How Compass Became the Bane of Real Estate
The high-tech real estate startup boasts SoftBank backing, a $1.6 billion war chest, and plenty of skeptics. Now it’s cashing in on the pandemic real estate boom.
“None of us knows how long this crisis will last,” pleaded Robert Reffkin in a letter to Nancy Pelosi and her Republican counterpart Kevin McCarthy in March. Reffkin, CEO of real estate startup Compass, was urging Congress to include independent contractors like real estate agents — some 2 million of them in the United States, according to the National Association of Realtors — in its economic stimulus package. In his plea, Reffkin cleared up any misconceptions about the professionals: They were entrepreneurs and small business owners who represent the backbone of the U.S. economy, personify the American dream, yet typically only earn less than $41,800 per year. “We do know that for real estate agents, the economic pain will last even longer than it will for those in many other professions.”
The heartfelt missive on the plight of his industry during a pandemic — he even mentioned his mother, who works as an agent for his firm — came during a particularly bleak moment for Compass and its more than 11,500 independent contractor agents who depend on it. With the backing of $1.6 billion in venture capital, including a $450 million infusion from SoftBank in December 2017, Compass had been on a growth streak, grabbing market share in the nation’s most expensive housing markets and becoming a major player in high-end residential real estate. But as everything, including real estate sales, ground to a halt in late March, it left a commission-dependent workforce desperate for signs of life.
Reffkin sent his letter on a Thursday. The following Monday, he laid off 375 of his full-time staffers, characterizing the moment as an “economic standstill” and forecasting a 50% revenue decline over the next half a year. By mid-April, after stay-at-home orders and shutdowns froze the economy, new weekly home listings in New York City, one of the company’s largest markets, were down 89% year over year. Worries of hollowed out, abandoned urban centers began to take hold, a particularly grim scenario for a luxury urban real estate company.