The residential real estate behemoth Realogy is looking to take down the sector’s fastest-growing brokerage firm.
The $7 billion parent of brands including Corcoran, Citi Habitats, Coldwell Banker, Sotheby’s International Realty, Climb Real Estate and ZipRealty, has accused seven-year-old Compass of lying, cheating and stealing its way to becoming the third biggest U.S. brokerage by sales volume.
Here, we take a look at who these firms are and where they came from, and ask one of the city’s leading residential law experts for his opinion on the suit.
Howard Rubin is a senior partner with Goetz Fizpatrick. Here’s what he said:
“The Compass business model is very different from the Realogy model – Compass doesn’t focus on acquiring brand names, just the brokers themselves and the relationships they bring.
“There are tremendous changes going on the residential brokerage industry. Some companies are trying to use technology to succeed, some are using traditional ways and some are growing through acquisition.
“There is a distinct philosophical difference between Realogy and Compass; they both see strength in size but Realogy believes in the strength of brand names while Compass sees people as the major asset. Realogy set about buying some of the best companies in the country and combining them to produce a massive breadth of resources which, in turn, makes the company attractive to brokers.
“Compass, on the other hand, doesn’t believe the companies and their brands hold the value. Compass believes the real value is in the people, the top brokers their intellectual property. They don’t see a need to acquire a company so much as acquiring its assets.
“Compass has shown that it is willing to pay more than a traditional brokerage house to acquire those assets, and evidently has the funding behind it to not be required to focus on short term profitability. If that means they are going to have to overpay them in the short term, then it is a business decision that they have the resources to fund.”
Rubin questions the reasoning behind the Realogy lawsuit, explaining, “I don’t know if any of the allegations are true or not, but assuming a judge believes everything Realogy alleges is true, the lawsuit will end up in New York Supreme Court and is likely to go on for three, four even five years.
“Realogy has not asked for any type of preliminary injunctive relief which would effectively hinder Compass in continuing with its current business strategy and now, the cow is out of the barn and they won’t see any type of relief for maybe five years as the case goes through the court or is resolved by settlement.
“Realogy is frustrated by the way Compass has aggressively gone to market but, even if they ultimately prove their allegations, the case won’t change the Compass business model or their way of doing business. Realogy may ultimately win monetary damages, but nothing will change as far as the way Compass does business.”
Rubin questions why Reaolgy didn’t attempt to join other non-related branded brokerage companies such as Douglas Elliman as plaintiffs so that it is presented as more of an industry wide issue to allege some type of racketeering action that would move faster through the federal court system instead of just making it about Realogy and its subsidiaries.
“Realogy’s timing to bring this suit is particularly bad, because of the pending allegations of price fixing against it, which is sure to be raised as motivation for the lawsuit.
“Realogy has some tremendous assets but they are seeing their market share eroded by Compass. Whether Compass is acting illegally or unethically, there is no doubt it has been successful and has grown rapidly to become the third biggest firm in the country.
“We are seeing other players, such as Berkshire Hathaway and Redfin, similarly pushing into what is currently a very tough market – all of them nipping at the heels of legacy firms like Realogy.
“Compass is betting that in today’s market, no one cares if their broker is from Corcoran, Douglas Elliman or even Compass – people are concerned about the information, price and services they are getting from their broker.
“The value of the brands which have been around for so long are not what is important to today’s home buyer and seller.