Residential Brokerages Show Signs of Improvement

Do you hear it too? Is it the sound of… optimism?

Residential brokerages appear to be digging their way out of the slow market with varying degrees of success, in some cases beating analysts’ expectations in the second quarter.

Compass, Douglas Elliman, Anywhere Real Estate (parent to Corcoran, Coldwell Banker, Century21 and Sotheby’s International Realty), and even Zillow suggested they have all started to turn the corner after a tough 12 months that included slashing costs by hundreds of millions of dollars.

Zillow CEO Rich Barton said that the company was “pleased with what we accomplished so far,” despite reporting more losses for the second consecutive quarter.

In what may be the splashiest of the top firms’ second quarter earnings calls, Compass said it brought in more money than it spent last quarter, marking the first time the firm has been cash-flow positive since going public two years ago. Compass’ adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, reached $30 million, up significantly from the same period last year.

CEO Robert Reffkin took the opportunity to gloat. On the company’s earnings call this week, he said his competitors are “structurally weaker” than they were before as Compass grows its market share.

Still, Compass posted a net loss of $48 million. But it’s not as bad as it was: In the second quarter of last year, Compass reported a net loss of about $101 million. That accounted for about one fifth of its losses last year.

Elliman also appears to be losing less money than before, at least compared to the previous quarter. CEO Howard Lorber is looking forward to seeing the luxury markets where Elliman operates bounce back because those buyers are less reliant on mortgages. Elliman posted a net loss of $5.2 million, an improvement from the first quarter, but a 49 percent annual decline. Elliman’s executives pointed to low inventory, echoing Jonathan Miller’s commentary over the past year, as one reason keeping buyers on the sidelines. (Miller authors the quarterly Douglas Elliman reports.)

In terms of cost cutting, Elliman has eliminated positions, pulled back on pricey sponsorships and office space. The brokerage said it will also save money/spend less once its lease at Durst Organization’s 675 Third Avenue expires early next year.

Unlike Elliman and Compass, Anywhere reported a net income of $19 million. That’s less than it netted in the second quarter of last year, but a big improvement compared to the first quarter of this year. It brought costs down by about $50 million through layoffs and the shuttering of its iBuying business.

Anywhere’s EBITDA and revenue also fell year-over-year. In the previous quarter, Anywhere suggested that its EBITDA took a hit from legal fees tied to the landmark brokerage lawsuit that’s expected to go to trial at a later date. Anywhere is a defendant in the federal lawsuit.

Like most firms, Anywhere again felt the pain from the drop in transaction volume, mostly a result from mortgage rates more than doubling in the span of a year. Anywhere earned $1.7 billion in revenue in the second quarter, down 22 percent compared to the same period last year.

That slowdown will continue. The second quarter is typically the most profitable for residential brokerages. But the worst of it may be in the past.

“Our industry is cyclical,” Lorber of Elliman said. “And the last year has been a difficult part of the cycle.”