[EDIT: This post has been updated with responses from Compass, and my further responses to those responses.]
[EDIT: I have updated the post once again, with another round of clarifications from Compass Spokesperson.]
This week is when NAR will decide on what to do about Off-MLS and Coming Soon. I have already written thousands of words on the topic, but on the eve of the meetings of the MLS Policy Committee and the Board of Directors, I had a reader send me something that is both eye-opening and troubling.
I was sent a copy of the Compass Independent Contractor Agreement by someone who wishes to remain anonymous. It is a legitimate copy, with Robert Reffkin’s signature on it, which means it is unlikely that someone created a fake to fool me. I struggled a bit on whether to write about it, since most of the terms go right to the heart of what Compass offers its recruits. I have nothing against Compass, as I think there are some real innovations there, and there is an exciting new approach to traditional brokerage. I have zero desire to disadvantage Compass in any way.
But there is one part of this Agreement that is solidly on point about the kind of systematic Coming Soon being practiced by Compass, and copied by other brokerages. I will, therefore, duplicate as little of the actual Agreement as possible as I think this issue must be addressed, and the people attending NAR this week need to know what they are dealing with.
The Compass Agreement
I am not going to upload the document or any such thing. If I have to disclose specific terms, it is because they are incredibly relevant to the issue at hand.
The bulk of the Agreement is under the heading/title/section called “Incentives.” Even the commission split is put under “Incentives.”
Some of the more relevant Incentives are:
- 90/10 splits, going up to 95/5 splits
- A huge marketing budget split over multiple years, six figures in each year, that can be used for everything from yard signs to business cards, photo shoots and any other marketing-related expenses.
- Six figure signing bonus
- Six figure “Assistant Contribution” so that the agent can pay for administrative staff
- Equity stock option grants
- Production bonuses that can be paid out in cash or in additional stock options
And more, much much more. Looking at this document, it is easy to see how Compass is dominating high-end recruiting. Just to be on a 90/10 split for an agent who might do, let’s say, $3 million in GCI, means only $300K for the brokerage. Just the Incentives listed is more than $300K.
But the critical part of the Agreement is this:
I wanted to show that as a screenshot so I’m not accused of misquoting anything. Here’s what it says:
Agent acknowledges that Agent is not entitled to the Incentives absent Agent’s election to use, at all times, Broker’s tools titled: (a) “Collections” with all of Agent’s buyers, starting on the 45-day anniversary of the Start Date, and (b) “Coming Soon” with all of Agent’s sellers, first activating all listings for 5 days internally on Compass.com only and, subsequently, 5 additional days externally on only Compass.com, as permitted by Law (which includes MLS rules). Agent may later elect in writing, without penalty, not to use such tools accordingly but Agent shall no longer be entitled to the Incentives. [Emphasis added]
Plainly put, this means that all of the above goodies and even basic terms like agent split depend on the agent putting all his or her listings into “Coming Soon” for a minimum of 10 days: 5 days within Compass alone for marketing to other Compass agents, and then 5 days on Compass.com alone for marketing to the public.
Yes, the Agreement specifically says “Coming Soon” must be used only where permitted by law, which includes MLS rules. But that’s the heart of the issue this week: that many an MLS has no rule governing Coming Soon. As we have seen over the past few weeks, there is fairly wide disagreement among MLSs on how to deal with Coming Soon. I just wrote about Austin Board of REALTORs and its opposition to MLS Policy 8.0.
Should NAR pass Policy 8.0, just about the entire section above is rendered invalid overnight.
“All of Agent’s Sellers”
Without question, the key phrase in the entire section above is “all of Agent’s sellers.” Those four words make it clear that all of this hullabaloo about clients and fiduciary relationship is so much pretext.
In an articulate criticism of MLS Policy 8.0, Emily Chenevert, ABOR’s CEO, wondered out loud whether it is the MLS’s place to get between the agent and the client, where the client doesn’t see the value of the MLS and should be free to market his home as he sees fit. Bill Fowler of Compass in his Interview insisted that in some situations, Coming Soon is a differentiating service for sellers. And numerous agents have said all over social media, including right here on this blog, that there are clients who have valid reasons for doing a Coming Soon.
If the Governing Principles to the Compass Agreement had read something like “Agent must use “Coming Soon” with those sellers who understand the pros and cons of the program, have privacy concerns, or other extenuating circumstances, first activating those listings for 5 days internally…” then there is some basis to think that maybe the policy really is about providing flexibility to the seller.
But the way the Agreement spells things out, it is crystal clear that Compass doesn’t care about the seller in the least bit. In fact, I’m not even sure that Compass cares about the fiduciary relationship between the Agent and his or her sellers. I mean, how likely is it that every single seller of a Compass agent would benefit from “Coming Soon” that is exclusive to Compass for a minimum of 10 days?
Let’s say it is. If a 10-day exclusive were actually in the best interest of every single seller, then Compass, as a REALTOR, has a duty to push for a blanket policy mandating a 10-day exclusive Coming Soon period for every listing taken by every REALTOR. The point of Code of Ethics is to drive each other to higher and higher standards of excellence and ethical behavior.
If the Agent doesn’t want to put every single seller’s listing into “Coming Soon”? Well, kiss hundreds of thousands of dollars, and the sweet 90/10 split, and the stock options bye bye.
Why would Compass do this? Pay out enormous amounts of money — unsustainably large amounts of money in fact — to its agents but require they embrace this one-size-fits-all “Coming Soon” program under penalty of losing everything they went to Compass for?
From Mike Delprete’s series on Compass:
It would be naive to think Compass has raised over $1.1 billion in venture capital to become just another real estate brokerage. Even adding adjacent services like mortgage doesn’t change the core economics of the broker model — bigger changes are required to justify its valuation. Compass has larger ambitions, and it’s likely that its big hairy audacious goal is to become a real estate platform. The evidence suggests the following strategy:
Build market share (listings) through aggressive agent recruitment and acquisition.
Once market share is high enough, encourage sellers to list exclusively on Compass for a period of time.
Leverage exclusive content to drive consumers to the Compass portal.
Launch a Compass platform that generates and distributes leads to agents.
With platform power, transition the role of an agent (Redfin/Purplebricks/Uber), taking a larger cut.
Does that answer your question?
The MLS preventing exclusive content is a major blow to Compass’s endgame strategy, to its BHAG, that allowed it to raise over a billion dollars. In fact, it could be a fatal blow, because without the exclusive content path to becoming a platform, what does Compass have?
How About We Cut the BS?
Brokerage stalwarts like Ken Jenny like to position the issue as one in which the MLS or NAR are looking to interfere with a brokerage’s innovation. From a recent comment he posted here:
Industry participants should be free to innovate and offer the consumer whatever strategy works for the consumer and can be implemented by the listing broker. It is not the responsibility of the utility (the MLS) or the professional Association (the NAR) to intercede with regulations that hinder [the] process [of] those marketing strategies. [Emphasis added; corrections made for clarity.]
Except that “all of Agent’s sellers” makes it clear that there is no offer to the consumer of whatever strategy works for the consumer. There is only the offer to the consumer of the strategy that works for the brokerage. There is absolutely nothing about “all of Agent’s sellers” that shows even the slightest interest in what works for the consumer. In fact, there is nothing about “all of Agent’s sellers” that shows even the slightest interest in what works for the agent as a fiduciary.
If NAR doesn’t want to do something about that, then it probably should cease existing. At a minimum, it should take two-third of the Code of Ethics, the sections entitled “Duty to Clients” and “Duty to the Public” and tear it up. Just go forth bravely into the light as a labor union for brokerages and agents, and if they happen to screw over buyers and sellers, well, not our problem! Let Congress pass a law or something!
If the MLS is going to stand by and pretend that “all of Agent’s sellers” is brokerages innovating and offering something to consumers, it too should take a long hard look at whether it needs to continue to exist.
If the brokerages want to do “Coming Soon” strategies to create competitive advantages for themselves, then how about we cut the BS about how any such strategies are about the consumer, and just be honest and transparent about what it is that they want to do?
This week is decision time. NAR and the various MLSs have to make a decision. The numerous brokers and agents who make up both NAR and the various MLSs have to make a decision. And it is a fateful decision, but one that nobody outside the industry recognizes as a fateful decision… yet.
MLS Policy 8.0 is deeply flawed; I’m not a fan. But I am even less of a fan of doing nothing.
“All of Agent’s sellers” puts the lie to the various excuses offered up that Coming Soon is really about client service. A “Coming Soon” strategy that is about the seller would never be a blanket one-size-fits-all policy, but one that makes certain that the seller is well-informed and is voluntarily choosing the strategy fully aware of the risks and rewards involved.
Similarly, whatever the leaders gathered in San Francisco decide to do, they should do so as well-informed as possible, voluntarily choosing whatever strategy they want fully aware of the risks and rewards involved. Doing something, doing nothing, kicking the can down the road — all of these will be fateful decisions for the industry going forward.
I just hope whatever they decide is based on truth and transparency.
UPDATE: Response from Compass
Compass reached out to me shortly after publication, and I had a phone call as well as email exchanges with a Compass Spokesperson.
Original email from Compass Spokesperson:
See below for responses to the questions we just discussed. Below are all able to be quoted as attributed to a Compass Spokesperson.
- No incentives were ever taken back from any agent and not a single agent ever performed all the actions mentioned in the excerpt you cited.
- That is not Robert’s wet signature, it’s an automated signature
- The idea to put in this in select ICAs with incentives came from our agents and only in the ICA for less than 8 months and has been voided retroactively ever since we took it out.
- Additionally, in October of 2018, we introduced language to www.compassterms.com
regarding preventing agents from using Coming Soon in any manner that would disadvantage their clients. Excerpt below.
In order to advertise a listing as a Coming Soon Listing, the listing must be: (i) eligible under the applicable Laws, (ii) your exclusive listing subject to a Compass exclusive listings agreement, and (iii) featured as a Coming Soon Listing only where such is in the owner’s best interests and only in the owner’s absolute discretion. It is strictly prohibited under Compass policy to use Coming Soon Listings as a mechanism to receive both commissions for both sides of a transaction.
I would like to point out here that I received a newer ICA from Compass as well, with clearance from Compass Legal to excerpt the relevant part, which reads as follows:
Agent acknowledges that Agent is not entitled to the Incentives absent Agent’s election to use, at all times, Broker’s tools titled: (a) “Collections” with all of Agent’s buyers, starting on the 45-day anniversary of the Start Date, and (b) “Coming Soon” with all of Agent’s sellers, so long as it is in the absolute best interest of such sellers, first activating all listings for 5 days internally on Compass.com only and, subsequently, 5 additional days externally on only Compass.com, as permitted by Law (which includes MLS rules). Agent may later elect in writing, without penalty, not to use such tools accordingly but Agent shall no longer be entitled to the Incentives. [Emphasis added to highlight difference from the ICA above.]
I should note that the newer ICA I took this language from has a Start Date of March, 2019. So we’re talking about 4 months between the two Agreements.
My questions back to Compass, and the answers back to me:
Me: Not a single agent ever put all of his listings into Coming Soon for the 10 days required?
Compass: Not a single agent ever performed both of the actions you mentioned – used Collections with all of their buyers and put their listings as Coming Soons for 10 days.
Me: You had mentioned that Compass has never enforced the clause; my question was how many agents actually violated the clause in order for enforcement to be an issue. You said you had that information; I would like to include it.
Compass: Every agent violated the clause due to what I mentioned above – no agent used Collections with all of their buyers and put listings up as Coming Soon for 10 days. Again, to be clear, every agent violated the clause.
Me: You had mentioned that this particular ICA is (a) old, and (b) only used in certain markets, and (c) only for a short time. When did this ICA language start? When did it end? What markets were this ICA used in, and from when to when?
Compass: The language was included beginning in April 2018 and removed fully from ICAs within a year. However, the language below was introduced in October 2018 that explicitly states that Compass agents should only do a Coming Soon if it’s in the best interest of their client.
Me: I have to point out here that the ICA I have has a Start Date of Nov 2018. So if you changed the language in compassterms.com, could you explain how this ICA with a start date after 10/18 has the problematic clause? By the way, it’s kind of difficult to classify an ICA with a Start Date of 11/18 and an End Date that contemplates 2020 as “old.”
Compass: See above.
I report, you decide.
Well, actually, in this case, I also need to decide a little bit. I’m not a reporter, but an opinionated blogger, after all.
Further Thoughts, After the Clarification
I appreciate Compass reaching out to me for some corrections and clarifications. However, I now have more questions that the Compass Spokesperson did not answer.
For starters, the dates do not make a ton of sense to me. As I told Compass in the email exchange above, the ICA I used originally has a Start Date of November, 2018. If compassterms.com had changed in October of 2018, how do you explain that? Compass’s answer is that the language I cited was only in effect from April of 2018 to sometime in March of 2019; I guess this old ICA was executed during that small window. Plus, the Terms were updated in October, 2018 so agents knew that they shouldn’t do Coming Soon unless it was in the client’s best interests.
All I can say to that is, Compass might want to fire some paralegals. When you fail to update something as important as an Independent Contractor Agreement worth millions with new language from official company Terms, well, that’s a resume-generating incident.
I still have trouble wrapping my head around the idea that an agreement executed a mere four months before the new ICA is “old.” I mean, yes, it is an old agreement, as in, it was executed in the past. But the implication that the ICA I cited is old is that it was from way back in the day before Compass was more enlightened. I don’t know if 4 months counts.
Finally, the Compass Spokesperson was insistent that the reason why Compass did what it did was that it truly believes that “Coming Soon” is a positive benefit for the seller. S/he said they have studies and statistics inside Compass that shows lower days on market, higher sale price, and other benefits from pre-marketing a home before it is listed in the MLS (and therefore, the open market).
My take on that is, if that is indeed true, and Compass has the stats to prove it, then why is Compass not pushing for NAR Code of Ethics to require every REALTOR to do a mandatory 10-day Coming Soon with all sellers on all listings? Why isn’t Compass pushing the MLS to not only reject MLS Policy 8.0, but to actually mandate a 10-day Coming Soon period for all agents and all sellers everywhere?
From the NAR Code of Ethics:
In recognition and appreciation of their obligations to clients, customers, the public, and each other, REALTORS® continuously strive to become and remain informed on issues affecting real estate and, as knowledgeable professionals, they willingly share the fruit of their experience and study with others.
If 10-day Coming Soon is such a benefit to sellers, is it not reasonable to expect that Compass — a REALTOR company — would willingly share the fruit of their experience and study with others?
Those are my thoughts after the clarification by Compass. Your mileage may vary.
Every Compass Agent is In Violation? (Edit: Please see below)
The more interesting revelation, I think, is that every single Compass agent is in violation of that clause and Compass has not (yet) enforced it against anybody. Two questions come to mind.
One, why have a clause/policy/term that you’re not going to enforce? Why not just remove it altogether?
Two, unless I’m very mistaken about something, Compass has the right to enforce that clause against anybody and everybody. I don’t know that their failure to enforce means that Compass waived the right to enforce. I don’t see a non-waiver clause in the ICA so it may be that Compass’s lack of enforcement will be interpreted by a court as a waiver of that right, but I wouldn’t bet on it if I were a Compass agent.
I’m not a Compass agent, but if I were, I’d be calling my lawyer right about… now. I need to make sure that Compass won’t decide to enforce the clause against me, because I am in violation, and force me to pay back hundreds of thousands of dollars in Incentives.
Just because Compass has not yet enforced does not mean that they cannot enforce it going forward. And since the Compass Spokesperson made it very clear that every single Compass agent is in violation, I’d like a good deal more certainty if it were my millions of dollars at stake.
Update #2: Further Clarifications
I was just sent this email by a Compass Spokesperson to clarify further:
To follow up on our call:
- This language, which was initially the idea of our agents, was put in a small percentage of ICAs in April 2018.
- In October of 2018, we introduced language to www.compassterms.com regarding preventing agents from using Coming Soon in any manner that would disadvantage their clients. This was meant to clarify that Coming Soons should only be done if it’s in the best interest of the seller. The excerpt with the language is in my previous email.
- By May 2019, all of this language had been fully removed from any new ICAs.
- Only those agents who had this language in their ICA are technically not compliant with it. However, we have never enforced this provision and will not be enforcing it.
Based on this email, I must modify my conclusion.
If you are a Compass agent and you have this language about using Collections and Coming Soon in your ICA, I would contact my lawyer right about now. At a minimum, you should be seeking to update your ICA to the new one which does not have that language. But your lawyer might advise you that Compass’s email to me, which I have published here, constitutes a waiver of enforcement over that clause.
If you do not have that language, then you have nothing to worry about.
I hope that clarifies things.