A year after a “bloodbath” of layoffs began in residential real estate, brokerages are adapting to the realities of tighter bottom lines.
Two of the country’s largest brokerages, Compass and Anywhere Real Estate, moved to trim expenses as interest rates rose and sales fell. Compass slashed its expenses by almost a quarter last year and Anywhere cut them by 22 percent.
An analysis one year later shows the two have had mixed success compared with rivals in keeping revenues up through a period of austerity.
Transactions have declined for both brokerages, according to research from analyst Mike DelPrete. Anywhere’s transactions plummeted more than any firm’s except HomeServices of America’s, and while Compass was cash-flow positive last quarter, it still isn’t profitable.
Low-fee brokerages such as eXp and Real have added agents at a much faster rate and eXp has closed the revenue gap between itself and the larger firms.
But Anywhere and Compass are growing their headcount despite trimming expenses, a critical metric for each company as they cut fat from their budgets. Fewer employees can mean less support for agents, who may leave as a result. So far, there’s been no sustained outflow from either, DelPrete found.
Compass had perhaps the most at stake over the past year. The brokerage giant announced a $320 million cost reduction program near the end of last summer. Critics questioned whether the firm would be able to make money and retain agents in a down market. A year later, it posted its first cash-flow positive quarter and has managed to add agents, albeit at a lower rate than in the past.
Compass laid off about 40 percent of its staff, or 1,700 employees, by February, DelPrete estimated, to get to a point where he forecast it can break even this year if market trends hold and the year ends with 4.15 million transactions. The precise scope of the reductions likely won’t be known until Compass, which is offshoring many jobs, releases its annual report early next year.
In the worst-case scenario DelPrete projected, in which annual transactions tumble to 4 million, Compass would need to trim its operating expenses to $850 million to break even. Compass CEO Robert Reffkin said during the company’s second quarter earnings call he expects the number to be $900 million this year and through 2025.
“The broader lesson is around adaptability,” DelPrete wrote. “It matters less how you got to where you are, and more how quickly you can adapt to a rapidly changing environment.”
But cutting expenses is moot if a brokerage can’t retain agents.
Compass’ agent count grew in the second quarter after falling in the first and likely grew last quarter as a result of the acquisition of a 630-agent Texas brokerage. Compass bought a 300-agent Arizona brokerage in the second quarter.
Anywhere’s results also show the importance of agent recruitment and retention. The brokerage’s transactions decreased more than 50,000 year-over-year. Only HomeServices of America had a larger drop. A key difference between the two is that Anywhere’s agent count grew by roughly 10,000 while HomeServices’ stayed flat.
“Brokerage growth (and revenue) is still very much tied to agent count — agents sell houses,” DelPrete concluded.
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