Distinct brands that serve a variety of real estate market price points are required for the Compass-Anywhere merger to be effective, Michael Valdes writes.
In response to a recent Inman article regarding the Compass-Anywhere merger, I wanted to point out some things that seemed contradictory to me, particularly in the global luxury space where I have spent the past two decades.
Some have likened this possible merger to Louis Vuitton Moët Hennessy (LVMH), the French conglomerate with a luxury portfolio of 75 brands that co-exist harmoniously. One key distinction, however, is that Anywhere was never a consumer-facing brand, and real estate is vastly different in this capacity.
I am very happy wearing Dior sneakers, carrying my LV bag while I sip Moet out of Tiffany champagne flutes at the Belmond Caruso in the Amalfi Coast. All the brands work synergistically as a singular consumer. The problem occurs with large luxury brands competing for the same patron with obscured business deliverables.
Creating brand differentiation in the real estate market
Having spent 15 years at Anywhere (known as Realogy back then) as a top-level executive, one of the greatest challenges included brand differentiation from a customer point of view. How does one distinguish between an ERA and Better Homes and Gardens for a client? How do a Sotheby’s and a Corcoran agent in top-tier luxury cities across the nation show their value uniquely?
Now, aside from those two luxury brands, you add Christie’s, Coldwell Banker Global Luxury and Compass. Five brands, all owned by the same parent company, which now homogenize their overall market deliverable.
How do these five brands that have always been competitors now deal with unique value propositioning, not to mention agent recruiting across brands if they are all owned by the same entity?
The concept of a parent company owning several brands — known by the Japanese term “keiretsu,” an interconnected network of companies characterized by strong alliances and cross-shareholding, has indeed worked in various sectors because they had a distinct deliverable for the end user. Both Lamborghini and Audi, as well as Marriott and the Ritz-Carlton, are respectively owned by single parent companies, yet they serve a vastly distinct consumer base.
In my opinion, the only way this concept becomes successful in our industry is through a single-entity brokerage company with distinct brands that can serve the various price segmentations of the market.
The franchise difference
The single-entity concept is important to point out because the franchise world is new to Compass, and there are very strict contracts allowing for local autonomy for franchisees to run their businesses as they see fit.
Data integration might be a prime reason for this merger. However, Anywhere said back in 2024 with the industry commission lawsuits that franchise owners had autonomous decision-making on where they share their information.
The franchise agreement supersedes any action that the parent company can impose on the franchise agents. In my experience, of the 300,000 Anywhere agents, roughly half of those are international agents. From the remaining 150,000, there are only three brands that have company-owned stores, which are Sotheby’s, Corcoran and Coldwell Banker, totaling a little over 50,000 agents.
Combined with the existing Compass agent count, that takes the controlling agent population to under 90,000 agents. That number represents 12 percent to 15 percent of the current membership numbers of the National Association of Realtors. While still a significant number, it does not represent a majority of the agent populace.
The referral wrinkle
Some further thoughts are on cross-brand referrals. There is no synergistic reason for agents from 10 different brands to share referrals to one another. In fact, it may cause an agent to be much more territorial with their listings.
Another interesting point is that the most recognized auction houses are Sotheby’s and Christie’s. Compass will now own the eponymous real estate entities of these brands.
I lived in London for five years while expanding the European footprint of Sotheby’s International Realty. From personal experience, I can attest to the fact that it was a Herculean task to have the auction house be comfortable enough to share client referrals to the real estate side.
Auction houses are trepidatious about sharing clients with the brand. Now that both auction house real estate affiliations are owned by Compass, the trepidation has grown exponentially.
In conclusion, we are in an environment with fewer than four million transactions, the fewest in history, and consolidation is an inevitable consequence. Independent brokerages simply find it economically difficult to compete in this environment.
However, with a merger of this size that includes an inheritance of a multi-billion-dollar debt on the balance sheet and the challenges mentioned above, it will be interesting to witness the integration of this union.
It is increasingly more difficult to find the advantages of a franchise model. The days of a consumer walking into a storefront location of a franchise brand to find their new home is prehistoric. When you purchase the largest compilation of franchise companies, it’s a bit like inheriting Jurassic Park.
Michael Valdes is the Chief Executive Officer of LPT International and Global President of Aperture Global Real Estate. Connect with him on Instagram and LinkedIn.
