Leaning into Structural Advantages to Deliver Outsized Real Estate Growth with Robert Reffkin, Founder and CEO of Compass, Inc.
Willy Walker: Welcome everyone both to the Zelman Housing Conference, as well as those dialing in on the Walker webcast. Robert, it's great to have you here.
Robert Reffkin: Glad to be here.
Willy Walker: Thanks for joining us. I want to dive right into your marathoning of random places to start this conversation. In 2007, you decided to run 50 marathons in every state in the country to raise over $1 million for charities. Did you run Boston?
Robert Reffkin: I did run Boston. It's the hardest one to get into, as everyone here knows. But it's a great one.
Willy Walker: You finally broke three hours when you did New York as your last.
Robert Reffkin: Yes, exactly.
Willy Walker: That was quite the accomplishment.
Robert Reffkin: Yeah. And the secret was I got a training coach for the last three, and on average, it is about 4 hours or 3 hours and 40 minutes and 50 minutes before in that kind of range. But there's a sentiment of running slow to run fast, which also can work in the business with the biggest mistake that people make in marathons because they start out too fast, and you don't know it because there's so much going on. But if you are not uncomfortably slow when running in that first ten minutes, it means you're running too fast. If you can comfortably slow down, then you should run the second half faster than the first half. It's called a negative split. That was one of the things that helped me get over the edge and the end.
Willy Walker: And your mom came and ran a number of those parts of those marathons with you.
Robert Reffkin: Walking fast.
Willy Walker: Walking fast. And so you grew up in Oakland, California. There is another mixed-race child from Oakland, California, that we see in the news very often these days. Do you know Kamala Harris?
Robert Reffkin: I've had exposure to her. I did not know her in any real way.
Willy Walker: And your Uncle Gene, who was your mom's first husband?
Robert Reffkin: How do you know about this? I find them an obscure fact.
Willy Walker: Yeah. So, your Uncle Gene, who became your godfather?
Robert Reffkin: Yes.
Willy Walker: He must have played a big role in your life growing up.
Robert Reffkin: Yes. My last name, Reffkin, is not my mom's name or my dad's name. It's Gene Reffkin's name. My mom married Gene. They got divorced. She took the name Reffkin. When I was born with my father, who's African-American, and my mom's Israeli, she was disowned by her parents. The only question they asked when I was born was, “What is he?” And she said, “He is Jewish and black.” And they hung up the phone, never talked to her again. Gave her $100 when my grandfather passed away and gave $20 million to the others in the family. And so, my father, he was going to be abusive to himself and to others. And so I like that Reffkin is our own name. We could start our own future. Neither my mom's history nor my father's. And we get to go from here. And all my kids' names are Rya Reffkin, Ruby Reffkin, and River Reffkin.
Willy Walker: All of Ivy's kids' names start with Z. It's interesting.
Robert Reffkin: What names start with the Z?
Willy Walker: Zoe?
Robert Reffkin: Oh, Zoe. That's good. All three of them.
Willy Walker: You go to university high school and then go on to Columbia. You graduated from Columbia in two years. What was the rush?
Robert Reffkin: See, I'm from the Bay Area. My mom was a single mother and an entrepreneur. She is a big dreamer. She is and has been a real estate agent for the majority of my life, which I'm sure we'll talk about later. One of my big dreams was to go to New York. In New York, anything is possible. In New York, you can change your stars in order to become anything. And so I moved to New York for Columbia, but I the goal wasn’t school. The goal was to come to New York and start your career. It's also a very expensive school. And so I just looked at all the different classes, and I figured out how you can graduate in two and a half years to graduate faster. And so that's what I did. It was economic but also aspirational.
Willy Walker: Did you have any fun?
Robert Reffkin: Yeah, fun in the typical sense. No, I didn't go out to bars and clubs and stuff like that. But I had fun interning in New York at Merrill Lynch as a summer intern after my freshman, from a kid in the Bay Area of California at that time. That was the dream.
Willy Walker: Those kids interning between freshman and sophomore year, think that they got three other summers to take a bite at the apple. You did it once and went on.
Robert Reffkin: Exactly.
Willy Walker: Exactly. And so you go to McKinsey, and you're the youngest analyst McKinsey hires at 20 years old. Did they literally tell you were the youngest person at McKinsey at the time?
Robert Reffkin: Yes. And I got my butt kicked. So, I didn't really have the most respect for formal education. And that's why I wanted to graduate faster. I didn't understand why I was learning about certain things. It didn't seem practical to me. But when I was at McKinsey, I wished I had a couple more years to refine some of my analytical skills. But then I went back to business school.
Willy Walker: they couldn't let you do Columbia Business School quicker than two years. They held you there for two years, or did you, do it?
Robert Reffkin: No, I went there for 16 months. It's called the January term program. The J term program. Yea, I wanted to get it done quickly.
Willy Walker: Really? Everything's fast.
Robert Reffkin: Which was really hard because there's no summer internship. I graduated in 2003. You all know how it works. If you are in a cycle of business school where the market's down, it's already hard to get a job. But when the market is down, you don't even have a summer internship. It's very hard. And so that was difficult.
Willy Walker: So Lizard took a flier on you.
Robert Reffkin: Lizard did take a flier on me.
Willy Walker: It didn't sound like much of a flier. You graduated from Columbia in two and a half years. You've gone out and done McKinsey's as the youngest analyst ever, and you've gone back to Columbia Business School. It could not have been that hard.
Robert Reffkin: It felt like a flier. But there, I met a gentleman named Vernon Jordan, and he told me he was, at the time, Bill Clinton's best friend. He has been on more Fortune 500 boards than any person ever there. It's actually called the Vernon Jordan Rule. Now that you cannot be on more than, I don't know how many boards, I think ten or something like that. And he said, “Robert, all young professionals in the private sector should get exposure to the public sector, even if just for one year. Because the skills you'll develop, the relationships you'll attain, the experience you'll have will be transferable to either sector you choose,” that is a direct quote. And he said, “My good friend Colin Powell is a White House fellow. Jeannie, can you call Colin?” And then he picks up the phone as they go and makes a call. And so I applied to be a White House fellow.
Willy Walker: And so you become a White House fellow. So many people don't know about the White House fellowship. It's a small program in your class. There were 11 fellows in your class, and somewhere between 10 and 18 fellows on an annual basis go in and go into various departments inside the executive branch of the government. You went to the Treasury Department and worked for Secretary Snow. Talk for a moment about that. Before you go on to your specific experience inside the Treasury, just for a moment because a lot of people don't know about the White House fellows. Just talk about the people who end up at the fellowship program. As you look through your classmates, you will see that there are a lot who have military experience. There are a lot who have gone out and done amazing things with their lives, not that you haven’t, before arriving as a White House fellow.
Robert Reffkin: The White House Fellowship generally selects 11 people a year. The ages are generally between 30 to 40. It splits one-third of people from the private sector, one-third from the public sector being doctors and educators, and one-third from the military. And it all represents the entire country, of course, it’s nonpartisan. Someone once said it is the only nonpartisan thing in the White House. And everyone works as a senior adviser to a secretary of one of the different departments. Every day, you have lunch with a different global leader from one of those different sectors, and you're able to ask them questions about leadership in a private group. You have international travel experience. We went to Latin America. You have two domestic ones. You went to Alaska and that was around Hurricane Katrina. So we went to Louisiana, Houston, and Mississippi. Wes Clark was a White House fellow. One of my dear friends is now governor of Maryland. And it's really a great program. I highly recommend anyone who has known someone in their 20s and 30s, they should definitely apply.
Willy Walker: You need to be pretty damn talented. So you get out of there, and you go to work for Goldman. I remember right in the depths of the financial crisis, I was up at Goldman, and I was going in for a meeting inside Goldman's headquarters. And as I was walking through the turnstiles, there was a guy off to the side, and he looked exactly like Lloyd Blankfein. And he's just sitting there on his BlackBerry, working away. And I'm waiting for a colleague through the turnstiles, and I'm looking back, and I'm like, “If that isn't the perfect doppelganger for Lloyd Blankfein.” And I'm sitting there and watching, and all of a sudden, your old boss, Gary Cohn, walks around the corner, walks over, and he looks up, and the two of them go out and jump in the car. And it was at this moment where literally what those two did on a minute-by-minute basis had a real impact on the overall world and economy. What have you? They literally had been on the front page of The New York Times that morning. What was it being there during the GFC and working directly for Gary?
Robert Reffkin: Overall, I started there was called Government Sachs coming from the White House fellows experience. At that time, Goldman was viewed as Government Sachs, a place where you would go and you'd have a really dynamic financial business career, and you could come back and forth. I worked in the private equity area, PIA, so they had a $20 billion private equity fund. And you work with incredibly talented people where it was an incredibly strong culture. Although I truly work seven days a week, it was amazing and one of the best experiences. Despite how hard it was, I did feel you were part of something bigger. They did a good job of that and became part of a company that gave back to the community. It felt very special in that you're learning and growing. Then, the global financial crisis happened, and it was scary. I'm glad I was young enough, for I didn't understand how significant an issue that was. I remember talking to most senior partners, and it didn't matter how much money you had; leverage could kill everybody. Everything could go away. And I said, “Are you worried you're going to take your kids out of private school?” And he said, “I will eat mustard before I take my kids out of school.” But like people, everyone was worries, was the point. No matter how successful you were, then, of course, we got through it. And not all companies did. And then we had Occupy Wall Street and the Vampire Squid. It was a hard thing to see. To go from feeling proud of your company to having so much negativity about your company. Good training for being a company in real estate brokerage that has had its fair share of negativity thrown at it. Actually, I'll give you a good story, you’ll like this.
Two years ago, in one month, August was one of the hardest moments I had at Compass, emotionally. I'm on vacation with my wife. Hadn't been on vacation for a while, in a pool. And this was after we did our first layoff in June, we're planning our second layoff. Like the next month, it was going to happen. And every single day, the press was, they’re going out of business. They're not going to succeed; they're going to fail. They're this or that. And our aim, “What are you going to do? You have to correct the press. This isn't true. That's not true.” And I've told my wife, it's like, “Honey, this is hard. And we've done a lot of hard things. I don't know what to do.” This is very painful because in my role, all I want is for agents to be happy. That's all I want. If an agent says, “Compass changed my life, I'm happy.” They say, “Some things are bad, I'm miserable.” I've never had so many agents angry or unhappy about the stock price going from $20 to $1. And then all the negativity around it. Because we moved fast. We were the first to do layoffs. We did two layoffs, I think, before anyone even did one because we moved fast. We had a good board that helped us make the right decision at the time. But what she said was, “Robert, this is nothing.” She's a coach by background. She coaches a number of businesspeople. And she said, “This is nothing. I don't see them hauling you in front of Congress like Mark Zuckerberg. I don't see them protesting outside of your office like they did with Goldman also, protests inside of your office like Occupy Wall Street. They're not attacking your values or who you are as a person. They're attacking your finances. Get over this, bounce back, and solve it.” I was like, “Okay.” It is really great advice, and that was actually the low point and every area has gotten better since then.
Willy Walker: We'll get to that in a second. I appreciate that anecdote and that story. You were a deejay growing up. Did you ever DJ with David Solomon?
Robert Reffkin: No.
Willy Walker: No
Robert Reffkin: No. I never got to.
Willy Walker: Do you want to go back and invite you to be a guest DJ or something.
Robert Reffkin: No. I wonder if he is still doing it?
Willy Walker: That's true. He was doing it.
Robert Reffkin: Yeah, I wonder.
Willy Walker: I'm not sure whether he is still doing it.
Robert Reffkin: Yeah, I was a DJ in the Bay Area, the most utilized disc jockey in the San Francisco Bay area for two years in a row. In the M&A league tables you can slice it, so I was the most utilized in the senior school area in the private school system.
Willy Walker: But that's actually a good segue into this, and I don't want to jump through the starting of the Compass and what got you to do the company. What is the vision? When I went in and looked at you like you're the largest by volume, then you've got Keller Williams saying that you're the largest by broker count. You've got a couple of others that are like the largest independent brokerage firm. It seems like everyone likes slices and dice. At the end of the day, what's the tagline you want to associate with Compass?
Robert Reffkin: The tagline that I want to associate with Compass is, if you are a real estate agent, “you come to Compass, and you'll be more successful.” We are the place that has the tools, programs, and services that help agents realize their potential, better serve their clients, grow their business, and make more money.
Willy Walker: And that focus really comes from your mom in the sense of how do I make my mom's life simpler.
Robert Reffkin: She is still at Compass and gives me feedback all the time.
Willy Walker: But I find it to be interesting because, at W&D, we constantly sit there. I was in a strategy meeting two days ago, and we tied back everything we were talking about to the customer. What does the customer want? And one would think that your customer would be me, but I'm not your customer. Your customer is the agent.
Robert Reffkin: The easiest way to be successful is to know who your client is, and the biggest mistake I think a lot of companies in our space for sure, but I think in general make. I believe your client is the person that pays you. The buyer and seller don't pay Compass versus paying the agent. Yes, contractually, the agreement is with the brokerage firm because of state law. But every client of my mom is her client. If she moves from firm to firm, her clients are going to follow her. And so I want all the best agents to be here. And then they bring their database of clients with us. And that's a repeat for all businesses; it comes almost as an annuity until they retire.
Willy Walker: When you started out in ‘12, the vision was to build a broker-centric firm. Was it to build the technology and have them come, or will they raise a lot of capital and hire them to come?
Robert Reffkin: Great question. We actually tried to do something different at first, almost like Reffkin for rentals. We're going to reinvent the wheel. We did everything wrong. It was innovate for innovation’s sake. And I could tell we raised the largest seed financing around the country. My co-founder, Ori Allon, he sold one company to Google and another company, Twitter. Because of his background and my background, we were able to raise money from a suite of great investors, and it was not working. And I could tell because I was out there trying to help rental apartments as well. So I told Ori one night, when we had one of our first cigars, and I said, “Ori, we have to switch. We have to move to working for regular traditional agents.” And the majority of the company didn't want that. They wanted to fire me, or they were telling Ori, “You have to get rid of Robert. He doesn't have what it takes.” And I was like, “Ori, trust me, I understand this business. I know this is not working. We got to work for regular agents.” And asked two questions that lead to today, in our entire strategy. It's very simple. He said, “If we can make agents more money, will we make money? If we can make them successful, we will be successful. We can help them grow; we grow.” Like, “Yes.” And then two, he said, “If you're being chased by a bear, you have to be faster than the second person. If we do this, then we start working for traditional agents. Who's the second person?” I told him I think it'd be like Cobble Baker, like regular brokerages. That would be good because they don't move fast. And then, with the money that we had, because we were able to, we hired a lot of talented people who didn't know real estate and had money. We start hiring great agents. So I asked all our investors to connect us to agents, and I tried to hire them, and I would ask them, “What do you want?” Look, I didn't know there was a benefit to not knowing anything about the industry. I know preconceptions. What do you want? What would make you happy would help you grow your business? At that time, there were four things. It's changed since. At that time, it was culture, marketing, support, and technology were in order. What do you mean, culture? I want to be around people who are likable, collaborative, experienced informing and committed. Marketing, I want to market my property in myself so that I get more listings. I can show them, and I can market the property well myself, so I can get more business. And then support and technology. Now, it is indisputably technology that we can talk about. Technology is what I call every principal agent that comes to Compass. I ask them why they came when they picked up the phone. And I'd say 90 plus percent of the time. Technology is number one. Number two is usually something around culture, and then it breaks up from there.
Willy Walker: Go into that as it relates to technology because as I was getting ready for this conversation, I went and searched up a property. I just said, “Let me look over Bunker Hill, and I'm going to look for a $1 million property on it.” I put into the Compass website. I put it on the Keller Williams website. I put in a whole bunch of them. And what came back was, from my perspective, as someone who isn't in the home market right now, a very similar offering as far as the user interface that I came into as the end user of a Compass website versus the other ones that I looked at. And then I sat there and said, “But this is supposed to be a much better technological experience for me. I would think I'm having this or that or something that's a whiz-bang on Compass that I wouldn't get on Douglas Elliman, for instance.” And I didn't find that. But then I also know that from a broker standpoint, if I'm at Keller Williams, I've got 11 different technology systems that I, as the broker, need to interface with. And if I'm at Compass, I'm dealing with one.
Robert Reffkin: Absolutely. We learned early on. I don't want to make up anything. I want the agent to tell us what to do. They're my clients. I work for them, not the other way around. They are the answer. The most important technology we created is a button that says “feedback.” You click that button on our internal settings. Any idea they have across any suite of things is voted up or down. We've had tens of thousands of different requests, and collectively, over a million of those. That's the answer. I am dispassionate. I don't decide they do. If they just said, “I want you to make a website.” My number one thing is a website that has a better search. We do it, but they don't care. That's not number one. I realized early on if we have twice as much website traffic, our revenue will not go up two times, maybe up 1%. If our websites are twice as good at search, what will happen to our revenue model? 1 or 2%. But if we have twice as many agents, it goes up 2x. So, the agent is the focus. And so, what does the agent want? They didn't want to spend more time or more money. Not everyone wants more money. Everyone wants more time because, with time, you can either make more money or spend it with your family. And so, there are 700 software providers that sell to agents. There's over 20 real estate CRMs alone. There are now over a dozen different transaction management platforms. There are over 50 different marketing tools, there for CMA evaluations. There are eight major CMA valuation tools. We've brought all of these things into one platform, one login, where integration is the innovation. Integration means you don't have to login so many times. Integration means you don't have to enter the same thing more than once. As an example, when an agent in a different company is working with you, they have to put in your name and call separately your address over ten times. I'm pitching you so they have to put it in the listing presentation. Then, after putting this in and then having to put it in, I got the listing. When I put in my CRM, I'm going to put it in. I guess you call it money.com, which is our pipeline management. They're going to put it in your transaction manager; then you're going to put it in the forms file. Then, you're going to put it in your client gifting program. Then you're going to put it, if it's a listing, in your open house out there. So imagine the difference of that and many different areas, too. And we're not here yet, but we're very close to being able to say, “At Compass, you never have to write the same thing more than once.” That's the dream. And by the way, stick with a mobile app. There is no brokerage firm that lets an agent do their entire business on their phone. And this is the biggest mobile profession that exists. So we have taken the real workflow. Search is not the workflow. The real workflow of the agent, we put it on their phone.
Willy Walker: So you mentioned at first. That culture, for a period of time, was number one, and now technology is number one. Aren't they all 1099s?
Robert Reffkin: Yes. They're all independent contracts.
Willy Walker: How do you create a culture around 1099s?
Robert Reffkin: I imagine there's culture and Mary Kay or some of those kinds of entities. But these agents, agents are culture, They're salespeople. They're training. They're one training, two coaching. Every week, we have multiple what you call luxury events and training coach events. There's a Lake Tahoe Economic Summit for all of North California, which starts today, I think. Almost every Friday, I have agents over to my house for Shabbat dinner. Every Sunday, I could take my entire family, five people, drag the kids to open houses and put on social media. Carry is competitive advantage. The way agents work for their clients, caring for you, doing all this stuff. I work for agents, and that's a huge advantage right now in a work-from-home remote world where a lot of the big brokerages have lost their culture. The number one reason agents didn't come to Compass before was their emotional connection to the people in their office particularly the sales manager. Work from home unwinds that. And also, every year, that's gone by, in the last four years, agents are spending more minutes on the platform, more minutes a week on our platform, we can measure it, and less minutes a week in our office. And you can see how the business is actually shifting more online as a result.
Willy Walker: You said that if you invested in the website, it would only grow revenues by 1%; what have you. The home sales cycle is 15 years, as it relates to the fact that I was a seller of a home for ten years.
Robert Reffkin: It's actually seven to eight.
Willy Walker: Seven to eight. It's not something we do either every day or every year. So I'm interested in your point as it relates to if I went to sell a home today; I don't have a broker in Denver who's like someone I met down the street. I would probably go to a friend for a referral, saying, “Who'd you sell? Who sold your house last time.” So, on that one, how do you use word of mouth to make it so that people want to come to Compass?
Robert Reffkin: You got to get the best agents. Then, your friends are going to refer them over to you.
Willy Walker: But is it all that word of mouth? If you think about branding, and you think about how you get that prospective buyer.
Robert Reffkin: How you call, the answer is yes, 90%. But it's a call to a repeat and referral business. That repeat business is I work with you. I'm so good. If I give you a great experience, you're going to call me every time. And if I give you a great experience, you're going to offer all your friends to me. The goal is to give you such a great experience that you feel like you're doing a favor to your friend for a firm. You’re not doing me a favor. You’re doing them a favor. So, referral for our business. And it is that simple. In terms of like leads from the Internet. I would go as far as to say that “Agents generate more business from client gifting programs, which just means, like every year, happy home anniversary and send you the gift.” More from that than leads. It's because it's a repeat and referral business, and I need to stay top of mind.
Willy Walker: And if I'm selling my house, my key thought is I want to sell it for the highest price possible. That's all I care about. I want to work with someone I like, but I want to get the highest proceeds. But you're focused on generating higher fees for your agents. How is there not a disconnect?
Robert Reffkin: I’m not focused on. No.
Willy Walker: Yes, I did research on you. One of the things that you promote to get agents to come on your platform is you'll increase their fees by 25%. Is that just pure efficiency?
Robert Reffkin: No. Not the fees. We had one time. No, I think maybe a little differently. But we do see businesses grow, and there are different times we've seen how agents' businesses grow. But it's not the fees, it’s business.
Willy Walker: So you're just saying aggregate business.
Robert Reffkin: Not fees.
Willy Walker: And we're going to dive into fees.
Robert Reffkin: We don't control fees. There are independent contractors. Anyone can do whatever they want. I can't deal with 35,000 agents, and we're not controlling fees.
Willy Walker: In 2021, Compass sold about 225,000 homes, drowning interest rate there. 2023 sold 175,000 homes. 2021, you add about 11,000 primary brokers on the platform. Today, you have about 17,000.
Robert Reffkin: You have a great memory.
Willy Walker: You have about 17,000 today. If I'm just looking at that as it relates to sales per broker in 2021, we're selling about 20 homes per broker on your platform. In 2023, you're selling ten homes per broker. You're still adding brokers to the platform. As we get the sales market reflating, what are you looking at as it relates to average sales per broker? And is there leverage off the 20 home per brokers in ‘21?
Robert Reffkin: There's definitely leverage. There are two things happening. One, fewer transactions. We went from six point something million homes sold a year to four, that's one. But it’s not per broker, per broker team. And so we call them principal agents. A principal-agent is a team. And as teams change from size on average, when you grow into different markets that are maybe more or less team-heavy, that changes that number. But there's absolutely leverage in that as the market comes back, and you're not going to. This is the first week since mortgage rates have started to dip. We're feeling the momentum. And so the way it feels right now is we're back at it. EHS, existing home sales number, is 4.5. If I had to guess, you would end up being probably two to three months from now because you have to go into contract, and then it goes into the actual sold number, and it finally feels like we're back.
Willy Walker: And so you're 17,000 primary brokers and close to 30,000 total brokers.
Robert Reffkin: A little over 30,000.
Willy Walker: Someone like Keller Williams has 200,000. Where’s the sweet spot is your platform unlimitedly scalable?
Robert Reffkin: It's unlimitly scalable. It works for individuals. So on the technology part, you have to build a company that works for luxury agents that have high price points and do few deals as well as low price points on large transaction counts. I do 400 deals a year, individual agents, and team agents across, of course, every geography. You have different forms and disclosure for each market. For example, there are 50 different forms in California, and in two-thirds of the market, agents act as the lawyers in one, meaning that they have to do all the forms in one-third, a little less. The real lawyers have to do the legal work, for example, in New York and Connecticut. But this business is so much more complicated than it looks from the outside. That's why search is just the least of the work.
Willy Walker: As it relates, you've paid big signing bonuses to a number of teams to come across the Compass over time. Some really big ones in the teen years. Is that still the way to attract to the platform? Have you seen your acquisition cost go down as the platform has grown?
Robert Reffkin: Yes. So, in two years, you all know the sentiment. In downtimes that's when I stopped doing the things I should have stopped before. And I started doing the things that I should have been doing before. So, looking back, the downturn is the best thing that ever happened to Compass. And one of the many things we did in addition to bringing down our expense base from $1.6 billion to much less than a billion is we stopped giving incentives to agents and no equity, no stock. We stopped that two years ago. And we are hiring more agents now than we were back then. One of the bearer cases at Compass at the time was they only came for money. That's disproven not to be the case. When you stop giving incentives, they're going to leave. That's disproven. We had a 97.3% agent quarterly retention rate last quarter, which is directionally as high as it has been.
Willy Walker: And as it relates to the stock they're sticking around for, I'm assuming for a long period of time because you have vesting on that.
Robert Reffkin: No. I believe more than 90% of the agents are fully vested.
Willy Walker: And so, from a retention standpoint, it doesn't concern you as it relates to retention going forward.
Robert Reffkin: That 90% of them could go anywhere, agents are independent contractors, they can go anywhere they want. If the trend that we're seeing right now that you call them wind acts, agents that have left, that are coming back. And there's not a week that goes by where you don't have multiple agents, on average, like every other day, it feels like there's someone who left and came back. And then you ask them why they come back as well. I thought when X or Y company told me they had built something, I thought they would have gotten better. But my God, it was so much harder. And I just missed the Compass platform. And I miss my friends in the office.
Willy Walker: So you spent about a billion four building this technology platform. How much more investment does the technology platform need to stay competitive in today's world?
Robert Reffkin: I think it's already there. That $1.6 billion is what we've been including equity examples. What we've invested in already is competitive. The question is, how competitive do you want to be? Google is still investing. They're already competitive. I think we're at a place where we are fortunate, given the quality of our competition on this area, being technology. There is no other brokerage firm that has an end-to-end platform. We're investing $100 million a year off of a $1.6 billion base. I believe at least of the public companies that are out there are doing $15 million a year and obviously off of a much smaller base. So I think we have a big advantage that allows us to be more cautious. The thesis of Compass at this point when the market four back from million homes sold a year to 5.4 mid-cycle and keep our expenses growing at 3% to 4%. So call it a 15% to 20% CAGR on revenue, a 3% to 4% CAGR on expenses. It's very simple. That is the base case that happens, everyone's going to be happy. On top of that, we believe that we can get the market share. We can believe in a significant market share. We have significance, but we believe we can get more.
Willy Walker: So you've got a plan of doing 30/30. So, being at the top, you have 30% market share in your top 30 MSAs.
Robert Reffkin: That's a 30/30 vision through a 30% market share in the top 30 cities. Everything that's bad is good. I think this environment has created an opportunity to do M&A at a much more enhanced level.
Willy Walker: How hard is it to get to that, Robert, in the sense that like on that on the 30th largest MSA, what's your market share? In other words, are we talking about going from 20% to 30% or from 10%?
Robert Reffkin: We're talking about going from, let's call it, just under 20 to 30. And with the focused effort, we believe we can get there in 2026. We believe that the conversations to get there are real conversations. They're not like an idea on a piece of paper. And with the targeted multiple is four to five times EBITDA, that's pre-cost synergy, that's pre- getting back to mid-cycle EBITDA. When these companies do spend money on technology, real money, it's just third party technology. So when you bring it over to Compass, you save on technology, say there's occupancy savings, and then, of course, mid-cycle. So that post those synergies in mid-cycle, it gets you to one to two times EBITDA.
Willy Walker: Is that 30% market share dependent on you doing a significant amount of hiring in those markets? Or, if you will, revert to 20 sales per year. I was on the broker, so I know you said you could do it, teens and I'm sure you look at teams, but on my math, is it getting back to that 20 per broker rather than from up from the 10?
Robert Reffkin: It's broken into three categories. One our agents outperforming to some level, as we've seen in the last year or two. It's hiring organically agents. And three, it's highly accretive M&A.
Willy Walker: You bought a company, a smaller brokerage firm.
Robert Reffkin: There’s Parks in Nashville. There is Latter & Blum with 3000 agents in New Orleans.
Willy Walker: Where is pricing on... Can you give all of our pricing on a you versus-scale basis?
Robert Reffkin: What did you say?
Willy Walker: Versus you on a scale basis. We all know what you trade at as a multiple. What do they trade out on a multiple?
Robert Reffkin: And the target is closer to four.
Willy Walker: Four of what?
Robert Reffkin: EBITDA. We're getting pre-synergy.
Willy Walker: Is it keeping the main broker? You go out, and you buy some...
Robert Reffkin: That's important. Is it important That the key principle sticks around? Are you just really getting the agents?
Robert Reffkin: It's important. Everything is the culture you want. Yes. It's “Hey, let's work together.” Because at the end of the day, these brokerages, CEOs, love their agents. They want to give their agents the best. Because I think what's happened is, yes, the market's been tough. Yes, maybe there are life events that make certain people want to pass it on. But the question is, who are they going to give it to? Who are they going to entrust with the agents that they've hired and retained and been to their weddings and their kid's bar mitzvahs? Who are they going to trust? And I think Compass has become a place where agents are thinking with their pocketbooks across the country that they're willing to pay. We charge at the premium level in every market that we're in, and that feedback of our platform and how we go above and beyond for agents. It goes to these CEOs of other brokerages. I can look them in the eye and say, “Your agents will have a better experience with us coming together than not.”
Willy Walker: And do those owner-operators have a tough time coming into a large corporate environment, according to you?
Robert Reffkin: It's a great question. The biggest challenge Compass will have, is how to make a big company feel small. And it's hard. That's why I do all that stuff, like the open houses and the dinners. And last Tuesday, I had a barbecue at my house for everyone who's been at the company for over ten years. It's nonstop. But that's why we're all back in the office while some of the brokerages aren't there. By the way, there's nothing I wish more than if every one of our competitors were fully work from home. Their employees, there's nothing I wish for more because it's hard to lead people. Suppose you're an agent of the company. It's hard to lead people you see every day. It's not that hard to leave people you don't see at all. And so it took a lot of investment over two years to invest back in our culture.
Willy Walker: Do you force people back in the office, or do they just do it on their goodwill because they like it? How many days a week?
Robert Reffkin: Enforce, but five days. For anyone that's serving an agent, it's five days a week. You can't build a great culture virtually. You can't build trust virtually, or it's hard. You got to say the words the right way. It's hard to build a great culture virtually and hard to build trust virtually, which is actually the biggest issue we found is trust. People don't meet each other in person. The Zoom call is a transactional place, and it's hard to build trust. However, leaders have an obligation to develop their people. More hard to develop people virtually than in person. And whoever connects the most, grows the most. Also for our agents is the message I'm telling them. If you want to grow your business, spend more time with people. If you want the number one agent in one of our sub-markets, she is telling me, “I don't understand why I used to get all these repeat clients, referral clients, it was like 90% of my business. It's gone down to 40%. I don't know what's happened.” This agent moved to a different city and was working all on Zoom. Because Zoom, if you have your content, you can transact, and you can close it, but can you build a relationship that makes them want to work with you and your clients? I look at being in person is a huge competitive advantage.
Willy Walker: Your number one team in the country. Don't tell us who it is. But what kind of volume does that number-one team have?
Robert Reffkin: Over $1 billion a year.
Willy Walker: Over a billion. And that's due to volume at a lower price point or they're doing trophy assets in L.A.
Robert Reffkin: Their trophy assets in New York.
Willy Walker: Trophy assets in New York. Let's talk about the NAR lawsuit for a moment and what that's going to do to commissions and fees. Are you seeing that having an impact on the market today?
Robert Reffkin: If you ask a group of agents, which you share they are the market, a group this big. Do you think it's going to decrease your business, keep it the same, or increase it at 10% directionally? I'd go to dozens of offices every month, and 10% say it will decline, 30% will say it will be the same. And the rest says it's going to grow. And I'll tell you, I was relieved.
Willy Walker: Grow! How do we do that?
Robert Reffkin: I'm your buyer agent. Historically, until August 17th, I get paid whatever the listing agent negotiated on my behalf. Let's just say, on average, that's a market where it's five, two and a half, two and a half. I’m going to tell you I will charge three. And you're going to ask me, “Well, can I get something less?” I say, “Look, that's not my business model.” What has happened practically now two agents can negotiate every transaction from which they get paid, not just one.
Willy Walker: Yeah, I'd look.
Robert Reffkin: And these are professional negotiators.
Willy Walker: No, they're professional negotiators. And they're also extremely good at what they do.
Robert Reffkin: And negotiating is the skill you're paying them for. Pretend you're asking me for a discount on selling your home. I'd say this must be a trick question because I don't know how to negotiate my own value, clearly, I wouldn't know how to negotiate the value of your home. The kind of agent that's going to fold over after asking for a discount to list their home is the kind of agent who can say, “Hey, I think you should accept this offer. The first one that came in. It's a good one.” You don't want that agent.
Willy Walker: We sold $20 billion of multifamily properties in 2022, the fifth-largest multifamily investment sales company in the United States. I didn't go back and look at our average fee. You got an idea of what 55 to 60 basis points. I think we have really good brokers and negotiators. But when we go and sit in front of a big institutional owner of multifamily properties, and we say, “We'd like to sell it for you,” we've been baked off against CBRE, JLL, and everybody else under the sun. And they sit there, and they come back to our brokers who are really good negotiators, and they say, “That's great, where's your fee?” And we might start at 75 basis points. And they say, “Great, you've got a great team. We think we're gonna get the best price with you, but CB is going to do it for 70.” All of a sudden, our 75 basis point figure turns into 70 basis points to win the mandate. You don't you think that kind of price compression happens in your business?
Robert Reffkin: Discounts can be expensive. You get what you pay for. There have been professional discounters available for the last 20 years. You all know the names of them. They charge half off every buyer and seller. How much market share does that have? They're out there in every single market. They're big national ones. They're local ones. This is nothing new. What's new is that you can now decide how much you get paid if you're a buyer agent.
Willy Walker: And the price… It's super interesting to hear you talk about that. So I'm going to go out and list my house, and the Compass agent comes to me and says, “Great, I need two and a half, and I want to pay two and a half.”
Robert Reffkin: Yes.
Willy Walker: And I say, “Why are we going to accept two and a half from the other side?”
Robert Reffkin: This important conversation?
Willy Walker: And he or she says, “Well, if I don't have the ability to get two and a half from the other side, I'm not going to get the best brokers bringing their clients, and therefore, I can't sell your house. So you have to give me the ability to accept the two and a half from the other side.” And that is what’s driving…
Robert Reffkin: Some of the most sophisticated real estate developers in the country, people like Gary Barnett, started at 4%, went to 5%, and go above and beyond. They're the biggest homeowners in the country, and they realize the value of incentivizing. Go to Florida. Go to Miami. How much are they giving buyer agents? They don't get more sophisticated than that. If they were all offering zero, maybe that tell a different story. But ultimately when 99% of… say you're the seller, 99% of the time your competition is paying the buyer agent and marketing as such. Do you want to put yourself in a place where you stand out and you want to be the 1%? You could. What's going to happen anyway, very likely, is you will have buyers that will come to your property. You may actually screen out. I have heard this. There are certain buyers who say I don’t want to look at that property. That must be something difficult to negotiate with buyers, not agents. I don't only want to go to your property because you're going to be the person, nickels and dimes back and forth. That's one. So you may artificially reduce buyers' interest again. And then secondly, the people that do come anyway are going to ask you for a concession and then ask you to pay for their buyer agent. So you're going to end up getting to the same place while potentially reducing the demand of people that even want to see it.
Willy Walker: And think about that. If you run down the continuum let’s, just say that fees do start to get compressed. How important is it to be on both sides of the trade? In other words, like today, how many sales are you on both sides of the trade? And would that end up being sort of Shangri-La to the extent that you have such a large side of the buy-sell market that you can dominate the sell side of the market?
Robert Reffkin: Double-inning deals is not something Compass is focused on.
Willy Walker: So you can't do a dual listing?
Robert Reffkin: No. Not something we are focused on.
Willy Walker: Okay.
Robert Reffkin: I don't look at those stats. That's not an area that we are focused on in any way. What we're focused on is helping the homeowner create value. The real opportunity here is being the company that is focused on creating homeowner value. Remember I said, get to know who your client is, I think in this space you have companies that are focused on selling leads but not focused on selling homes. And that's the opportunity. Days on the market is the killer value. Price drop history is the killer value. Did any homeowner in the country, say I want days on the market on my listing. Why is it there? It's all been manipulated. If you go to REA, which of course is the biggest thing that exists in Australia, by far bigger than anything here. There are no negative insights on the listing of any kind. No days on the market, no price drop history, no crime whether as estimates or investigating ABMs. And so I think this world has moved so far to creating buyer insights and negotiating against homeowners that for Compass we're focused on preserving and maximizing homeowner value.
Willy Walker: If we think about the evolution of the market as it relates to trying to continue to grow the technology platform and make the marketing of the assets that much better for the agents. If you do get fee compression, I would think that's actually net beneficial to your platform. So if I'm a broker and three and three is turning into two and two and is potentially turning into one and one, I want to go to a place where getting the home, winning it, and getting on the platform and running as efficiently as possible. That does that become a competitive differentiator for you if it ends up being that?
Robert Reffkin: I don't think it’s going to go that way at all because when things go that way at all. But you all know when things like this happen across industries, whether it's banks with regulation or with health care, it tends to make the big, bigger, that’s just the output. I think we've been able to invest in a scalable system across every major part of the country that helps agents grow their business and have more time. So more income to support their family, more time to be with their family. And as the world is wobbling, we are a place that gives them the most opportunity.
Willy Walker: And as you look at the competitive landscape about who you compete against day to day and where, for instance, first of all, vertical integration on the mortgage side of things. I know that if I come on to your site and go to actually get information from the broker on it, I can get pre-qualified by Origin Path or Origin Point Mortgage.
Robert Reffkin: One of the three things that base case Mark comes back to 5.5. Keep our expenses at a moderate level. The rest is EBITDA. The three things that were most focused on which are called Twain and for 2025, are the 30/30 vision, 30% market share in the top 30 cities, and making it clear to the public that we have a unique inventory that others don't. The way this industry forces inventory to other parties is not okay and is not for homeowners. Remember what homeowners want all that stuff on their listing. In the same way a Disney movie starts off Disney wanted to, then goes on Disney Plus, and then it will go on to Apple after a period of time, and then HBO, and they get paid along the way. I believe every agent works hard for relationships. They take the photos, they pay for the photos, and then the system of the MLS just takes it and they give it to everybody else. I believe that's not the way the world should work and they should get paid for their photos and their inventory. And so that is my primary focus. And think about how agents feel about that. I guess their list is because they monetize over and over again and then their name isn't on their own listing. And so two is our client dashboard, this our mortgage comes in, we have mortgage title escrow, but we're going to integrate into a client dashboard, all the integrated services. Right now there's mortgage title, escrow, but also home insurance, home security, and home warranty. It is one for sellers, there's another for buyers, and then multiple homeowners. This is launching in the winter. But in the same way, it keeps going to check for warranty. We're going to find it very easy to adopt our integrated services which increase our margin. And lastly, is extending the search grid beyond the active listings. Of course, we have what you call Compass private exclusives. These are coming soon. These are listings that aren't on the public sites that are unique to Compass. Again, that Disney analogy and because there aren't days and markets on these, because there aren't price drop history. It's very easy to get a homeowner to try to test the market for pricing in that context before putting it to the full market. But also of course it's something the buyers want to see. Buyers want the most inventory set. That's the number one thing they want. Sellers want the highest price. Private exclusives coming soon, maximize and preserve value but also get for sellers and also help Compass have the most inventory. But we're going one step further to what is and I’ll close here, is we call them “make me sell.” There are many different ways you can call it. But the Compass program to identify what the price someone would want to sell. My wife would never sell her home. But when I asked her, is there a price? There was a price. Everyone has a price. So we have 100 million people in our contacts in our CRM. So the 35,000 agents directionally, 3000 clients per agent. We have 100 million with addresses. And it's the same place where people agents search listings. Our agent search is very rich. It's a consumer search, which is, as you mentioned, less. But we are the only platform where agents, can search listings, and there CRM at the same time. So what we are doing is we're adding on when I'm searching and this is the number one voted idea of agents ever. Remember that feedback tool? No idea has been voted higher is when I'm searching for you. Let's say it's a Tribeca penthouse. I can tell you there are 200 Tribeca penthouses. In our agents, I know ten of them and in my contacts are other agents know another hundred. And then on top of that, I can say which ones have a big move price. So we're extending the search grid beyond the active to increasingly the full market. But the dream would be every one of those 100 million homes we have make me move price for.
Willy Walker: So you founded the company in 2012. What does the company look like in 2032 beyond the 30-30 plan, which I know is to get there by 2030? And as you think about that, Robert, as it relates to technology having a big impact on all of our lives, whether it's A.I. and us being able to say, “Show me every home in this MSA, that I would be nice and looks like mine, and the technology will bring that back for us.” What does the company look like 20 years after founding?
Robert Reffkin: International, every integrated service during the transaction and afterward all in the platform. You never have to write the same thing more than once. No client would ever challenge the commission of a Compass agent because they get so much value from their agent and the full platform. We've raised the perception of agents in this country. And my mom, who will then be retired she is 79 right now has an annuity for life, because everyone that she brought to the Compass platform, anyone who has some of those repeat services unrelated to the transaction for RESPA, any of those repeat services, she would get a referral fee. So she'll be drinking a mai tai with a lei around her neck in Maui and she'll get a push notification on her phone and say, “Your former client just moved from Boston to San Francisco and there's a $15,000 moving fee through our platform.” And then you just get $3,000 as a referral fee because it's a 20% referral fee. And then you say, “Can I get another mai tai?” That's ten years from now.
Willy Walker: On that thought, we can all go get another mai tai. Robert. It's a real pleasure. Thank you so much for being here with us today. Thank you everyone in the room.
