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Compass is planning to get into the mortgage business

By Mike Wheatley | May 17, 2021

Digital real estate brokerage Compass is looking at ways of getting into title, escrow and mortgage services as part of its efforts to generate more revenue.

Compass raised a massive $450 million when it went public last month, but the company remains unprofitable and is now looking to generate extra income in order to please its new backers.

Compass is a tech-powered real estate brokerage that sets itself apart from its rivals by providing a suite of digital tools its agents can use to better market themselves and their listings. Its customer relationship management platform provides, among other things, tools to make videos, ads and newsletters.

The company said last week during its first ever earnings call that it lost a net $212 million in the first quarter ending in March, compared to a $133 million loss in Q1 2020.

Compass, which has emerged as a leading residential brokerage that’s challenging the likes of Realogy and Berkshire Hathaway HomeServices of America, has a history of losing money. But the company is competing well, and while Realogy saw higher sales volume figures in 2021, Compass reported that its agent transaction volume leapt by 67% between Q1 2020 and the most recent quarter. That growth suggests it could soon outstrip its rivals.

Compass also reported $1.1 billion in total revenue in Q1, up 80% from a year ago when it posted $619 million in revenue. However, a great deal of that revenue is wrapped up in home sale commission splits with Compass’s real estate agent partners. In other words, a lot of that cash goes straight out of the door in payments to its agents. Once those expenses is deducted, the company’s true revenue that goes directly into its coffers was just $151 million.

In a conference call, Compass Chief Executive Robert Reffkin said the company is expanding into “adjacent service businesses” such as title and escrow, and is also planning to provide mortgage services. This diversification has already been achieved by Compass’s rival HomeServices to maintain profitability, and many other brokerages besides, HousingWire reported.

When asked by an analyst what inroads the company has made into title and escrow, Compass Chief Financial Officer Kristen Ankerbrandt said that its burgeoning adjacent services revenue “grew nicely” though he said the company won’t disclose an exact amount.

Reffkin elaborated more on the mortgage plans, saying Compass is exploring several options. They include buying a mortgage provider, partnering with one on a joint venture, or building its own mortgage service from scratch. He added that whatever product Compass comes up with could prove superior to alternatives because it will be unified through a single log-in experience.

Reffkin also said Compass would be less affected by mortgage interest rates than other brokers due to its significant luxury clientele that is less likely to need mortgage servicing. “In the high-end there’s less use of mortgage”, the CEO said.

Compass went public on the New York Stock Exchange in April 1, pricing its stock at $18 per share and ending its first day of trading at $21.25. However, the company has gone backwards since that strong debut, and its stock fell to a low of $14.43 last week. Still, the company boasts a market cap of $5.5 billion, which makes it significantly more valuable than Realogy at $2 billion.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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