Is Compass in Trouble? 450 Company-Wide Layoffs Announced Tuesday

Update: Caught up with a few more in-the-know voices, asking Compass’ senior managing director of real estate Bryan Pacholski how yesterday’s lay-offs will affect offices here in North Texas.

“No agent-facing teams will be affected,” he told me. “Most layoffs will be in the area of recruiting. Not a single agent will be impacted in Dallas/North Texas.”

And while recruiters may be the brunt of this round’s axe, Pacholski says that doesn’t mean Compass won’t still be growing in place, filling out current offices such as the recently opened Flower Mound shop. I asked if yesterday’s trimming means any cuts in marketing or ad spends.

“Agents have been so busy the past 24 months, I think they have barely had time to keep up with ads,” said Bryan. “We are talking about going back to fundamentals: Becky Frey says she has to dust off the open-house signs in her garage, they haven’t been used in months.”

Victor Lund, founder and CEO of WAV Group, a real estate consulting firm, says the trim was a smart move on the part of Compass.

“If you have to catch a falling knife, catch it fast,” he said. “Frankly, every broker should be looking at agents who are not productive and getting rid of them now. Help them find another career. I think Compass was looking at their stable and saying, we have enough agents to do the coming volume of business.”

Lund says the number of real estate agents and loan officers in the industry today is more than double what is needed. But Compass, he says, hires agents who produce.

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Compass Real Estate, the largest real estate brokerage in the country that rose to dominance rapidly after being founded by Goldman Sachs alum and philanthropist Robert Reffkin, a firm that boldly bought off high-producing agents at elite firms (and bought some firms outright in many cases), announced significant layoffs on Tuesday. CEO Reffkin blamed the reduction in force on the retreat of the U.S. stock market to bear mode and the rapidly contracting real estate industry following a recent dramatic shift in mortgage rates.

Reffkin founded the brokerage in New York City in 2012 and, fueled by Softbank for more than 30 percent of its funding, grew it to be the largest brokerage in the country by sales volume. Compass came to Dallas in 2018 like a tornado, luring a large chunk of Briggs Freeman Sotheby’s agents who moved with Bryan Pacholski, a former Briggs manager. Compass also aggressively recruited top agents at all firms and bought LegacyTexas Title in September of 2021.

“Their recruiter called me seven times a day for weeks,” says one agent. “I finally had to block the number, but then they would use another phone!”

The news Tuesday was reported first by Inman.

During an interview with Reffkin in 2018, he told me Compass was dedicated to the agent and to getting them value for their cut of the splits:

Compass has one service staff per every seven agents. The average in the industry: one per 50. Every office has an IT department. Every office has an in-house marketing and advertising agency. There is no outsourcing.

There are offices, big, beautiful offices. The company has raised $775 million and has no debt.

“We ask agents what they want, what they need to do their job better,” says Robert. “And we deliver. Redfin isn’t asking them this, and most brokers are just not responding fast enough.”

Layoffs, the second wave since Compass shed 15 percent of its workforce in March of 2020 citing the COVID-19 pandemic for the cuts, will include about 450 full-time employees. However, these layoffs won’t affect agents — most real estate agents work as independent contractors and “eat what they kill,” and support the brokerage by paying fees and sharing a portion of their commission splits. However, non-productive agents take up resources that cannot be spared when markets contract.

Generous splits were another way Compass attracted top agents, who naturally want to keep as much of the commission split as they can.

Compass also said it was pausing expansion, which is huge for a company whose goal was 20 percent market share in the top 20 metropolitan U.S. markets by 2020, a goal Reffkin achieved. Compass is a public company, so trading of shares on the New York Stock Exchange was temporarily halted Tuesday.

Inman obtained a copy of the email Reffkin sent throughout the company. He blamed rising interest rates, 8.6 percent inflation, and an impending recession, noting the “economic environment has consistently worsened over these last few months.”

“I have been through three of these economic cycles in my career so far, and I believe that in challenging times, companies that move quickly and decisively emerge stronger and better than those who take half-measures or no action at all,” Reffkin continued in the email.

Inman News

Compass will also be winding down a title and escrow software start-up it purchased, Modus Technologies, in the company’s seven-year quest to create an “end-to-end” real estate tech platform

News of Tuesday’s layoffs comes after a period of incredible growth for Compass. Since Reffkin founded the brokerage in 2012, it has expanded rapidly, dominating the most competitive markets in the U.S. Despite the corporate layoffs, new agents are still being recruited and onboarded: Reffkin told Inman that “thoughtful decisions like the one being made today make us even stronger.”

The news comes less than a month after industry analyst Mike DelPrete predicted problems for Compass because of significant cash burn: a first-quarter financial results revealed $142 million in cash was burned during the first three months of 2022, leaving Compass with $476 million left in the bank. According to DelPrete, Compass has burned more than $400 million in the last 15 months.