Jenny Morant has had a tough year. In Manhattan Beach, California, where she works as a real estate agent, it’s been impossible to sell a house. What’s driving the market right now? “We’re down to divorces, maybe marriages, maybe babies, and job relocation,” Morant says.
Interest rates are largely to blame: After the Fed raised rates to 5.5% in July and then held them there, the mortgage rate soared. In October, the national average for a 30-year fixed mortgage was 7.86%. In California, it was more than 8.5%. Buyers who need a mortgage don’t want to pay that kind of premium. Potential sellers are reluctant to put their houses on the market knowing that they might not be able to afford to buy a new place. Even all-cash buyers are constrained by the lack of inventory on the market.
Compass, Morant’s brokerage and the most tech-forward real estate firm in the U.S. as well as the largest by sales volume, thinks it has the answer to these challenges: artificial intelligence. Its cofounder and CEO, Robert Reffkin, has long envisioned machine learning as a transformative tool for one of the most real-world businesses there is. “For years, we’ve had a focus on AI,” he says. “Reducing the amount of steps for different stakeholders—primarily agents—is the way we measure our success. AI is making us more efficient.” Then OpenAI’s ChatGPT turbocharged that effort. “We recently launched the beta for our integration of OpenAI’s ChatGPT-4 capabilities directly into the Compass platform,” COO Greg Hart told investors in August.
In the last year, a lot of companies have been talking like Reffkin and Compass. But to date, machine learning has never helped Compass turn a profit. In 2022, it lost $601 million on $6 billion in revenue. In the first half of 2023, revenue declined 28%, though Compass has narrowed its quarterly deficits and was cash-flow positive for the first time in the second quarter. Compass’s shares, meanwhile, have tumbled from a height of $18 when it went public in April 2021 to just over $2 in late October.
This past summer, Reffkin redoubled his commitment to harnessing AI to remake realty, organizing a company-wide hackathon to develop new generative AI ideas that could help its more than 28,000 agents in nearly 500 locations enlist Compass AI—as the company calls it—for everything from marketing listings to completing the paperwork on a sale. “We asked our agents for the best ideas to integrate AI into the [Compass] platform,” Reffkin says. “We want to know what’s interesting to them.”
Industry observers, like investors, remain skeptical. “If you think about all the human activities and all the industries and all the businesses out there,” says Mike Delprete, a real estate tech strategist and scholar-in-residence at the University of Colorado Boulder, “real estate is probably last—or next to last—on the list of those that are going to be revolutionized by AI.” The business of selling houses, after all, is inherently messy, emotional, and........