@properties, Berkshire brace for cooling market

Chicago brokerages say they’re ready to rein in costs

Chicago /
Jun.June 30, 2022 07:00 AM
Compass' Robert Reffkin, @Proerties' Mike Golden and Berkshire Hathaway's Diane Glass (iStock, Getty Images, @Properties. Berkshire Hathaway)

Compass’ Robert Reffkin, @Proerties’ Mike Golden and Berkshire Hathaway’s Diane Glass (iStock, Getty Images, @Properties. Berkshire Hathaway)

As home sales slow and Compass and Redfin announce layoffs, Chicago’s @properties and Berkshire Hathaway’s local brokerage say they’re girding for the long haul.

@properties aims to replicate its performance after the 2008 recession, when the brokerage came back larger and with a profit, co-founder and CEO Mike Golden said in an interview. He does anticipate challenges after every major Chicago brokerage posted record years during the pandemic.

“It doesn’t mean it’s going to be fun or easy, but we definitely see opportunity,” he said.

Berkshire Hathaway, meanwhile, is asking top brokers to give presentations to newer agents about building and maintaining a business during a slower market, Diane Glass, the CEO of Berkshire Hathaway Home Services Chicago, said in an interview.

She doesn’t expect a recession to be deep, saying, “When you are coming off of the two best years in real estate, it’s hard to keep perspective.”

Brokers across the nation are taking stock as the seller’s market comes back to earth.
While the S&P CoreLogic Case-Shiller home price index pushed higher in April, it was a modest gain that stemmed less from high demand than from low inventory — a bane of brokerages.

The data underscore concern that rising rates will crimp demand as housing affordability remains stubbornly stuck at a 15-year low. In Chicago, home sales dropped 11 percent in May from a year earlier as prices rose 5.5 percent to $327,000.

Redfin cut about 8 percent of its workforce, or 470 employees, the same day as the Compass cuts. The company cited falling home sales and “a historic jump in interest rates.”

Compass, which started an aggressive Chicago expansion in 2017, five years after its founding, and ranks among the area’s biggest brokerages, said this month it would cut 10 percent of its staff, or about 450 employees, halt moves into new markets and close the title and escrow arm it acquired in 2020.

The New York firm declined to comment about how the layoffs would affect its business in Chicago. CEO Robert Reffkin said on June 14 that the cuts were largely “on teams that do not directly support agents.”

Compass added 398 principal agents in the first quarter, bringing its total to 12,574, and reported a loss in those three months of $188 million on $1.4 billion of revenue and $1.6 billion of expenses. As a public company, it must report earnings on a granular basis, unlike privately held rivals.

After going public in April 2021 at a valuation of $8.2 billion, Compass shares have tanked, leaving it valued at $1.8 billion — less than the $2 billion it raised from investors.

The better brokers survive

Mike Golden, @properties

“We’re a cyclical business, you’re going to have up years and down years,” said @properties’ Golden. “The fact that Compass couldn’t make money in one of the most profitable years speaks to the fact that I don’t think they fundamentally understand the business.”

Times ahead will be tough for brokerages that don’t control their expenses, Glass noted. “Not all real estate companies are equal,” she said.

Chicago has about 17,500 brokers, up from 16,000 at the end of 2020, according to the Chicago Association of Realtors. The increase was less than in other markets, reflecting relatively subdued price increases. The area is normalizing after a spurt of breakneck growth, said Maria Dickman of the Chicago Association of Realtors.

A slower market is coming and with it, a likely departure of agents, something that’s hard to track given their status as independent contractors. Golden said it’s not necessarily a concern if agents who joined the profession during the peak of the market depart as the pace of buying and selling slows.

“What happens is the better brokers survive,” he said.

CORRECTION, 7/1/2022, 10:45am: This story has been corrected to show that Compass is among the area’s biggest brokerages.





    Related Articles

    arrow_forward_ios
    A photo illustration of the planned building at 3817 North Ashland in the North Side neighborhood (top) along with the current restaurant at that site (bottom) (Getty Images, Google Maps, 360 Design Studio)
    Lakeview Restaurant to become apartment building
    Lakeview Restaurant to become apartment building
    A photo illustration of the Chicago suburb of Naperville (Getty Images)
    Chicago suburb ranks No. 4 among nation’s most livable cities
    Chicago suburb ranks No. 4 among nation’s most livable cities
    320 E 4th St, Hinsdale (Zillow, Getty)
    Here are DuPage County’s priciest home sales in July
    Here are DuPage County’s priciest home sales in July
    A photo illustration of 722 Prospect Avenue in Winnetka (Getty Images, Zillow)
    Winnetka mansion sells for $7.5M
    Winnetka mansion sells for $7.5M
    A photo illustration of 2026 North Mohawk Street in Lincoln Park (Google Maps)
    Lincoln Park home fetches $10M, sets 2022 area record
    Lincoln Park home fetches $10M, sets 2022 area record
    Horizon Realty Group's Danny Michael with 5600 Sheridan (Horizon Realty, Apartments, Getty)
    Horizon picks up North Side apartment complex for $39M
    Horizon picks up North Side apartment complex for $39M
    Compass' Patricia Skirving and 1222 Chestnut Avenue (Compass, Zillow via VHT Studios)
    Wilmette home sells for for $5.2 million
    Wilmette home sells for for $5.2 million
    Emily Sachs Wong, Matt Laricy and Jeff Lowe ( ESW Chicago, The Laricy Team, Lowe Group Chicago, Getty Images)
    Here are Chicago’s top resi dealmakers
    Here are Chicago’s top resi dealmakers
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...