Let me tell you a story about Compass (It may shock you)
I have Compass on my mind because of an article The Real Deal published this week (subscription required) about former and current Compass agents and small real estate companies struggling with the consequences of contracts they willingly signed with Compass.
Some of the top producing Boston real estate agents I know are affiliated with Compass. Some of them love it, some are ambivalent, some are itching to get out.
The story I’m going to share with you illuminates so much about what has troubled me about Compass all along: that it depends, ultimately, on a combination of brute financial Wall Street money and peoples’ willingness to buy into a story that too often has a happy ending only for Compass who’s telling the story.
Let me tell you a story about Compass
The nightmare began a year ago.
After rebuffing Compass for several years, a real estate agent finally gave into temptation.
But the agent found out it won’t be easy to leave. As far as the agent can tell, if they left, they’d be on the hook to Compass for $400,000.
It’s a startling figure. Yet the agent’s predicament is common in brokerage, where for decades companies have used clawbacks — a contractual provision to recoup already-paid financial incentives from departing agents. But given Compass’ extraordinary growth story, with the firm’s huge recruitment push and industry-leading sweeteners, the problem is particularly pronounced.
More than 20 current and former Compass agents, most speaking on the condition of anonymity for fear of retribution or due to nondisclosure agreements, told The Real Deal they’ve agonized over the financial consequences of leaving. Some agents recounted becoming emotionally and physically distressed when they saw what they would owe. Some wrote the biggest checks of their lives or relinquished thousands of dollars in earned commissions in order to leave the brokerage. One agent said they broke down crying; another vomited.
The New York agent who owes $400,000 accepts the blame for failing to scrutinize the agreement but said their prospects for repayment are bleak.
Many of the middle-of-the-road producers who joined Compass over the last few years now face repaying these five- and six-figure sums on their own. Though many brokerages compensate agents for lost commissions when they switch firms, the practice is typically reserved for only top producers.
The experiences indicate a troubling pattern to labor experts. The large sums of money agents are on the hook for and the duration of the clawback policy are “incredibly punitive,” said Alexandrea Ravenelle, a sociologist who wrote a book about workplace rights in the gig economy.
“The numbers that Compass is working with here feel, quite frankly, like it’s meant to lock people in,” she said. “I’ve heard of golden handcuffs, but this kind of brings a brand new meaning to it.”
In a statement, Compass said its “contracts are in line with industry standards and are reflective of market norms in use at other brokerages.”
But the agent accounts run counter to the story the firm tells about itself: that it’s changing the brokerage business and Compass has the best retention rate in the industry because it empowers agents above all else. However, having an enormous fine for leaving is one hell of an incentive not to leave.
While Compass recruits agents with “above-market fee splits” for year one, it strategically renegotiates at a lower rate, according to a blog post by Alumni Ventures Group, an investor in Compass.
Agents must then choose: Stay and accept the lower split, or leave and pay back the sweeteners.
Ultimately, the onus is on the agent to read the contract, you can always leave, its just how much will it cost you?
Boston Real Estate and the Bottom Line
As stated, Compass biggest competitive advantage is Wall Street money, and an abundance of it.
It might appear that I’m coming across as jealous, lets face it – maybe I am.
But my biggest concern is not for me, or those poor agent who didn’t hire a lawyer before signing a contract, but for me its hoarding listings under “Coming Soon” on MLS and in the fragmentation that’s being caused with Boston real estate listings.
It appears that the newest trend, each Boston real estate company are breaking away from MLS and trying to keep listings in-house. The problem here is for the consumer – if this trend continues, a Boston condo buyer will need to go to multi-real estate websites (Coldwell Banker, ReMax, Zillow etc.) to see all the Boston condo listings for sale.
The disconnect between the Compass storyline and action is not just about technology as they want you to buy into. It lives openly in the company’s “Compass Private Exclusives” strategy. Here we see a Compass true real stated mission which is to literally “hiding the ball with Coming Soon inventory.”