Compass CEO expresses 'confidence' in commissions following verdict
In the Q3 earnings call, Robert Reffkin said Sitzer/Burnett probably won't lower commission splits, highlighted the company's strength despite continued losses.
The Sitzer/Burnett verdict was very much on the minds of investors during Compass' third-quarter earnings call.
While answering questions, Compass Co-founder and CEO Robert Reffkin said the company is proactively making changes to better position itself in a world where buyer agency looks a bit different. For one, Reffkin said, Compass is creating a more robust buyer presentation, which will be available to agents starting next week, to help agents demonstrate their value to prospective clients.
In talking about the impact of the verdict, Reffkin said he doesn't expect much pressure on the current commission split. He pointed to areas that don't follow NAR's commission rules, like the Northwest Multiple Listing Service in Washington State, noting that they still have average buyer agent commission rates of 2.63%.
"So we have evidence in a major U.S. market of what this change will look like. That gives us confidence," Reffkin said.
But the company may still have to confront compensation issues in court. Last week, Compass was named as a defendant in two new lawsuits: Gibson, filed immediately following the Sitzer/Burnett verdict; and Leeder/Batton, filed Nov. 2 by attorneys for homebuyers seeking damages.
As for the company's finances, Reffkin said that despite a challenging third quarter with falling revenue and net losses, he's proud that his team has been able to continue cutting expenses while still increasing agent count and adding new features to its technology platform. "Our technology is clearly making a difference to our agents," Reffkin said.
Revenue: $1.34 billion in the third quarter, a decline of 10% year-over-year, and down from $1.5 billion the previous quarter.
Cash and cash equivalents: $220 million, with no draw from revolving credit.
Net income/loss: A net loss of $39.2 million, a significant improvement compared to the company's $154.1 million loss a year ago. Losses also improved over Q2.
Adjusted EBITDA: $21.8 million for the third quarter, a turnaround from a $42.2 million loss a year ago.
Transactions: Compass agents closed 48,134 transactions in the third quarter, a decline of 12% compared to a year ago. The company noted that transactions for the entire U.S. market were down 20% during the same time period.
Agent count: Average number of Principal Agents was 14,055 for the third quarter, an increase of 511 principal agents from Q2 2022.
What Compass had to say
While Compass continues to suffer losses, Reffkin focused on where the company is heading: "Although the market is worse now than a year ago, Compass is a much stronger company with a lower cost base, better agent retention, revitalized post pandemic culture, enhanced technology platform, and a larger agent-to-agent client referral network."
Reffkin specifically called out the company's ability to hold onto its agents as some firms have seen agent counts decline. "At a time when many agents are leaving the industry, Compass reached its second highest quarterly retention rate since going public," he noted.
The company landed several high-volume teams in the third quarter, including the acquisition of Realty Austin and Realty San Antonio — a 630-agent brokerage that boasted $5.24 billion in sales last year — and Southern California's Deasy Penner Podley, a 175-agent firm that closed $1.25 billion in deals in 2022.
In September, the company unveiled Compass AI, a communication tool designed to help agents improve their efficiency.