To all the agents in the house,
In January HomeSmart filed an S-1 with the Securities and Exchange Commission, a document that disclosed the Scottsdale, Arizona-based brokerage's financial performance and indicated it is going public. The public filing was no surprise. Compass went public in April, and smaller outfits including Real Brokerage now trade on Wall Street. Additionally, two iBuyers that are also registered brokerages, Opendoor and Offerpad, had gone public via the special purpose acquisition company, or SPAC, route in the past year.
Then the record screeched to a halt. HomeSmart, which has not returned messages, did not file further SEC documents except for an amended S-1 six weeks ago. Meanwhile, Side seems to have sidelined its IPO plans, and other companies with growing national presences including @properties and The Agency have told me they have no immediate plans of testing the public waters. (Keller Williams, rumored to go public since around the Spanish-American War, declined to comment about any initial public offering plans.)
I wrote an article this week exploring reasons brokerages are no longer going public. But one key reason is detailed daily on the homepages of the Wall Street Journal and here at HousingWire, where we're chronicling the declining fortunes of publicly traded mortgage companies: Stocks on the New York Stock Exchange and Nasdaq are generally in decline with no indication the trend will soon be reversed.
A more brokerage-specific reason is that real estate companies have lost any momentum that their capital, or technology, or business model will really change the industry. "For many years, everyone thought brokerage was ripe for disruption," said Gilles Duranton, real estate professor at the University of Pennsylvania. "New ventures have tried to disrupt it in all sorts of ways. But no one has really managed to make a big dent."
This is not to blame the likes of Compass or Redfin or eXp, per se. As one representative from a brokerage told me anonymously, investors might not pay attention to each brokerage's business model or even proven performance. Instead, the person said, some investors pick stocks based on the housing market's overall sentiment.
For Side, the upshot of all this is easy: Hold off on going public. For companies that are public, it's more difficult. Unable to at least now upend the brokerage industry, these companies may have to operate more responsibly. And that might be happening. Opendoor reported its first-ever profitable quarter in the first three months of 2022. And Zillow, eXp and Offerpad also reported modest profits.
In my opinion, the shakiest companies now might be Compass and Redfin, neither of which has shown an ability to operate profitably. Can these companies either raise enough money to sustain operations or function more conservatively?
Agents, let me know your thoughts, especially since I am mentioning many of the companies you hang your license with. Please email anonymously at mblake@hwmedia.com.
Sincerely,
Matthew Blake
Senior Real Estate Reporter
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