What happens when the battle for agent count runs out of steam?

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The decade after the Great Recession ushered in a new era for real estate.

And arguably the most significant change was the rise of newer, upstart brokerages, such as eXp Realty and Compass. Though brokerages rise and fall all the time, this new batch was something different: They didn’t franchise, some had the backing of venture capitalists, they used new recruiting tactics and they managed to grow their agent counts very quickly.

The result has been massively disruptive.

Earlier this year, for instance, Compass dethroned Anywhere — which owns comparatively ancient brands, such as Coldwell Banker and Century 21 — as the largest brokerage in the U.S. by sales volume. EXp was number four on that list but scored the top spot for transaction sides. Suddenly, there were new kings of the hill.

But the ground shifted in 2022. Mortgage rates spiked, sales plummeted and there was a sense that a new and more challenging chapter for real estate was beginning. And that raises an important question: What does this shifting landscape mean for real estate’s new pecking order?

To better understand what’s going on, Inman went through the publicly disclosed agent count data for Compass and eXp Realty, the two biggest insurgent brokerages, and Anywhere and Keller Williams, two of the most significant legacy firms.

Why agent count?

Most obviously, agent count growth rates are a useful way to gauge the broader rise and influence of a company. The companies that have climbed to the top of the heap have been the ones that grew their head counts the fastest.

But also, agent count has lately been one of real estate’s primary rhetorical battlegrounds. Every few days, it seems, the biggest names in real estate announce that they’ve recruited some new top producer, usually by poaching that person from a rival. Over time, these moves have grown increasingly acrimonious.

All of that means that agent count is thus both a useful measure of actual influence in real estate, as well as a way to gauge the state and intensity of the industry’s rivalries.

The battleground is drawn

We’re going to get into actual numbers below, but first it’s worth reviewing how intense the competition for talent has become.

For instance, one of the key moments in this story happened in 2019 when Anywhere — then known as Realogy — sued Compass over what it described as “unfair business practices and illegal schemes to gain market share at all costs.” Around the same time, M. Ryan Gorman — then president and CEO of Anywhere subsidiary Coldwell Banker — compared Compass’ recruitment tactics to “shoplifting.” Compass eventually countersued, and the companies settled the dispute in 2022.

Compass has also faced lawsuits, many of them related to recruiting, from the Agency, Howard Hanna, Christie’s International Real Estate and others.

Moreover, Keller Williams and eXp have a long-running rivalry that has been fueled in part by defections from the former company to the latter. That rivalry intensified this year during a battle for former Keller Williams CEO Mark Willis, who eXp wanted to hire.

All of these companies also frequently make announcements about having recruited each other’s top performers, for example, when Coldwell Banker revealed it recruited the McNair Group away from Compass. Most announcements in that genre focus on the destination brokerage, but industry observers know that the names of the brokerages losing teams or top producers are just as important.

The point here is not to rehash the last couple of years of fights over agent count but merely to reiterate that they’ve been exceedingly intense and have continued right up until the present. These fights are one of the industry’s defining conflicts in recent years.

Compass

Thanks to its rich incentive programs (which have now ended) and general aggressiveness, Compass is the gold standard for leaning into agent count growth as a means of dominating the real estate industry.

For most companies included in this piece, Inman looked at two years’ worth of data, but Compass only went public in April 2021 so its numbers here only stretch back to the first quarter of 2021. At that time, the company reported having 9,812 principal agents. In the third quarter of 2022, the company reported having 13,314 agents.

Overall, Compass’ agent count numbers show consistent growth during the last two years.

However, the graph below shows the percent change from one quarter to the next. And notably, that graph also highlights an apparent trend toward slower growth. In the most recent quarter, for example, Compass quarter-over-quarter agent count growth was 2.58 percent. But back in the first quarter of 2021, it was 8.33 percent.

There are a few potential explanations for what’s going on. The second quarter of 2022, for instance, was the moment when the housing market began to most obviously sour. And of course, as mentioned above, Compass cut its new agent cash and stock incentives during that period — suggesting that the company can add agents without such perks but perhaps not quite as many as it did in the past.

eXp Realty

The other big juggernaut of recent years is eXp Realty, the brokerage subsidiary of parent eXp World Holdings. EXp has had a less contentious relationship with other brokerages compared to Compass, but it too has seen explosive growth.

Two years ago, eXp had just over 20,000 agents worldwide. By the end of the third quarter of 2022, however, that number had grown to about 85,000.

Like Compass, eXp has seen steady growth over the years. And also like Compass up until recently, eXp offers stock-based incentives for agents to join up.

However, looking quarter by quarter, the percent by which eXp’s agent count has grown has been steadily declining for the past two years.

So for example, from the final quarter of 2020 to the first quarter of 2021, eXp’s agent count jumped nearly 22 percent. But by the third quarter of 2022, agent count rose just 2.48 percent — nearly the same growth rate Compass posted during that period.

No doubt the same market slowdown that hit Compass also impacted eXp, though it’s notable that eXp’s slowing growth rate predates the market downturn of 2022.

EXp may also be hitting a wall in terms of the number of agents interested in joining the brokerage. With 20,000 agents in 2020, eXp would have realistically been a peer of a regional brokerage, such as Howard Hanna. But with 85,000 agents, it’s competing against national players, such as Keller Williams. Which is to say, there are fewer and fewer opportunities to burst into new markets and gobble up vast numbers of agents.

Either way, eXp World Holdings CEO Glenn Sanford has not been shy about his ambitions. In early 2022, he suggested the company would end the year with 100,000 agents — which does not appear likely to have happened. Previously, he has said he wants to ultimately have as many as 250,000 agents in the U.S. and 500,000 globally.

Sanford floated the 500,000 number as a five-year target, but if the company were to maintain its current growth rate, it would likely take a decade or more to reach that goal.

Anywhere

To a large extent, the rise of upstarts like Compass and eXp has been framed against the backdrop of established legacy brands. And Anywhere is the granddaddy of the legacies.

Thanks to its numerous brands and vast global reach, Anywhere wrapped up the third quarter of 2022 with a total of 341,400 agents across its various brands. That was up from 320,700 in the fourth quarter of 2020.

Plotted quarter-by-quarter, Anywhere looks relatively static over the last two years. It’s worth noting, however, that the company agent count did climb by more than 20,000 in the period represented by that graph. That’s more agents than Compass has in total, but because Anywhere is so big the rate of growth is small.

In terms of quarter-over-quarter gains, Anywhere’s growth was uniformly slower than that of its newer rivals, and it had two quarters of negative agent count growth in the last two years. In the most recent quarter, the company grew its agent headcount by 0.95 percent.

Keller Williams

Keller Williams isn’t a publicly traded company, but it does nevertheless provide quarterly earnings reports that include agent count numbers. As of the third quarter of 2022, the company had just over 194,000 agents worldwide. That was up from just over 176,000 in the fourth quarter of 2020.

Looking at Keller Williams’ quarter-over-quarter growth, the company looks more like Anywhere than the upstarts with relatively stable gains across most quarters, in addition to one quarter of negative growth in the last two years.

From the second to the third quarter of 2022, Keller Williams grew its agent headcount by 0.89 percent. That’s down from a rate of 2.22 percent from the fourth quarter of 2020 to the first quarter of 2021.

Notably, both Keller Williams and Anywhere have recently seen a downward trend in their quarter-over-quarter growth percentages, though that trend is less pronounced than what eXp and Compass experienced.

So what does all of this mean?

One of the big takeaways is that all of these big companies have seen the growth of their agent count numbers slow in recent quarters. But the newer, traditionally faster-growing companies have seen the biggest slowdowns compared to their own previous track records.

Here are all four companies’ quarter-over-quarter agent growth rates plotted on one graph:

What immediately stands out from this graph is that all four companies appear to be converging. In other words, their growth rates are looking more and more similar. That has long been true of legacies Anywhere and Keller Williams, but now the upstarts are beginning to fall into that same growth range as well.

Does this matter?

The good news for these companies is that experts who spoke to Inman did not see slowing agent count growth as a kiss of death. For instance, Justin Ages — an analyst at Berenberg Capital Markets who researches publicly traded real estate companies — said that in the case of Compass and eXp, “they’re both approaching it correctly, but from opposite ends.”

“In this market, to thrive you need to attract and keep productive agents,” Ages said. “Compass says, ‘we have this platform.’ On the other end of the spectrum, you have eXp. They don’t have this all-in-one platform. But they say, ‘we have a bunch of different tools.’ And it’s an 80/20 split, which is definitely on the higher end of the industry.”

Ages believes Compass and eXp will “continue to be share takers” in the near future, even if their recruiting numbers aren’t as spectacular as they were in previous years. He also said that while companies, such as Anywhere have consistently clocked slower growth, they also have the advantage of already having built out their suit of ancillary services and other offerings — which acts as a selling point to agents.

The idea, then, is that Ages sees the big companies — old and new — as likely able to weather the current storm. Meanwhile, he suspects “the smaller guys” are likely to struggle and post net reductions in their agent counts.

“We think the mom and pop brokerages are the ones that are going to see the most churn,” he explained.

But slowing numbers do have a cost.

In a January report that followed an executive shakeup at eXp, analyst Tom White of financial services firm D.A. Davidson described eXp’s agent count as “somewhat stuck” in the 86,000 to 87,000 range. White also wrote that eXp was “unlikely to meaningfully exceed (and potentially slightly miss)” his fourth quarter agent count forecast. White also added that “we’re increasingly less confident in the company’s ability to meaningfully outperform agent count expectations during the current housing market downturn.”

White ultimately rated eXp’s stock a “buy” and he did not predict an overall financial underperformance. But the commentary on agent count conveyed a new sense of apparent bearishness about a company that up until recently seemed to inspire only bullishness.

John Campbell, a managing director at analytics firm Stephens Inc., told Inman that right now companies such as eXp — as well as others such as Fathom Realty that is smaller but uses a similar model — “are being graded on agent count” by investors. Such companies may also be seeing a lot of churn for lower-producing agents, though Campbell believes that over time they’ll ultimately be able to retain their best agents.

“I do think you’re going to see a cooling off of competition for top producing agents,” John Campbell, a managing director at analytics firm Stephens Inc., told Inman.

Campbell went on to argue that there are “a lot of different flavors of agents,” and that over time the big companies may stick more to their respective lanes.

“The market is going to stay competitive for lower and mid-tier agents,” Campbell added.

All of which is to say that what appears to be happening is a settling into a new normal in which disruptors of the recent past are becoming more like the companies they dethroned. Rather than an apocalypse or existential threat, current trends in agent count growth represent an emerging new equilibrium in which slower growth and potentially less-heated rivalries are the norm.

For the newer companies that hitched their wagons to the star of growth, though, there is still the matter of perception.

“I think Compass has two head winds,” real estate veteran Russ Cofano told Inman. “And headwind number one is a perception of instability. Whether right or wrong.”

How much perception matters for the day-to-day operations of a company remains up for debate, though presumably a company that projects the image of an unstoppable growth juggernaut is going to get different types of attention — and recruits — than a company that’s big but stable. And as the numbers — as well as White’s recent report about eXp’s failure to “outperform” — above suggest, it may become harder and harder for any single company to make the case that it is a standout when it comes to sustained agent count growth. That time may simply be over.

What comes next?

It remains to be seen what 2023 will look like, and certainly, the downward trends in the graphs above represent a short period of only a few quarters. It’s entirely possible that something unexpected could happen in the next 12 months and that any of these companies could experience an entirely different growth trajectory.

But barring such an outcome, Cofano said that as the “frenzy” of “everybody going after everybody else” dies down, the industry may begin to put more emphasis on the number of deals agents do rather than the total number of agents in general. In other words, companies may work on boosting the agents they have, and making sure that their existing stars rise even higher. In other words, the future may be a volume and productivity game, rather than a headcount competition.

“I’d say today,” Cofano concluded, “the key for these companies is going to be production.”

Email Jim Dalrymple II

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