Want a hot take on Compass’ $1.6 billion deal for Anywhere Real Estate that you haven’t already heard?
Let’s start from the top and work our way down.
An industry veteran in L.A.’s high end jumped a few steps forward to conjecture about the end game. No, that doesn’t mean market share and stamping out competition. Those are the tactics to achieve the strategic end of Compass creating a proprietary marketplace that gives them more control over splits, suggested this executive, who requested anonymity.
“I suspect this is not about creating a bigger brokerage per se because, at least for the foreseeable future, you would just have a bigger, less profitable brokerage with a lot of debt,” he said. “This is more about Compass positioning itself to better overturn Clear Cooperation and become a real estate search ‘portal’ with listings no one else has.
“If this is successful, they will create a direct link with the consumer and use that link to ‘sell’ that consumer back to the agent in the form of a lower percentage of the commission. What the agents fail to understand is that this is the first play in a long game to reduce their splits. I do not expect Compass to admit this.”
Everyone’s been dissecting the consumer-facing implications of market-share consolidation. This view speculates that Compass will use scale of listings to roll back the generous splits that have been used by Compass and others to woo and retain star agents.
After all, once you’re large enough, rubbing a star Beverly Hills or Malibu agent the wrong way may not matter like it still does these days.
Redundancies and such
Rent and staff.
They’re the two biggest expenses on a balance sheet, Nourmand & Associates President Michael Nourmand pointed out this past week in chatting about the Compass-Anywhere news. They’re also the first things to be scrutinized when reducing expenditures.
This is M&A 101,” Nourmand said. “What is M&A 101? The first thing you do is say, ‘Nothing’s going to change’ and then you slowly make changes, and you try to plan them out and make them incremental enough that people say, ‘Oh, well, we had to move offices, but I still have my manager so it’s OK.’ And then ‘Oh, the marketing guy or marketing lady I really liked they got rid of her, but I heard this other one’s good.’ [Compass] didn’t come and make this bold, risky acquisition to let the brands be independent. You buy companies to make changes.”
In fact, rent across what would be the combined entity’s brokerage brand portfolio was one of the first subjects brought up by those who weighed in on the Compass-Anywhere deal this week.
“You have too many of the same thing in the same area,” said Westside Estate Agency co-founder Stephen Shapiro, “If it were me, I’d be consolidating. Rents aren’t cheap and then you have to have staffing. You have to have computers. You have to have telephones and all the things it takes to run an office. It’s unwieldy.”
Please, sir, can I have more paper clips?
The pending deal and the presence of so many major boutique players in L.A. leads to the question of what makes people tick and why some choose to remain fiercely independent.
So, I asked Westside Estate Agency co-founder Stephen Shapiro why. He and business partner Kurt Rappaport have remained independent for the past 26 years.
“Once you own your own ship and you make your own decisions, you don’t want to go and make a request to New York or New Jersey for paper clips,” Shapiro said.
Other factors range from risk tolerance to maintaining speed of operations.
“Over the years, we have fielded offers to buy us out, but it never made any sense to lose the independence,” Shapiro said. “Some years we make a lot of money. Some years we don’t make any money, but that’s up to us to decide what happens at the end of the day. I can’t imagine having to talk to some regional manager to say ‘Oh, I came across a great new video program. How do we get to use this?’ and then not getting an answer. It’s not the nature of the owner of an independent business unless you’re paid enough to walk away. And you’re not paid enough to walk away because everything is based on future performance.”
For as much talk of tech as the differentiator in nearly any business, WEA and others like it tout a more personalized route.
“When one of my agents has a problem, they have me to come to,” Shapiro said. “They have Kurt [Rappaport] to come to. They have [executive vice president and general manager] Colin [Keenan] to come to. Between me and Kurt, there’s no deal that could possibly be made that we haven’t been a part of one just like it and know how to answer.”
Read the full story at TheRealDeal.com.
