Real Estate

Former Zillow CEO To Compass: ‘Beware Pitfalls Of Traditional IPO’

The real estate industry weighed in on Compass going public as Spencer Rascoff, Zillow’s former CEO, warned that an IPO could be costly for the company and its employees.

Spencer Rascoff, the co-founder of Pacaso, dot.LA, Zillow and Hotwire — and no stranger to taking a company public — is warning Compass to “beware the pitfalls of a traditional IPO.”

Spencer Rascoff | Photo credit: Twitter

As CEO, Rascoff guided Zillow — which now has a market cap of $34 billion — through its IPO. But lately, he’s become an evangelist of sorts for going public via a special purpose acquisition company (SPAC). So much so, that he founded his own SPAC earlier this summer. 

“This seems like the right time for Compass — their business is ready and the markets are hungry for proptech stocks,” Rascoff told Inman in a statement Tuesday. “But they need to beware the pitfalls of the traditional IPO — all the big, recent IPOs have been woefully underpriced and the first-day pop has left money on the table for the company and its employees.”

The Compass initial public offering (IPO) has been on the tip of the real estate industry’s collective tongue for years. So when the news finally broke Monday, that company filed confidentially the paperwork for an IPO, the reaction was a stark lack of surprise.

Real estate agents flooded the comments section of the Inman Coast to Coast Facebook group with “shocked,” GIFs, and plenty of sarcasm.

“Didn’t see that coming…..NOT!” Rich Jacobson, a Realtor with Fathom Realty, wrote on Inman Coast to Coast.

Many others struck a congratulatory tone — especially for the real estate agents that stand to benefit.

Compass’ IPO is likely to grant a windfall to the company’s executive team and its investors, but agents stand to make money from the company going public. Compass has an agent stock program, which grants real estate agents restricted stock units in exchange for a portion of their commission income.

The company made changes to its stock program in November 2019, which shortened the vesting schedule. With the new schedule, agents’ stock units will vest either in the event of an initial public offering (IPO), or when the board grants the restricted stock units in 2021.

If the agent is still with Compass when the restricted stock units are granted, they keep those stock units until they leave. When the company does officially go public, those restricted stock units can be exchanged for shares of Compass common stock.

Some also used the IPO as an opportunity to criticize the company’s big-spending past, which included a number of headline-grabbing acquisitions and accusations it paid out big signing bonuses to agents it recruited. 

“They need something to bail them out from overpaying for realtors and brokerages,” Bobby Martins, a real estate agent with eXp Realty, said on Inman Coast to Coast. “It must cost a lot to have a bunch of empty offices all over the country.”

The company’s S-1 filing is currently still confidential while its reviewed by the U.S. Securities and Exchange Commission, but when it’s made public, it will provide a rare glimpse into the finances of the company.

Investors will be looking at a number of key performance indicators [KPIs] Anthony Paolone, an executive director at JP Morgan, who covers real estate stocks, told Inman late last year. 

“[I] would suspect KPIs comparable to those of [Realogy] and would add agent count, so: agent count, units sold in period, average price of units sold in period, average brokerage commission rate, and agent commission split (fully loaded with any incentives, signing bonuses, etc.),” Paolone said. “I would want a history of these.”

Email Patrick Kearns

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