Compass and Redfin, two of the biggest-name brokerages that sought to challenge the established hierarchy of residential real estate brokerages announced major layoffs Tuesday as stocks plummeted across the board and the buyer frenzy of the last two years appeared to slow.
Compass, which initially sold itself to investors as a tech company and which dethroned Realogy (now rebranded as “Anywhere”) as the biggest brokerage in America last year, told investors in its own SEC filing that it was axing 450 positions and shutting down its Modus Technologies title and escrow unit. The company also briefly halted trading in its shares yesterday following the announcement.
Compass billed the actions as part of a “transformation plan” focused on bringing the company closer to having positive cashflow. Unlike Redfin and many other publicly-traded residential real estate companies, Compass has consistently reported large operating losses throughout the recent booming real estate market, clocking in $185.5 million in losses in the first quarter of 2022 alone, and a $494.1 million loss for all of 2021. Last year, the company paid out nearly 83 percent of its total revenue in agent commissions and related expenses alone, before sales, marketing, administration and other operations costs were taken into account.
Compass has attracted many top-performing agents in the Boston area, and claimed to hold a 15.4 percent share of the region’s residential real estate market., up from 7.9 percent in 2018.
Redfin, the combination brokerage and listings portal, slashed its headcount by 470 staff according to a company SEC filing. The roughly 8 percent reduction was driven by a large drop in demand for homes in May relative to the company’s expectations, CEO Glen Kelman wrote in an email to staff that was also posted to the public company blog.
“To all the departing people who put your faith in Redfin, I’m sorry we can’t keep our commitment to you,” he said. “With May demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leave us with less money for headquarters projects.”
With Redfin stock plummeting from $97 per share to $8 per share recently, Kelman said, the company has gone “through heck” already to prevent the cuts. Those cuts, he noted, would fall hardest on staff hired during the “berserk levels of recruiting, training and licensing” the company engaged in to meet demand during 2020 and 2021.
Unlike most brokerages, Redfin agents are employees and not independent contractors, although they do receive bonuses based on performance. The company will be looking to invest in its best agents to help power future growth, Kelman said, and find ways to “hold our front-line agents to a higher standard.”
Redfin lists Boston as among its top 10 markets by real estate services revenue, and told investors this spring that it held a 1.18 percent share of the American residential real estate market in the first quarter.
