This is a guest post by Dr. David Gonzalez, an assistant professor of public administration and organizational leadership. ~ Ed.
Compass isn’t just burning cash, it’s burning workers too. In a recent article, The New York Times reported that SoftBank portfolio companies have been the target of protests over their poor treatment of workers. The story explored how real estate agents were in dire straits after leaving their local brokerages for Compass, the real estate technology company backed by Softbank. While it has yet to turn a profit, Compass promised its agents big bonuses and benefits—but never delivered.
An agent profiled in the article said that “right from the beginning, I was constantly being misled and misled” by Compass. Softbank-backed companies burning their employees has become such a prevalent phenomenon that the Times coined a phrase for it: The Softbank Effect.
After Compass received a $450 million investment from Softbank, it launched an aggressive recruitment campaign to scout agents from well-known brokerages. Compass promised better compensation and stock options to agents who made the switch to their brokerage.
Compass sold agents by saying it was on the cutting edge in an industry that had been collecting dust. Media buzz and its big investors gave it an alluring aura, drawing agents to it and catching them in its orbit.
For many agents, it wasn’t an easy decision to make the switch. Many worked at their brokerages for decades, cultivating great relationships with colleagues and clients. But, often times, fear drives people to take risks. So, thousands rolled the dice with Compass.
For some agents, their decision had less to do with promises of better compensation and more to do with fear of losing business and a competitive edge. And Softbank has experience in disrupting industries: it shook the taxi industry with its investments in Uber and Compass appeared seemed like it was on the verge of disrupting the real estate industry.
It’s Compass’s online platform that apparently gives it an edge over other brokerages. Its website says that it helps agents sell homes—but that doesn’t seem to be the case for many agents.
In fact, for all the talk of better salaries and compensation, a wide swath of its agents have lost money by working for Compass. It didn’t provide them with the resources it promised, making it harder for them to sell homes.
For example, after switching to Compass, agent Tricia Ponicki sold one property in six months, making a paltry $4,300. A year ago, she netted $100,000 at her former brokerage. Now, the mother of four is on food stamps.
Compass promised Ponicki better compensation and resources. Obviously, she didn’t get either of those things. It took Compass months to make a brochure for one house and it couldn’t provide her a For Sale sign. Naturally, this tanked her revenues. And she isn’t the only agent to have been vocal about a disappointing experience.
Many Compass switchovers have seen their earnings drop. A recent study found that “Compass employees and agents have generated less revenue per person than other online brokerage firms and, sometimes, even traditional ones.” This study should make prospective Compass agents pause.
Compass has proven to be controversial, and it also hasn’t made a profit for its investors, and its entire existence hinges on the generosity of venture capital firms and foreign investors, such as Qatar and Saudi Arabia. Who knows how long their generosity will last. Agents should think twice before leaving their well-known, profitable, brokerages for a profitless real estate startup.