In a surprise twist, Compass CEO Robert Reffkin revealed Tuesday that his company is exploring the possibility of franchising as it works toward profitability.
Reffkin made the comments during his company’s earnings call. In a response to a question from a Wall Street analyst, he said that “franchising is definitely a more profitable way to grow.” Though he said the company is exploring the option, he provided few details on how it might work — instead saying only that “we would not do that in a way that would impair the experience for our existing agents in any way.”
“We would not franchise within the same geographies of our own operations,” he added.
Reffkin also didn’t say when Compass might begin franchising, or which markets could be the first to see such an option roll out.
Inman has reached out to Compass for more details and will update this story with any information the company provides.
Still, even with sparse details, the news is a major announcement. Since its founding, Compass has managed to grow into the largest company of its kind even while maintaining a centralized ownership structure. At best, agents who wanted more control could form teams, but they couldn’t actually own their own businesses in the same way a franchisee at another company might.
Compass has also faced increased competition lately from companies, such as Side which provide back-office support for agents who want to operate their own brands.
A Compass foray into franchising would upend the status quo, potentially allowing the company to expand its brand more quickly and nimbly. It would also make Compass look more like its older rivals; firms, such as RE/MAX and brands under parent company Anywhere have long operated franchises.
Though a Compass franchise business would be a major shift for the brokerage, such a move isn’t without precedent in the broader industry landscape. Back in 2020, for instance, Chicago-based brokerage @properties launched its own franchise brand. Today, the firm has franchises spread out across multiple U.S. regions.
California-based luxury brokerage The Agency also runs a franchise business.
Whatever happens at Compass, the news of possible franchise operations comes as the brokerage scrambles for profitability. Reffkin said during Tuesday’s earnings call that he expects to be free cash flow positive in the second quarter of 2023, and overall for the year, and that he is prepared to do more cost cutting if necessary.
In total, Compass brought in $1.11 billion in revenue and suffered a net loss of $158 million during the fourth quarter of 2022. Revenue was down year over year, but that loss was actually an improvement compared to the final months of 2021.
Reffkin was ultimately upbeat about Compass’ prospects, but in his company’s earnings report also described 2022 as “one of the worst years for the real estate market.”