars. Based on this information, I would assume the company is at a difficult phase at the moment.
In Q4 of 2020, this net loss was only 39.8 million dollars. So the net loss basically quadrupled. (source)
I am not sure about what caused this since the housing market has been quite hot. In the statements of operations in the same report, I could identify three cost areas that increased their costs compared to Q4 in 2020. So here may be the issue.
It was sales and marketing, operations and support, and research and development.
I am not sure what may have happened in operations and support.
But in terms of sales and marketing, they may have done more campaigns, which didn’t translate into more transactions.
On the other hand, in the context of research and development, they may have developed and added further tech components for their agents and customers.
Either these new components aren’t ready yet and couldn’t have an effect on revenue just yet, or they flopped and didn’t do much. And developing new software, in general, can cost some good money.
Will Compass Real Estate Survive?
Whether Compass Real Estate will survive depends on them managing to translate their higher sales and marketing, commission costs, and costs in research and development into more revenue.
It will also depend on them being able to cut administrational costs.
Based on their positioning in the market alone and taking advantage of realtech and proptech growth in general, they have good chances to survive.
Is Compass Real Estate Good for New Agents? How to Join?
Compass Real Estate is good for new agents because it provides several benefits to them, such as high commission splits, the possibility to build teams, a healthcare plan, in-house marketing teams, advertising agents, and performance-increasing technology.
Good as in getting a job as an agent that just came out of real estate school, I would say no.
Not because these benefits wouldn’t exist for them, but because it is unlikely that they will get contracted by Compass Real Estate. (source)
According to recent information, Compass Real Estate contracted only one percent from 140,000 applications from real estate agents. (source)
As it seems, Compass hires new agents rather through acquisitions than through conventional manners.
Compass Real Estate Commission Split & Desk Fees
With regards to commission splits, compass real estate pays their agents between 85% and 95% of the gross commission.
When it comes to desk fees, there is no publicly available hard data to come by.
According to agent advice, the fees are very low though compared to other brokerages. (source)
Compass Real Estate Reviews
Third-party reviews from Compass Real Estate can be categorized into two.
The first category comes from real estate professionals working for the brokerage.
I found more research information about this type through reviews.
The second category comes from the customer side, hence real estate sellers and buyers. Here I couldn’t find helpful and very reliable sources.
For example, reviews on Yelp weren’t that helpful since they were mostly given to specific real estate agents, and many of them were not even relevant to real estate.
Below you will find the overview table for the different star reviews I found across the different review platforms.
This overview is limited to the category of real estate professionals.
|Review Platform||Number of Stars Out of Five|
As you can see, the reviews from the real estate professionals got on average more stars than from customers, at least on the Better Business Bureau website.
Three Positive Reviews from Real Estate Professionals
“They are high tech and give you a budget to market yourself. They offered a 6 am club that was awesome. In-person was impossible during the covid year. It was hard to master any of the great tools they offer, but was still punished by lowering split and eliminating marketing budget.” (source)
“Good brand recognition and broad national reach. The overall marketing of the company as a brand is sleek and desirable for consumers and potential clients.” (source)
“Everyone who works here is also working with those who you now call family. Each office allows for different team members to come in with open arms. Real Estate can be challenging but the companies environment makes it worth it.” (source)
Three Negative Reviews from Real Estate Professionals
“The quality of the agents is better than other brokerages, but that is largely driven by the amount of money they have spent acquiring talented brokerages. Compass loves to brag about all of the money they have raised from venture capitalists. They are just spending more and more money to get “name brand” agents on board with MASSIVE signing bonuses that won’t actually last. They are not running the brokerage like a business – which is going to hurt their prospects in the long run.” (source)
“The company touts itself as a leader in market data and tech for agents, but both are inconsistent and flawed. Compass frequently changes the tools for agents which requires that you learn the new tools as the company troubleshoots, which is time-consuming while you’re trying to create new marketing materials, usually on a tight deadline. Getting help with the new agent products as well as other company essentials like IT, finance, etc is usually difficult and frustrating. Overall, it seems like the internal operations of the company are disorganized and the employees aren’t very knowledgable.” (source)
“A lot of hype and not a great deal of industry knowledge. Calling itself a tech company because it set about reinventing the wheel, recreating tools in a glitchy form that existed elsewhere. Wrapping them in sleek Adobe-based graphics elevates form over function. So-called “AI” lenses are just before and after photos with a slider. Not a reinvention of space based on renovation. All the other tools are much the same.” (source)
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