Resi firms claim small wins in the third quarter, issue mixed forecast

Execs tout some optimism amid difficult market, legal challenges

Brokerage Execs Looking Ahead To 2024
(top) Douglas Elliman's Howard Lorber, Zillow's Rich Barton and Opendoor's Carrie Wheeler; (bottom) Compass' Rob Reffkin and Anywhere's Ryan Schneider (Getty, Douglas Elliman, Zillow, Linkedin, Compass, Anywhere)

Residential brokerages are learning to survive in a difficult market and shore up their positions to face an uncertain forecast. 

The sector’s biggest firms largely reported losses in the third quarter, but made the best of still-tough conditions as executives touted more cash, narrowed losses and hopes for new development. 

This recent earnings season came at a tumultuous time, with results landing around on top of a verdict in the landmark Sitzer/Burnett trial on broker commissions and a wave of copycat antitrust suits targeting the biggest names in brokerage, industry leaders didn’t appear confident about next year’s market or when conditions could improve. 

The tone of executives’ comments in third quarter earnings calls differed dramatically from this time last year, when Compass CEO Robert Reffkin warned of a “historic” decline, but brokerage bosses were far from painting in wide, optimistic strokes. 

While Compass didn’t post a profit, it did have its second consecutive cash-flow positive quarter. But company executives said they no longer expect the brokerage to be cash-flow positive for the full year, citing slower sales, and reversing a prediction they made in the second quarter.

Anywhere was the only firm to report a profitable quarter, its second in a row after starting the year with a $138 million loss and said litigation costs related to its status as a defendant in the suits had “meaningfully impacted” its EBITDA.

CEO Ryan Schneider touted the firm’s recent move to “put significant litigation behind us” with an $84 million settlement for two major commissions lawsuits. But as far as the market is concerned, the company warned that transactions could gain on last year’s figures in the last months of the year, but total volume will end up 15 percent to 20 percent down from 2022.

It’s been over a year since Douglas Elliman posted a profit, but chairman Howard Lorber emphasized positive signs in elevated prices, narrowing losses and the firm’s increased revenue in Florida as an “indicator of future performance across luxury markets.”

This year’s rise in home prices ,created by a lack of inventory, were not enough to account for the downturn in volume, but created a softer landing in at least one case. Anywhere saw the average transaction price climb to $470,000 at its franchise groups, a 5 percent increase over last year’s third quarter. Year-to-date prices increased 1 percent to $463,000.

The high end of the market saw a similar increase. The average home sale price at Anywhere’s owned brokerage brands last quarter rose to $712,000, a 5 percent increase from the year prior, though the year-to-date average price slipped by 1 percent to $698,000. 

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Looking closer at the books

Anywhere managed to break from its peers and post a profit after reducing its long-term debt and lowering its liabilities. The firm rebought some debt and was able to lower its balance by exchanging for a debt with a higher interest rate — so while the company will pay more on its payments, shaved $281 million off its total obligation. 

Still, Anywhere’s net debt leverage ratio, a measure of a company’s ability to pay off its debt, is high at 7.8. A company representative cited its lower EBITDA for the figure, calculated by net debt divided by EBITDA. A typical ratio for a large public company is somewhere between a 2 and a 5, according to the Harvard Business Review. 

Churn remains a factor to watch at Compass. It’s important for the company to retain agents despite downsizing its local support staff as part of its cost-cutting strategy. Agent headcount grew last quarter by 543, buoyed by the addition of 800 agents by way of brokerage acquisitions in Texas and California.  

Proptech spots its opportunities

Technology firms were one corner of the sector that saw a glimmer of opportunity in the tumult. Opendoor and Zillow reported quarters in line with expectations, losing $106 million and $28 million respectively in improvements over the same period last year. 

Both firms also said they see considerable opportunity ahead if legacy brokerages get skewered by lawsuits targeting buyer’s agent commissions.  

Zillow CEO Rich Barton told shareholders buyer’s agent activity accounted for “less than half” of its revenue in the third quarter, and that listing platforms could dominate the marketplace if commissions are decoupled and buyers’ agents are eliminated.

Opendoor CEO Carrie Wheeler said the company could eliminate 2.5 percent of its total costs should commissions be decoupled.

“If the buyer broker commission were reduced or went away, those costs to us would be reduced,” she said. “We are really looking forward to 2024.”

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