“Although the market has not improved over the past year, Compass is a much stronger company with a lower cost base, higher principal agent retention, a revitalized post-pandemic culture, enhanced technology platform and a larger agent-to-agent client referral network,” Robert Reffkin, CEO of Compass, told investors during the company’s earnings call on Monday.

Revenue decreased by 10% year over year to $1.34 billion as transactions declined 12% over the quarter, driven by macroeconomic factors. Revenue was revised down to $241.20 million after the brokerage paid its commissions and related expenses.

In all, Compass reported a net loss of $39 million in Q3, a significant improvement from a year prior, when Compass lost $154 million.

For the second consecutive quarter, Compass achieved its free cash flow goal. The company also delivered on its objective to cut down operating expenses, which came down to $1.4 billion for the quarter, compared to $1.6 billion a year ago. 

“We expect to achieve our $900 million annualized non-GAAP operating expense run rate in Q4 2023,” Reffkin said during the call.

Compass outperformed the industry in Q3

Compass agents were involved in 48,134 transactions in the third quarter, a 12% decline year-over-year. However, it was better than the overall residential industry, which fell 20%, according to Greg Hart, chief operating officer at Compass. Hart cited two strategic acquisitions, Realty Austin in Texas and DPP in California, as part of its growth strategy. 

“Moving forward, we will continue to be opportunistic in our approach to adding to our agent base via selective M&As,” Hart said during the earnings call.

Refkin remains confident even though his company is named in a new commission lawsuit

While Compass was not named as a defendant in the landmark Sitzer/Burnett real estate agent commission case, it was named as a defendant in the so-called Gibson case. Reffkin said he feels confident that Compass is “well positioned and prepared” to overcome the legal challenges.

Compass agents are more likely to work in upper-echelon markets where buyers and sellers would work with agents, he said. Compass also requires their agents to ensure buy-side clients sign buyer-broker agreements. 

Reffkin cited the Seattle market as reason for optimism. The primary MLS in the area, non-Realtor owned Northwest MLS, in 2019 eliminated a requirement that listing brokers offer buyer brokers a commission to submit a listing to the MLS.

“At the end of 2022, the average Washington Realtor commission rate was 5.30%, with 2.67% going to the listing agent and the remaining 2.63% going to the buyer’s agent, aligning with the national average,” Refkin said during the call. “So we have evidence in a major U.S. market of what this change might look like that gives us confidence.”

In Reffkin’s view, what’s happened in Washington suggests the practice of cooperative compensation is unlikely to be fully dislocated. If anything, he said, it could professionalize the industry and force companies on the ‘buy side’ to provide more value. 

“I don’t think there’s any evidence to suggest that there will be pressure on commissions,” Reffkin said.