Through December Inman will be digging into the real estate industry’s most prominent brokerages, iBuyers and paradigm-shifters to suss out the biggest challenges each face in 2022. Check back regularly as we publish new reports on Keller Williams, eXp Realty and CoStar in the days ahead.

Compass has had a rollercoaster year filled with the unique victories and challenges of a young company navigating the balance between growth and profitability, pleasing investors without losing its heart, and fielding criticisms from naysayers who still believe the brokerage’s success ultimately comes down to excellent repackaging of old ideas.

In his latest public appearances, Compass Co-Founder and CEO Robert Reffkin has often talked about the flood of criticism the brokerage faces while noting that 2022 will be the year that naysayers will be proven wrong.

Rounding out the end-to-end transaction experience with new tech tools

In November, Reffkin unveiled the brokerage’s ambitious technology strategy for 2022 — the launch of the company’s first consumer-facing platform, Client Dashboard, and a new in-house referral tool, Find An Agent.

The Client Dashboard, which will be available during the first quarter of 2021, guides buyers and sellers through every part of the transaction process, from searching for the perfect listing and preparing a home for sale to post-transaction needs, such as understanding property taxes and home appreciation trends.

Meanwhile, the Find An Agent app streamlines the referral process by enabling Compass agents to utilize location, property type, listing price, and buy-sell and sell-side filters to find the right agent who can help a client.

“The North Star for us is building anything that helps Compass agents realize their potential, and part of helping them realize their potential [is] making sure they are set up to serve their clients better than anyone else,” Navab told Inman. “A big piece of that is the opportunity to lean into building a client dashboard, a one-stop-shop for everything that a buyer or seller may need to think about.”

“For any other complicated transaction, consumers have a one-stop-shop; they don’t have that for real estate [and] real estate is so much more complicated than other transactions,” she added. “The really important thing at the center of that entire client dashboard experience is the agent. It’s that person, that advisor, that trusted professional.”

Navab said the Compass agent base is “really excited” about the launch of the Client Dashboard, especially in light of how well the Find An Agent app has performed since its Nov. 17 release. “The early anecdotal feedback I’ve heard [about Find An Agent] is positive,” Navab said. “The big theme is ‘You have saved me time,’ and time is money when it comes to referrals.”

These latest launches are a continuation of Compass’s tech-first focus, which has led the brokerage to invest millions in hiring a 1,500-person technology team to build a slew of proprietary platforms that erase the need for a Compass agent — or client — to turn anywhere else for their tech needs.

“[Our tech team] is likely larger than every brokerage combined,” Reffkin said at ICLV in October. “This just isn’t people like IT who integrate third-party software [into our platform]. These are people building a single thing in one place, and that’s not just for today. It’s for the long run.”

There’s been a longstanding debate on whether building a comprehensive proprietary tech stack is worth it, especially as real estate tech wonks consistently build and release impressive third-party tools and platforms.

While some leading real estate companies embrace an open ecosystem approach, Navab said Compass wholeheartedly believes building everything in-house is worth the time and resources.

“If there’s one thing the pandemic has reinforced, is that there is greater and greater adoption of digital tools than any of us could have imagined,” she said. “It means you can start to really see and feel the [return on investment]. When I look at our agents’ businesses, I am seeing them outperform their industry peers consistently.”

Navab said every piece of tech they’ve launched has been in response to what agents want, and their goal of creating a trustworthy end-to-end platform is less than a year away.

“It’s one of the most important things for us,” she said. “Having an end-to-end integrated platform allows us to say, ‘Hey, if you’re a Compass agent, you do not need to use any third-party software.’”

“By the middle of next year [or the] end of next year, [our agents] won’t need to touch a single piece of third-party software,” she added. “The power of that is that you can run your entire workflow end to end in one single place.”

Getting mortgage and title services off the ground with OriginPoint

Beyond creating a smoother transaction process for agents and consumers, Navab said Compass’s investment in an end-to-end integrated platform has made it easier to launch additional services, namely the brokerage’s joint-venture mortgage company with Guaranteed Rate, OriginPoint.

OriginPoint is slated to officially launch “in the near term” as the company navigates gaining mortgage licensures. OriginPoint is currently only licensed in Illinois; however, the company will eventually serve homebuyers and homesellers in every market Compass operates, and they’re licensed in, regardless of their agent’s affiliation.

“Having a mortgage option that’s fully integrated to this platform means you’re going to have a process that not only feels seamless, [but also] reduces the friction and confusion,” Navab said while highlighting Compass’s paperless process. “It creates a much greater level of transparency for the agents and the clients.”

OriginPoint is a crucial part of Compass’s profitability strategy, with Reffkin noting several times he expects a hearty return from the investments in OriginPoint, KVS Title, Glide and CommonGround Abstract.

“This will take time and continued investment, but the opportunity is enormous,” he said in May of the company’s mortgage, title and closing services push.

Although OriginPoint’s ultimate impact has yet to be seen, real estate analyst Mike DelPrete has expressed doubts about mortgage, title and closing services being what tips Compass into the black as the company aims to boost revenue, trim losses, and achieve full-year 2022 adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) profitability.

“[Compass is] going to try to sell people mortgages and title insurance, but other companies have been doing that for a decade, and we know exactly how that’s going to play out,” he said of real estate brokerages’ struggles to attach mortgage and title services successfully. “It’s like if you open up a restaurant, and you said, ‘Oh, we’re going to start making more money by selling people appetizers, and I’d say, ‘Well, Marian, restaurants have been selling people appetizers for years now.’ That’s nothing new.”

“Those Compass real estate agents already benefit from mortgage and title people they know and trust,” he added. “They’re not going to drop them for Compass’ platform.”

However, WAV Group Consulting Founding Partner Victor Lund said Compass’ success with mortgage and other ancillary services is about winning the long game instead of seeking quick success.

“I know they’re losing a little bit of money today,” he said in a previous Inman article. “I think that’s planned because [they’re] trying to grow. [They’re] investing today for a long-term win, and they’re definitely in a competitive position for a very young company.”

Navab couldn’t provide details on whether additional title acquisitions are on the way; however, she said Compass’ c-suite is bullish about the brokerage’s mortgage and title strategy, even as mortgage rates steadily creep up and some experts worry about burgeoning homebuyer fatigue.

“Guaranteed Rate has been in the mortgage business for over 20 years and has a lot of established relationships with Compass agents’ clients,” she said. “I think in the last year alone, they have done over half a billion dollars worth of mortgage loans with Compass’ clients.”

She added, “If you think about mortgage rates in a historical context, they’re still at historically low levels. We believe that means that there’s still a lot of pent-up buyer demand.”

A foray into iBuying or power buying? Forget about it — for now

For a small yet increasing portion of the industry, iBuying and power buying (e.g. cash offers for sellers and buyers) are becoming a vital part of the end-to-end experience as consumers embrace alternative transaction and financing models.

Brokerages — namely Redfin and Realogy — have invested in the transaction innovation wave with the launch of their own iBuying platforms either specifically for their agent and client base (e.g. Realogy) or for the wider public (e.g. Redfin). Both companies have experienced their own measure of success with iBuying, primarily as a way to bolster their agents’ value propositions.

With that in mind, does Compass foresee adding iBuying and power buying to their sprawling platform? The short answer, Navab said, is “no.”

“I’m not hearing from our agents that it’s something that they want right now,” she said. “When we start to hear that as a theme from our customers, it’s something that we should explore.”

Navab said iBuying is still a niche service, with iBuyers representing only 1.6 percent of homes sales in 2021.

“It’s a small and pretty targeted segment of the market, and I think the market that we’re going after is a significantly bigger business opportunity,” she said hinting at Compass’ red-hot expansion plans for 2022. “I think the big theme when I look at iBuyer models today is just how much they have had to turn to agents in order to broaden their business opportunity.”

Pushing the pedal to the metal with market expansion

Leading up to its April initial public offering (IPO), Compass radically slowed its market expansion plans with Hawaii being the brokerage’s only new locale from 2019 to 2020.

However, over the past nine months, Compass has blazed through the South and Midwest with market launches in Wisconsin, Minnesota, Indiana, North Carolina, Missouri, Florida and Delaware.

At the Compass REtreat in November, Compass Central President Danielle Wilkie said the company will continue to ride the housing boom by expanding its reach to “represent 170 million potential clients in more than $1 trillion dollars in market potential.”

Like Wilkie, Navab declined to share specific expansion plans; however, she said the brokerage thinks about expansion not only in terms of adding new cities but also deepening its presence in current markets. “We cover half the U.S. population today, and it’s something we’re really proud of,” she said. “But that means that there’s still a ton of opportunity that still exists in the U.S. residential market alone.”

“We’re already at No. 1 in terms of market share across 15 U.S. cities, we’re No. 2 in 30 U.S. cities,” she added. “I think there’s a lot of opportunities to go deep in the markets we’re already in, let alone the other half of the U.S. population we haven’t launched in yet.”

Much like their approach to tech, Navab said Compass looks to their agents to determine new market launches.

“Lasy year, when we were thinking about our expansion roadmap, we did not have Hawaii anywhere on the roadmap,” she said. “[However], we put out a survey to our customers and agents and said, ‘Hey, what are the markets that matter the most to you?’”

“The number one market that they requested was Hawaii,’” she added. “We opened our first office in Hawaii in October of last year, and it’s been an incredible success.”

The Compass East President also said adding a new division isn’t out of the question, as the brokerage kickstarts the new Ranch and Land Division it launched in Texas this December.

“There aren’t any specific plans that I can speak to,” she said. “But we want to follow that exact same framework [for future divisions] because we’ve seen it work and be really successful for those agents by giving them a specialized set of marketing and sales tools for their particular sellers and buyers.”

Is a stock market rebound on the horizon?

Despite a booming housing market, many of the industry’s leading public real estate companies have struggled to stay afloat on the stock market as their daily trading prices and market caps seesaw as investors keep an eye on inflation, shrinking inventory, worsening affordability, rising mortgage rates and the threat of another lockdown as the Omicron variant begins wreaking havoc.

Although Compass isn’t the only company to battle stock market woes, they’ve been hit the hardest — starting with an eleventh-hour decision to slash its initial Class A common stock offering from 36 million to 25 million shares and drop the price per share to $18, roughly half of the $828 million to $936 million goal outlined in a March 23 S-1 amendment.

The brokerage closed its first day of trading at $20.15 per share; however, it’s been downhill from there with Compass’s stock tumbling between the $10 to $17 range, before dropping as low as $8.60 per share in the fall, according to MarketWatch. As a result, real estate analyst Mike DelPrete said Compass is approximately worth the same amount that it was in 2018, despite its impressive growth.

“For those keeping track, no, company valuations aren’t necessarily rational,” DelPrete said in October, during one of Compass’s rockiest weeks on Wall Street. “Stock price and valuation come from a combination of a company’s current performance and its future growth prospects.”

“For Compass, it seems that investors either significantly overvalued the company in its previous fundraising rounds or are pessimistic about its growth prospects going forward (or a combination of the two),” he added. “Revenues have skyrocketed as it has consistently outperformed its industry peers. Yet investors remain skeptical as the stock price continues to slide.”

Navab said she and the Compass team aren’t oblivious to their current stock market performance; however, they believe a rebound is on the horizon as the brokerage doubles down on supporting their agents with world-class technology and services.

“Look, we are focused on the long game. We have a lot of conviction that our agent-focused strategy is going to deliver real value not only for agents but for investors as well, full stop,” she said. “We can’t control the stock price, and we don’t want to focus on things we can’t control, but we can control the measurable financial results.”

“We’ve launched two new business lines with title, escrow and mortgage, made real investments expanding in the geographies that we already are in and in new geographies and we’ve done all of that while accelerating our path to profitability,” she said while focusing on Compass’s adjusted EBITDA as the benchmark. “I feel really confident in our focus on the long game and in delivering value because I know that the shareholder value will follow that.”

Email Marian McPherson