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YoY shift: Lean +
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.22pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.09pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.35pp
Lean +
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+26
negatively+11
default+10
unable+8
fail+5
Positive rising
successfully+6
profitability+6
benefit+6
achieve+5
favorable+4
Risk Factors (Item 1A)
22,016 words
Item 1A. Risk Factors.
A description of the material risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, as well as the other information in this Annual Report, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below, or of additional risks and uncertainties not presently known to us or that we currently deem immaterial, could materially and adversely affect our business, financial condition and results of operations.
Risks Related to U.S. Real Estate Industry
Our success depends on general economic conditions, the health of the U.S. real estate industry, and risks generally incident to the ownership of residential real estate, and our business may be negatively impacted by economic and industry downturns, including seasonal and cyclical trends, and volatility in the residential real estate market.
Our success is impacted, directly and indirectly, by a number of factors related to general economic conditions, the health of the U.S. real estate industry, and risks generally to the ownership of residential real estate, many of which are beyond our control, including: changes in local, regional, or national economic conditions, including periods of economic growth or conditions; in the residential real estate industry; seasonal and cyclical trends in the residential real estate industry; changes in real estate market conditions; or home inventory levels; high mortgage rates and down payment requirements or other constraints on the availability of mortgage financing; low levels of consumer confidence in the economy or the residential real estate market; credit markets; actual or perceived of financial institutions; legislative, regulatory or industry changes; changes in, or uncertainty regarding, trade policy; high levels of activity; the or of consumers to enter into sale transactions; a decrease in the affordability of homes including the impact of high mortgage rates, home price appreciation, the cost and availability of home insurance, changes in tax law, and wage or wage increases that do not keep pace with inflation; population or growth (including in connection with immigration policy); and decreasing home ownership rates, demand for real estate and changing social attitudes toward home ownership. Recent changes in U.S. tariff policies, tariffs and trade tensions could global supply chains and increase the cost of housing construction and renovation. Uncertainty regarding price and asset valuations, in the capital markets, the possibility of a reduction in economic growth or a with concomitant job may cause prospective home buyers to or their decision to purchase a home to a reduction in transaction volume which, if it occurs, could have a material effect on our business, financial condition and results of operations.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
correction+3
incorrectly+3
termination+2
limitations+2
negative+2
Positive rising
exclusive+1
premier+1
better+1
strong+1
empower+1
MD&A (Item 7)
12,224 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section entitled “Note Regarding Forward—Looking Statements”. You should review the disclosure under the section entitled “Risk Factors” in this Annual Report for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
OVERVIEW
Management’s discussion and analysis of financial condition and results of operations, or MD&A, is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Annual Report and is intended to provide an understanding of our results of operations, financial condition and changes in our results of operations and financial condition. Our MD&A is organized as follows:
• Introduction. This section provides a general description of our company and its business, recent developments affecting our company, operational highlights and discussions of how seasonal factors and macroeconomic conditions may impact our results.
As our revenue is primarily driven by sales commissions, transaction fees and royalty fees, any slowdown or decrease in the total number of residential real estate sale transactions executed by real estate professionals could adversely affect our business, financial condition and results of operations. Additionally, any decrease in the number of transactions our title and escrow business closes and the number of mortgages our mortgage business originates, could further impact our business, financial condition and results of operations.
Monetary policies of the federal government and its agencies may have an adverse impact on our business, financial condition and results of operations.
The U.S. real estate market is significantly affected by the monetary policies of the federal government and its agencies, and is particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the U.S. and impacts the real estate market through its effect on mortgage interest rates. Mortgage rates remained elevated by historical standards, with the average 30-year fixed mortgage rate still in the low-6% range as of January 2026. The
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Federal Reserve Board’s summary of economic projections suggests fewer rate cuts in 2026 than in 2025, and it is also possible that the Federal Reserve Board may hold interest rates steady or may even increase rates. It is also possible that mortgage rates and the long end of the interest rate curve could remain elevated in spite of lower federal funds rates. Changes in the Federal Reserve Board’s policies and other macroeconomic factors affecting mortgage rates are beyond our control, difficult to predict, and could negatively impact the residential real estate market, which in turn could have a material adverse effect on our business, financial condition and results of operations.
High mortgage rates and tighter mortgage underwriting standards have had an adverse effect on our business, financial condition and results of operations.
High mortgage rates have contributed to inventory constraints and a decline in residential real estate home sale transaction volume by discouraging potential sellers from giving up lower existing mortgage rates and by decreasing overall housing affordability. Although inventory has increased recently, affordability and high mortgage rates continue to constrain home sale transaction volume and negatively impact our business, financial condition and results of operations.
Lower transaction volume also reduces demand for title, escrow, settlement, and mortgage services. Reduced purchase and refinance activity generally increases competition among loan originators and title agencies, putting pressure on revenue and margins in our mortgage and title agency businesses.
In addition, during the past several years, many lenders have significantly tightened their underwriting standards or added new criteria or approvals necessary to underwrite mortgages, and many alternative mortgage products have become less available in the marketplace. Underwriting standards could be changed or tightened as a result of changes in regulations, including those enacted to increase guarantee fees of federally-insured mortgages. More stringent mortgage underwriting standards generally adversely affect the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes in order to purchase new homes, which may decrease the number of real estate transactions that real estate professionals execute and that our title and escrow businesses close, and may decrease the number of mortgages that our mortgage business originates. Any of these impacts would adversely affect our business, financial condition, and results of operations.
Low home inventory levels may result in insufficient supply, which could negatively impact home sale transaction growth.
Home inventory levels have been low in certain markets and price points in recent years, which has caused more homeowners to retain their homes for longer periods of time, driving a negative impact on the volume of home sale transactions closed by real estate professionals. This lack of supply has been caused by a variety of factors outside our control, including high mortgage rates and other affordability constraints, slow new housing construction, and macroeconomic conditions. Continued low inventory levels have had and could continue to have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Business and Operations
We may be unable to successfully integrate Anywhere’s business and realize cost synergies and other anticipated benefits of the Anywhere Merger.
The success of the Anywhere Merger will depend, in part, on our ability to successfully combine and integrate the two companies and realize the cost synergies and other anticipated benefits, including innovationopportunities and operational efficiencies, from the Anywhere Merger, in a manner that does not materially disrupt existing real estate professional, broker, franchise, affiliate, customer, real estate partner, employee and other stakeholder relations nor result in decreased revenues. If we are unable to achieve the cost synergies and other anticipated benefits within the expected timeframe, or at all, our business, financial condition, results of operations and the trading price of our Class A common stock may be materially adversely affected.
The integration of the two companies may result in material challenges, including, without limitation:
• the diversion of management’s attention from ongoing business concerns and performance shortfalls at the combined business as a result of the devotion of management’s attention to the Anywhere Merger and related integration work;
• the disruption of, or loss of momentum in, ongoing businesses or inconsistencies in standards, controls, procedures and policies;
• managing a larger and more complex combined business, including a diverse portfolio of brands, a significantly expanded franchisee system, a larger title and escrow business, a relocation business, a leads business, and a title underwriter joint venture;
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• maintaining employee morale, retaining key management and other employees and the possibility that the integration process and potential organizational changes may adversely impact the ability to maintain employee relationships;
• retaining existing business and operational relationships, including but not limited to those with real estate professionals, brokers, franchisees, affiliates, customers, real estate partners, employees and other counterparties; and attracting new business and operational relationships;
• the integration process not proceeding as expected, including due to a possibility of faulty assumptions or expectations regarding the integration process or Anywhere’s operations;
• the discovery of new or expanded liabilities or costs from Anywhere;
• the ability to identify and provide change-in-control notices or otherwise avoid defaults, penalties, or other adverse contractual consequences;
• consolidating corporate, administrative and compliance infrastructures and eliminating duplicative operations;
• coordinating geographically separate organizations, including in international markets with differing business, legal and regulatory climates;
• challenges and risks associated with onboarding real estate professionals and franchisees affiliated with Anywhere onto our platform on a timely basis or at all;
• pending such onboarding, the increased complexity and risk related to the maintenance of Anywhere’s products and services;
• unanticipated issues in integrating information technology, communications and other complex systems;
• uncertainty among affiliates, partners and others with whom we do business (which may cause them to delay, defer, renegotiate or terminate business relationships); and
• unforeseen expenses, costs, liabilities or delays associated with the Anywhere Merger or the integration.
Many of these factors will be outside of our control, and any one of them could result in delays, increased costs, decreases in the amount of expected revenues or cost synergies and diversion of management’s time and energy, which could materially affect our business, financial condition, results of operations and the trading price of our Class A common stock.
In connection with the Anywhere Merger, we became a party to significant additional indebtedness, which could adversely affect our business and operations, including by decreasing our business flexibility and significantly increasing our interest expense, among other things.
In connection with the Anywhere Merger, we became a party (through our subsidiaries and as a guarantor) to the Anywhere Secured Notes and Anywhere Unsecured Notes; issued and sold $1.0 billion in aggregate principal amount of the Convertible Notes; executed a performance guarantee for the Apple Ridge securitization program; and continue to be subject to the 2025 Revolving Credit Facility and Concierge Facility. Additionally, lender commitments for the 2025 Revolving Credit Facility, which is secured by substantially all of our assets and our subsidiary guarantors, automatically increased to $0.5 billion upon consummation of the Anywhere Merger. We may also incur additional indebtedness to meet future financing needs.
As a result, we have substantially increased indebtedness following completion of the Anywhere Merger in comparison to our historical levels, which could have the effect, among other things, of:
• reducing our flexibility to respond to changing business and economic conditions;
• increasing our vulnerability to adverse economic and industry conditions;
• limiting our ability to obtain additional financing;
• requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;
• limiting our flexibility to plan for, or react to, changes in our business; and
• placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
Our interest expense has significantly increased in connection with such indebtedness. If we do not achieve the cost synergies and other anticipated benefits from the Anywhere Merger, if the financial performance of the combined company
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does not meet current expectations, or if our business does not otherwise generate sufficient funds, then our ability to comply with the financial covenant under the 2025 Revolving Credit Facility, service our indebtedness, or satisfy our other cash needs may be adversely impacted, any of which may have a material adverse impact on our financial condition and results of operations.
Additionally, our debt agreements contain, and any future agreement relating to additional indebtedness which we may enter into may contain, various affirmative covenants, such as financial statement reporting requirements, negative covenants, and financial covenants applicable to us and our restricted subsidiaries. The negative covenants include restrictions that, among other things, restrict our and our subsidiaries’ ability to incur liens and indebtedness, make loans, advances or other investments, declare dividends, dispose of, transfer or sell assets, make stock repurchases, repay junior or contractually subordinated debt and consummate certain other matters, all subject to certain exceptions. The ability of the combined company and its subsidiaries to comply with these provisions may be affected by events beyond its control. In certain cases, we may be required to repay all of the relevant debt immediately and the occurrence of such an event may have an adverse impact on our financial condition and results of operations.
An event of default under our 2025 Revolving Credit Facility or the indentures governing our other material indebtedness would adversely affect our operations and our ability to satisfy obligations under our indebtedness.
If we are unable to comply with the Total Net Leverage Ratio covenant under the 2025 Revolving Credit Facility (as defined in the underlying agreement) or if we are unable to comply with other restrictive covenants under that agreement or the indentures governing the Anywhere Secured Notes and Anywhere Unsecured Notes and we fail to remedy or avoid a default as permitted under the applicable debt arrangement, there would be an “event of default” under such arrangement.
Other events of default include, without limitation, nonpayment of principal or interest, material misrepresentations, insolvency, bankruptcy, certain material judgments, change of control, and cross-events of default on material indebtedness as well as, under the 2025 Revolving Credit Facility, failure to obtain an unqualified audit opinion by 90 days after the end of any fiscal year. Upon the occurrence of an event of default under the 2025 Revolving Credit Facility, the lenders will not be required to lend any additional amounts to us, could elect to declare all borrowings outstanding, together with accrued interest and fees, to be immediately due and payable and may prevent us from making payments on the Anywhere Secured Notes, Anywhere Unsecured Notes and Convertible Notes, any of which could result in an event of default under the indentures governing such notes or our securitization programs.
If we were unable to repay the amounts outstanding under our 2025 Revolving Credit Facility, the lenders and holders of such debt could proceed against the collateral granted to secure those debt arrangements. We have pledged a significant portion of our assets as collateral to secure such indebtedness. If the lenders under those debt arrangements accelerate the repayment of borrowings, we may not have sufficient assets to repay the 2025 Revolving Credit Facility and our other indebtedness or be able to borrow sufficient funds to refinance or restructure such indebtedness.
Upon the occurrence of an event of default under the indentures governing our Convertible Notes, Anywhere Secured Notes and Anywhere Unsecured Notes, the trustee or holders of 25% of the outstanding applicable notes could elect to declare the principal of, premium, if any, and accrued but unpaid interest on such notes to be due and payable. Any of the foregoing would have a material adverse effect on our business, financial condition and results of operations.
We may need to raise additional capital to continue to grow our business, and we may not be able to raise additional capital on terms acceptable to us, or at all.
Growing and operating our business, including by continuously innovating, improving, and expanding our platform, expanding our integrated services and expanding into new markets, may require significant cash outlays, liquidity reserves, and capital expenditures. If cash on hand, cash generated from operations, supplemented by funds available under our 2025 Revolving Credit Facility and securitization facilities, and cash equivalents and investment balances are not sufficient to meet our cash and liquidity needs, we may need to seek additional capital, and we may not be able to raise the necessary cash on terms acceptable to us, or at all. Likewise, we may not be able to refinance or restructure any of our existing debt on terms as favorable as those of currently outstanding debt, or at all. Financing arrangements we pursue or assume may require us to grant certain rights, take certain actions, or agree to certain restrictions that could negatively impact our business. If additional capital is not available to us on terms acceptable to us or at all, we may need to modify our business plans, which would harm our ability to grow our operations. Refinancing or restructuring debt at a higher cost would affect our operating results. We could also issue public or private placements of our common stock or preferred stock or additional convertible notes, any of which could, among other things, dilute our current stockholders and materially and adversely affect the market price of our common stock.
We might not be able to recruit and retain real estate professionals at the same rate as in the past, which could adversely affect our and the combined company’s business, financial condition and results of operations.
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Uncertainties associated with the Anywhere Merger, including but not limited to issues related to the actual or perceived difficulty of integration or desire not to become associated with the combined company, may cause real estate professionals recruitment and retention rates to decline. Furthermore, we may be required to incur additional costs to retain real estate professionals at our owned-brokerage, potentially by offering them compensation arrangements on terms that are less favorable to us. As a result, we may experience a decline in gross sales commissions that we generate or we may not generate anticipated gross sales commissions on the expected timeframe, which could adversely affect our business, financial condition and results of operations. Likewise, our franchisees could experience similar issues, which could result in a decrease in royalty fees received by us, negatively affect franchisees’ perception of our value proposition, limit our ability to expand our franchise network, or require us to offer more advantageous financial arrangements to attract and retain franchisees. Any of the foregoing could adversely affect our business, financial condition and results of operations.
Regulatory authorities and private parties may continue to review the Anywhere Merger, and any challenges and resulting actions could adversely affect our business.
Although the Anywhere Merger has been completed, applicable U.S. authorities or any state attorney general could take any action under antitrust or other applicable regulatory laws as they deem necessary or desirable in the public interest, which may include inquiries, investigations, or enforcement actions that could potentially result in conditions, restrictions, or required divestitures, as well as increased compliance costs or operational limitations. Private parties may also challenge the Anywhere Merger under applicable laws. Any of these actions could negatively impact our business, financial condition, or results of operations.
Ongoing industry antitrust class action litigation (including the antitrust lawsuits filed against us and Anywhere) or any related regulatory activities could result in additional meaningful industry-wide changes, and the recent changes and/or any additional meaningful changes could have a materially adverse effect on our business, operations, financial condition and results of operations.
The ongoing industry antitrust class action litigation, as well as the Antitrust Lawsuits filed against us (as described in more detail in Note 11 to our consolidated financial statements included elsewhere in this Annual Report) and Anywhere (as described in more detail under “ – Item 3. Legal Proceedings”), either alone or in combination with related regulatory or governmental actions and including any injunctive relief, appeals or settlements, or any resulting changes to competitive dynamics or consumer preferences, has resulted in certain industry-wide changes and could result in additional meaningful industry-wide changes, including changes to the broker commission structure and meaningful decreases in the average broker commission rate (including the average buy-side commission rate), the share of royalties we receive from our franchisees, or the percentage of home buyers or home sellers using a real estate professional in their real estate transactions. Such changes could have a materially adverse effect on our business, operations, financial condition and results of operations.
Any determination by the DOJ or FTC, their state counterparts, state or federal courts, or other governmental bodies that any industry practices have anti-competitive effects could lead to industry investigations, enforcement actions, changes in legislation, regulations, interpretations or regulatory guidance or other legislative or regulatory action or other actions, any of which could potentially result in additional limitations or restrictions on our business, cause material disruption to our business, result in judgments, settlements, penalties or fines (which may be material), or otherwise have a direct or indirect materially adverse effect on our business, financial condition and results of operations.
Any decrease in our gross commission income or the percentage of commissions that we or our franchisees collect may harm our business, financial condition and results of operations.
The success of our owned-brokerage business depends upon real estate professionals at our owned-brokerage generating gross commission income. Similarly royalties from our franchisees are based on a percentage of the franchisee’s gross sales commissions. Recent industry antitrust class action litigation reinforced the fact that commission rates are negotiable. Other factors could also result in changes to customary commission rates and/or the percentage of home buyers or home sellers using a real estate professional in their home sale transaction, including recent industry-wide practice changes or changes in consumer preferences. Additionally, real estate professionals at our owned-brokerage may be paid a higher proportion of the commission earned on a home sale transaction or the level of commission income we receive from a home sale transaction may be otherwise reduced. Any decrease in commission rates or our share of gross commission income could adversely impact our business, financial condition, and results of operations.
Our franchisees face similar risks, and any decline in gross commission income or in the percentage of commissions they are able to collect would generally result in a decline in our royalty revenues, which could be material. Additionally, such declines could negatively affect current or potential franchisees’ perception of our value proposition, which in turn could limit our ability to expand our franchisee network or require us to offer more advantageous financial arrangements to attract and retain franchisees.
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In addition, we collect fees from real estate professionals at our owned-brokerage and from our franchisees for use of our technology offerings and other services. If industry conditions change, such that other platforms offer similar technologies to ours at a lower price or for free, or the services we provide become less valuable, we may be forced to lower our fees, and our business, financial condition, and results of operations may be adversely impacted.
Our franchise business increased significantly as a result of the Anywhere Merger, and our future financial results are expected to be materially impacted by the operating results of our franchisees and the terms of our arrangements with them.
The Anywhere Merger substantially increased the scale of our franchise business, and going forward, our financial results are expected to be materially influenced by the operational and financial performance of our franchisees, particularly our largest franchisees. If industry trends or broader economic conditions weaken or fail to improve, or if one or more of our top-performing franchisees becomes less competitive, experiences financial distress, or elects to leave our franchise system, our royalty revenues could decline, which may materially and adversely affect our revenues and profitability.
The franchise model also exposes us to risks related to franchisee liquidity, terminations, and non-renewals. From time to time, Anywhere had to increase its bad debt and note reserves and record impairment charges related to funding provided to eligible franchisees, as well as terminated franchises that failed to meet payment obligations. We may face similar circumstances, including with respect to our largest franchisees. Any such actions could adversely affect the applicable brand and materially impact our financial results.
In addition, consolidation among Anywhere’s largest franchisees previously created challenges in renewing or negotiating franchise agreements on favorable terms, which negatively affected Anywhere’s royalty revenue. We may encounter similar pressures. Increased concentration among franchisees could further exacerbate the risks described above.
Moreover, the ownership model for some larger franchisees has shifted to control by private investor groups that are more likely to have a higher proportion of debt and may have different priorities than historic franchisee owners, which increases franchisee liquidity, termination and non-renewal risks and the risk that we may have to impair some or all of the conversion notes we have extended or may extend to these franchisees, which could materially adversely affect our financial results.
We must carefully manage our expense structure and a failure to do so could have a material adverse effect on our business.
The real estate market has experienced high interest rates followed by a material decrease in the number of real estate transactions. To date, we have managed our cash and expenses in light of these and other challenging market conditions through reductions in force, changes to our spending approval processes, adjustments to our sales incentives and sales teams, and otherwise by pivoting our focus from growth to profitability and cash flow.
In connection with the Anywhere Merger, we have incurred and expect to continue to incur substantial costs, including non-recurring expenses such as employee retention and severance, heightened advisor fees, and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs, including with respect to medical and other employee benefits. The elimination of duplicative costs across the combined business, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs, the combined company may be more difficult and costly to manage than expected and, we may not achieve a net benefit in the near term, or at all. The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on our business, financial condition and results of operations.
In addition, although we expect to continue to make future investments in the development and expansion of our business, we expect to undertake further initiatives to restructure our operations to improve operational efficiency. There are one-time restructuring costs and negative impacts on sales growth and company operations relating to restructurings. We may be unable to successfully implement our cost savings strategies as much as is necessary given market conditions. Achieving meaningful cost savings on the required timeline involves operational risks and we may experience disruptions to our business, which may be material, in connection with our implementation of such strategies. If we are unable to execute these initiatives effectively, or if savings are delayed, smaller than expected, or offset by inflationary or market pressures, our profitability, cash flow, and ability to invest in growth, innovation, and integration efforts may be adversely impacted. In addition, gaining additional efficiencies may become increasingly difficult over time.
Moreover, since we were founded, we have incurred net losses and have had an accumulated deficit, and may continue to do so, for a number of reasons, including: declines in U.S. residential real estate transaction volumes; changes in general economic conditions; changes in real estate market conditions; expansion into new markets for which we typically incur significant losses immediately following entry; increased competition; increased costs to attract and retain real estate professionals at our owned-brokerage; increased costs related to the expansion of our franchise business; increased costs to
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hire additional personnel to support our overall growth, for research and development, and for sales and marketing; changes to the customary commission rates; changes in our fee structure or rates; inefficiencies in our technology and business model; failure to execute our growth strategies; and unforeseen expenses, difficulties, complications and delays. Any or all of the foregoing may cause a material adverse effect on our business. Further, there can be no assurance that our strategic initiatives and cost savings efforts will result in sustained levels of profitability and positive cash flows that we intend or at all.
Because a material portion of our business is concentrated in certain geographic areas and high-end markets, any adverse economic, real estate or business conditions in these geographic areas and/or impacting high-end markets could have a material adverse effect on our operating results.
A material portion of our real estate brokerage offices and real estate professionals are concentrated in certain geographic areas. Local and regional real estate and economic conditions could differ materially from conditions in other parts of the U.S. While overall the U.S. real estate market could be performing well, a downturn in a geographic area where we have a material presence could result in a decline in our revenue and could have a material adverse effect on our operating results.
Additionally, a material portion of our real estate transactions takes place in high-end geographies. Any downturn in high-end geographies could result in a decline in our revenue and could have a material adverse effect on our operating results. Further, if there is a downturn in high-end geographies, real estate professionals may shift to transactions involving middle and lower range home prices, which, absent a sufficient increase in the number of transactions, could result in a decline in our revenue and could have a material adverse effect on our operating results.
Moreover, we also have relationships with developers in select major cities (in particular, New York City) to provide marketing and brokerage services in new developments. The irregular volume and timing of new development closings may contribute to uneven financial results and deceleration in the building of new housing may result in lower unit sales in the new development market, which has previously had a material adverse effect on Anywhere’s profitability.
If we fail to continuously innovate, improve and expand our technology offerings to create value for real estate professionals and their clients, our business, financial condition and results of operations could be adversely affected.
Our success depends on our ability to continuously innovate and improve our technology offerings, including our proprietary technology platform, to provide value to real estate professionals and their clients. As a result, we have invested significant resources, and plan to continue to invest, though to a lesser degree, additional resources, in research and development to improve and maintain our technology offerings, including our proprietary technology platform, and support our technology infrastructure, which allows us to provide an expanded suite of technology offerings that we believe differentiate us from our competitors. There can be no guarantee that we can continue to launch new products and services in a timely manner, or at all, and even if we do, they might not be utilized by the real estate professionals at the rate we expect. While we believe our investments help real estate professionals succeed, there can be no guarantee that we will retain real estate professionals at our owned-brokerage and our franchises, nor that our investments will drive increased productivity for the real estate professionals.
Additionally, at times, we expand our technology offerings by acquiring value-add real estate technology companies. While we think these strategic acquisitions expand our capabilities into critical components of the transaction, real estate professionals may not value these additions and may not utilize them at the rate we expect.
Our continued growth depends on our ability to attract highly-qualified real estate professionals at our owned-brokerage and expand our network of franchises, to retain them and to help them expand their businesses by utilizing our technology offerings. If we do not expand our technology offerings in the way that creates value for real estate professionals, it could result in our inability to attract and retain real estate professionals at our owned-brokerage and to retain and expand our network of franchises, any of which could adversely affect our business, financial condition and results of operations.
AI and AI-related technologies could lead to changes in the real estate industry and present various operational, reputational and compliance risks. If we fail to adapt to the changes in a timely and effective manner or any of such risks materialize in a material way, our business and results of operations may be adversely affected.
Rapid adoption and development of AI and AI-related technologies, and technologies using AI (“AI technologies”) could lead to changes in the real estate industry and alter the way consumers search for, buy or sell homes. The adoption of AI technologies within the real estate industry has introduced, and will likely continue to introduce, increased risk of disintermediation, as future AI technologies might be able to provide direct access to information or capabilities that currently require assistance of real estate professionals. If AI technologies enable consumers to search for, buy or sell homes independently, the demand for full-service real estate professionals or the cost of delivering their services could decline. Additionally, if our competitors or new market entrants deploy AI technologies more quickly, more effectively or at a lower cost, gain or leverage superior access to AI technologies or achieve higher acceptance of their AI technologies,
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our competitive advantage may be adversely affected. To be successful and remain competitive, we must be able to adapt to changes in a timely and effective manner, and if we fail to do so, our business and results of operations may be adversely affected.
We have integrated, and plan to continue to integrate, AI technologies in our business, including, but not limited to, a number of tools and features available on our platform, and AI technologies may become more important to our business over time. There can be no assurance that we will realize the desired or anticipated benefits from AI technology.
The use and integration of AI technologies involves complexities and requires specialized expertise. We may not be able to attract and retain top talent to support our AI initiatives and maintain our systems and infrastructure. Any disruption or failure in our systems or infrastructure could result in delays and operational challenges. Additionally, as AI technologies continue to improve in the future, we may be required to make significant capital expenditures in order to remain competitive, which may increase our overall expenses. Our use of AI technologies might also expand our cybersecurity attack surface and heighten the risk of data breaches or misuse of sensitive information. AI algorithms are currently known to sometimes produce unexpected results and behave in unpredictable ways (e.g., “hallucinatory behavior”) that might generate irrelevant, nonsensical, deficient or factually incorrect content. Additionally, content, analyses or recommendations generated by AI technologies might be found to be biased, discriminatory or harmful, might present ethical concerns and might violate current and future laws and regulations. We integrate AI technologies of third parties and we are dependent in part on the manner in which those third parties develop them. We have limited visibility into how these third‑party models are trained, the integrity of their underlying datasets, or the adequacy of embedded controls. Failures or changes in these systems, including errors, unreliable performance, or changes to terms of use, could adversely affect our AI technologies. We expect that the use of AI technologies will be subject to additional laws and regulations in the future, which might be burdensome for us to comply with and may limit our ability to use AI technologies in our business. If any of the foregoing operational, reputational and compliance risks were to materialize in a material way, our business and results of operations may be adversely affected.
Our efforts to expand our operations, including our owned-brokerage, our franchise business and integrated services, and to offer additional integrated services may not be successful.
We have grown our owned-brokerage business rapidly since our inception. We plan to continue our expansion of our owned-brokerage business and our franchise business; however, there is no guarantee that we will be successful or will expand at the rate we anticipate, or at all.
Additionally, we continue to expand our integrated services, which include title and escrow, relocation and title underwriting and mortgage joint ventures. We think that the synergies between these integrated services and our owned-brokerage and franchise business increase transparency and deliver a more integrated closing process for the clients of real estate professionals at our owned-brokerage. However, currently, our integrated services are available only in certain markets. If we are unsuccessful in expanding these services into other markets, then we may not realize the expected benefits (including anticipated revenue), which could adversely affect our business, financial condition and results of operations. Similarly, if real estate professionals and franchisees do not recommend our integrated services to their clients, then our revenue from integrated services will not grow as quickly as we expect. While we plan to continue to expand our integrated services to other offerings, there is no guarantee that we will do so or be successful, and even if we do, the expansions might be at a slower pace than we anticipate.
We may not realize the expected benefits from our existing or future joint ventures, including our mortgage business and title insurance underwriter.
We may not realize the expected benefits from our mortgage business or our title insurance underwriter joint venture, which will depend, in part, on the successful partnership between us and our joint venture partners and the successful day-to-day operation of the businesses. The services which our joint venture partners are engaged to provide may deteriorate and cause us to make alternative arrangements. Further, in the event of disagreements with our joint venture partners, we may not be able to resolve such disagreements in our favor, which could have a material adverse effect on the applicable business. In addition, improper actions taking place at our joint ventures may lead to direct claimsagainst us based on theories of vicarious liability, negligence, joint operations and joint employer liability, which, if determined adversely, could increase costs, negatively impact our reputation and subject us to liability for their actions. Also, our joint ventures are subject to many of the same factors that affect our other businesses, including: regulatory changes; changes in mortgage underwriting standards; high mortgage rates; changes in real estate market conditions; changes in consumer trends; competition; decreases in operating margins; and changes in economic conditions. Any of the foregoing could have an adverse impact on the results of operations and financial condition of our joint ventures, which could result in us not being able to realize the expected benefits from such joint ventures.
We operate in highly competitive markets and we may be unable to compete successfullyagainst competitors.
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We operate in a competitive and fragmented industry, and we expect competition to continue to increase. We believe that our ability to compete depends upon many factors, including, but not limited to, our ability to attract and retain real estate professionals at our owned-brokerage; our ability to expand our franchise business; our ability to achieve and maintain acceptance of our technology platform; our ability to integrate AI technologies into our platform; the attractiveness of our integrated services; our ability to attract top talent to support our business model; and our brand strength relative to our competitors.
We face competition locally, regionally, nationally and in select international markets from traditional real estate brokerage firms, real estate technology companies, including a growing number of Internet-based brokerages and others who operate with a variety of business models, some of which offer alternatives to full-service real estate professionals (such as direct-buyer companies also known as iBuyers, corporate-to-consumer models, and flat fee or low commission discounters), listing portals and new entrants, particularly companies offering point solutions and companies that might leverage AI technologies. Some of our competitors could have significant competitive advantages, including better name recognition, greater resources, lower cost of funds and access to additional capital, more product and service offerings, ability to integrate AI technologies into their products more successfully and higher risk tolerances or different risk assessments. If we are not able to compete successfullyagainst competitors, our business, financial condition and results of operations could be adversely affected.
Our ability to recruit real estate professionals at our owned-brokerage and expand our network of franchisees depends on the strength of our reputation and reputation of our brands.
We believe that we have developed a strong reputation for helping real estate professionals succeed on the basis of the technological sophistication of our technology offerings and our ability to offer a wide range of high-quality services. General awareness and the perceived quality and differentiation of our technology offerings, including our platform, are important aspects of our efforts to attract and retain real estate professionals at our owned-brokerage and retain and expand our network of franchisees. In addition, our actions and growth are frequently reported in national and regional trade publications and other media, and media coverage of our business can be critical, and may not be fair or accurate. Our reputation may be harmed due to adverse media coverage related to our actions, the actions of real estate professionals at our owned-brokerage and our franchises, or other events, which may cause our ability to attract and retain real estate professionals and franchisees to suffer.
We rely on real estate professionals and our franchisees to protect and maintain the quality of our brands, as well as on the owners of the brands that we license to protect and maintain the quality of such brands. While we try to ensure that our brands’ quality is maintained by such persons and entities, there is no guarantee that they will not take action that may hurt the quality and/or value of the brands and/or our reputation.
If we are unable to maintain or enhance real estate professional awareness of our business, or if our reputation and/or brands’ quality is damaged in a given market, nationally or internationally, our business, financial condition, and results of operations could be adversely affected.
Our quarterly results and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.
Our results of operations have fluctuated in the past and are likely to fluctuate significantly from quarter-to-quarter and year-to-year in the future for a variety of reasons, many of which are outside of our control and difficult to predict. Factors that can influence our results of operations, include: changes in real estate market conditions; our ability to attract and retain real estate professionals at our owned-brokerage; our ability to maintain and expand our franchise business; our ability to continuously innovate, improve, and expand our technology offerings, including our proprietary platform; our ability to successfully integrate acquired businesses; the impact of such acquisitions on our financial presentation, including the lack of comparability of our results of operations for periods following the acquisition with those for periods prior to the acquisition; changes in mortgage rates; changes in mortgage underwriting standards; the actions of our competitors; costs and expenses related to strategic acquisitions, partnerships, and joint ventures; increases in and timing of operating expenses that we may incur to grow and expand our operations and to remain competitive; changes in the legislative, regulatory and industry environment; system failures or outages; actual or perceived breaches of security or privacy, and the costs associated with preventing, responding to, or remediating any such outages or breaches; adverse judgments, settlements, or other litigation-related costs and the fees associated with investigating and defendingclaims; the overall tax rate for our business; the impact of any changes in tax laws or judicial or regulatory interpretations of tax laws, which are recorded in the period such laws are enacted or interpretations are issued and may significantly affect the effective tax rate of that period; the application of new or changing financial accounting standards or practices; changes in labor-related costs, including the costs of medical and other employee health and welfare benefits; and changes in regional, national or international business or macroeconomic conditions.
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Because our results of operations are tied to certain key business metrics and non-GAAP financial measures that have fluctuated in the past and are likely to fluctuate in the future, our historical performance, including from recent quarters or years, may not be a meaningful indicator of future performance and period-to-period comparisons may not be meaningful. As such, reliance should not be placed upon our historical results of operations as indicators of future performance.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel, could harm our business.
Our success depends upon the continued service of our senior management team, including Robert Reffkin, our founder, Chairman and Chief Executive Officer. Our success also depends on our ability to manage effective transitions when management team members pursue other opportunities. In addition, our business depends on our ability to continue to attract, motivate, and retain a large number of skilled employees across our company. The loss of key engineering, product development, operations, marketing, sales and support, finance and legal personnel could also adversely affect our ability to build on the efforts such individuals have undertaken and to execute our business plan, and we may not be able to find adequate replacements.
We face intense competition for qualified individuals from numerous real estate, software and other technology companies. To attract and retain key personnel, we incur significant costs, including salaries and benefits and equity incentives. Even so, these measures may not be enough to attract and retain the personnel we require to operate our business effectively, and the inability to sufficiently attract and retain required personnel could have a material adverse effect on our results of operations and business. These risks may be exacerbated by uncertainties and potential disruptions related to our ongoing integration efforts following the Anywhere Merger, and the loss of management and other key personnel could diminish the anticipated benefits of the Anywhere Merger.
Actions by real estate professionals, or by our employees or franchisees, could adversely affect our reputation and subject us to liability.
Our success depends on the performance of real estate professionals at our owned-brokerage, employees, and franchisees. Although real estate professionals are independent contractors, if they were to provide lower quality services to their clients, our image and reputation could be adversely affected. In addition, if real estate professionals at our owned-brokerage make fraudulentclaims about properties they show, their transactions lead to allegations of errors or omissions, they violate certain regulations, including, among others, the TCPA, RESPA, and employment laws applicable to the management of their own employees, or they engage in self-dealing or do not discloseconflicts of interest to their clients, we could be subject to litigation and regulatory claims which, if adversely determined, could adversely affect our business, financial condition and results of operations. Further, we do not exercise control over the day-to-day operations of our franchisees and they operate independently from us. Negligent or improper actions involving our franchisees could lead to direct claimsagainst us based on theories of vicarious liability, negligence, joint operations and joint employer liability which, if determined adversely, could increase costs and subject us to incremental liability for their actions. If our franchisees do not operate their businesses in accordance with our or industry standards, it could adversely impact our reputation. Similarly, we are subject to risks of loss or reputational harm in the event that any of our employees violate applicable laws. In addition, we may be subject to the consequences of fraud, bribery, or misconduct by real estate professionals, our franchisees, or other third-party vendors or partners with whom we do business (and any of their employees), which could result in significant financial or reputational harm. The actions of such persons are beyond our control.
If acquisitions are not successfully completed or integrated into our existing operations, our business, financial condition, or results of operations may be adversely affected.
From time to time, we evaluate a wide array of potential strategic opportunities, including acquisitions and “acqui-hires” of businesses in new geographies. We sometimes engage in acquisitions of brokerage businesses to provide us with greater access to a given market. At times, we may also look to acquisitions to provide us with additional technology to further enhance our technology offerings and accelerate our ability to offer new products or to expand our integrated services offerings.
Any of the foregoing strategic acquisitions could be material to our financial condition and results of operations, but there can be no guarantee that they will result in the intended benefits to our business, and we may not successfully evaluate or utilize the acquired real estate professionals, businesses, products, or technology, or accurately forecast the financial impact of a strategic acquisition. We may discover liabilities or deficiencies associated with the companies or assets we acquire that were not identified in advance or for which we are not adequately indemnified by sellers, which may result in significant unanticipated costs. The effectiveness of our due diligence review and our ability to evaluate the results of such due diligence are dependent upon the accuracy and completeness of statements and disclosures made or actions taken by the companies we acquire or their representatives, as well as the limited amount of time in which acquisitions are executed.
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In addition, integrating an acquired company, business, or technology is risky and may result in unforeseen operating difficulties and expenditures, particularly in new markets or with respect to new integrated services, and we have experienced these difficulties and expenditures in connection with certain of our previous acquisitions. Moreover, the integration of acquisitions requires significant time and resources, and we may not manage these processes successfully. We continue to make investments of resources to support our acquisitions, which we expect will result in significant ongoing operating expenses and may divert resources and management attention from other areas of our business.
Our failure to successfully integrate the companies we acquire and address risks or other problems encountered in connection with our past or future strategic acquisitions could cause us to fail to realize the anticipated benefits of such strategic acquisitions, including anticipated synergies and cost savings, incur unanticipated liabilities, and harm our business, financial condition, and results of operations. In addition, strategic acquisitions may require us to issue additional equity securities, spend a substantial portion of our available cash, or incur debt and liabilities, amortize expenses related to intangible assets, or incur write-offs of goodwill. Any of the foregoing could adversely affect our business, financial condition, and results of operations and could result in dilution to our stockholders.
We may not be able to maintain or establish relationships with MLSs and third-party listing providers, which could limit the information we are able to provide to real estate professionals and real estate professionals’ clients.
Our ability to attract real estate professionals at our owned-brokerage and to appeal to their clients depends upon our ability to provide a robust number of listings. To provide these listings in our services, in addition to the information provided by real estate professionals at our owned-brokerage, we maintain relationships with MLSs and other third-party listing providers. Certain of our agreements with real estate listing providers are short-term agreements that may be terminated with limited notice. The loss of our existing relationships with these parties, changes to our rights to use listing data, or an inability to continue to add new listing providers may cause our listing data to omit information important to real estate professionals at our owned-brokerage or their clients. Additionally, if the MLSs cease to be the predominant source of listing data, we might not be able to provide comprehensive listing data to real estate professionals at our owned-brokerage and their clients. Any of these events could negatively impact our reputation and real estate professional and client confidence in the listing data we provide and reduce our ability to attract and retain real estate professionals at our owned-brokerage, which could harm our business, financial condition, and results of operations.
Cybersecurity incidents could disrupt business operations and result in the loss of critical and confidential information or claims or litigation arising from such incidents, any of which may adversely impact our reputation and business, financial condition, and results of operations.
We face growing risks and costs related to cybersecurity threats to our operations and our data (and real estate professional, franchisee, employee and client data) including:
• the failure or significant disruption of our operations from various causes, such as human error, computer malware, ransomware, insecure software and systems, zero-day vulnerabilities, threats to or disruption of third-party service providers who provide critical services, or other events related to our critical information technologies and systems;
• the increasing level and sophistication of cybersecurity attacks, such as distributed denial of service attacks, data theft, fraud or malicious acts on the part of trusted insiders, social engineering (including phishing attempts or the creation of copycat websites), or other unlawful tactics aimed at compromising the systems and data of real estate professionals and their clients (including through systems not directly controlled by us, such as those maintained by real estate professionals, franchisees, joint venture partners, and third-party service providers); and
• the reputational and financial risks associated with a loss of data or material data breach (including unauthorized access to our proprietary business information or personal information of real estate professionals and their clients), the transmission of computer malware, or the diversion of sale transaction closing funds.
In the ordinary course of our business, we and our third-party service providers, our employees, real estate professionals, franchisees, relocation operations, and real estate professionals’ clients may collect, store, and transmit sensitive data, including our proprietary business information and intellectual property and that of real estate professionals, real estate professionals’ clients and relocation clients as well as personal information, sensitive financial information, and other confidential information. Real estate professionals’ use of our technology offerings to access and store data presents us with uncertainties and risks, as they may accidentally or deliberately cause private information to be transmitted through unsecure channels, which may lead to breaches or other leaks of such information.
Additionally, we increasingly rely on third-party service providers that provide data processing, data storage, and critical infrastructure services, including cloud solution providers. The secure processing, maintenance, and transmission of this information is critical to our operations and, with respect to information collected and stored by our third-party service
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providers, we are reliant upon their security procedures, controls, and adherence to our agreements. A breach or attack affecting one of our third-party service providers or partners could adversely impact our business and our reputation even if we do not control the service that is attacked.
Moreover, the Company, its franchisees, real estate professionals and other real estate industry participants are actively targeted by cybersecurity threat actors. Such actors attempt to conduct electronic fraudulent activity (such as text-based or business email compromise or phishing attacks and copycat websites), security breaches, and similar attacks directed at participants in real estate services transactions. Cyber-attacks could give rise to the loss of significant amounts of data and other sensitive information and possibly disable our information technology systems which are used to service real estate professionals. Such threats may be beyond our control as our employees and real estate professionals at our owned-brokerage and their clients, as well as our franchisees and their real estate professionals, and other third-party service providers may use e-mail, computers, smartphones, and other devices and systems that are outside of our security control environment. In addition, real estate transactions involve the transmission of funds by the buyers and sellers of real estate and consumers or other service providers selected by the consumer that may be the subject of direct cyber-attacks that result in the fraudulentdiversion of funds, notwithstanding efforts we have taken to educate consumers with respect to these risks.
In addition, cybersecurity threat actors have attempted, and may attempt in the future, to conduct fraudulent activity by engaging with real estate professionals and their clients. We make a large number of wire transfers in connection with loan and real estate closings and process sensitive personal data in connection with these transactions and we are not able to detect and prevent all such activity. Persistent or pervasivefraudulent activity may cause real estate professionals or their clients to lose trust in us and decrease or terminate their usage of our technology offerings, which could materially harm our operations, business, results, and financial condition. The increasing prevalence and sophistication of cyber-attacks as well as the evolution of cyber-attacks and other efforts to breach or disrupt our systems or those of our employees, real estate professionals, real estate professionals’ clients, and third-party service providers, has led and will likely continue to lead to increased costs to us with respect to identifying, protecting, detecting, containing, responding, recovering, mitigating, insuring against, and remediating these risks, as well as any related attempted or actual fraud.
We have experienced and expect to continue to experience these types of threats and incidents. Cybersecurity incidents, depending on their nature and scope, could potentially result in harm to confidentiality, integrity, and availability of critical systems, data, and confidential or proprietary information (our own or that of third parties, including personal information and financial information) and the disruption of business operations.
The potential consequences of a material cybersecurity incident include regulatory violations of applicable U.S. and international privacy law, reputational damage, loss of market value, litigation with third parties (which could result in our exposure to material civil or criminal liability), diminution in the value of the products and services we provide to real estate professionals and their clients, and increased cybersecurity protection and remediation costs (which may include liability for stolen assets or information), any of which in turn could have a material adverse effect on our competitiveness and business, financial condition, and results of operations. We cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claimsagainst us relating to any incident, will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claimsagainst us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our reputation, business, financial condition, and results of operations.
The Anywhere Merger increases our exposure to cybersecurity threats, operational vulnerabilities, and data-security risks due to increased attack surface areas, potential incompatibilities in cybersecurity controls, and a potential increase in attacks from cyber threat actors, among other factors. Any failure to effectively integrate and secure the combined technology environments could materially adversely affect our business, financial condition and results of operations.
Our fraud detection processes may not successfully detect all fraudulent activity, which could adversely affect our reputation and business results.
We are exposed to the risk of fraud, misconduct and other improper activities by employees, independent contractors (including real estate professionals), franchisees and their real estate professionals, affiliates, partners, vendors, customers and other third parties, including through collusive or coordinated actions. Fraudulent conduct may take many forms, including wire fraud, cyber fraud, identity theft, payment fraud, misappropriation of assets, embezzlement of escrow or closing funds held by us, falsification of records, physical theft, misuse of confidential information or other deceptive or illegal activities. Fraud, defalcation, and misconduct by employees and others are also risks inherent in our title and escrow business. Fraudulent or improper activities, whether or not detected in a timely manner, could result in financial losses,
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litigation, regulatory scrutiny, reputational harm, which could materially harm our operations, business, results, and financial condition.
We could be subject to significant losses if banks do not honor our escrow and trust deposits.
We act as escrow agents for certain of real estate professionals’ clients. As an escrow agent, we receive money from real estate professionals’ clients to hold until certain conditions are satisfied. Upon the satisfaction of those conditions, we release the money to the appropriate party. We deposit this money with various depository banks and, while these deposits are not assets of our business, we remain contingently liable for the disposition of these deposits. A significant amount of these deposits held by depository banks may be in excess of the federal deposit insurance limit. If any of our depository banks were to become unable to honor any portion of our deposits due to a bank failure or otherwise, real estate professionals’ clients could seek to hold us responsible for such amounts and, if real estate professionals’ clients prevailed in their claims, we could be subject to significant losses. This risk is exacerbated by the growth in our title and escrow business following the Anywhere Merger.
Our goodwill and other long-lived assets are subject to potential impairment which could negatively impact our earnings.
A significant portion of our assets consists of goodwill and other long-lived assets, the carrying value of which may be reduced if we determine that those assets are impaired. If actual results differ from the assumptions and estimates used in the goodwill and long-lived asset valuation calculations (due to the risks reflected in this Annual Report or otherwise), we could incur impairment charges (including as related to management’s estimates with respect to the potential impact of the ongoing housing market downturn on our business), which would negatively impact our earnings. Anywhere recognized significant non-cash impairment charges from time to time and we may be required to take additional such charges in the future, which may be material.
We may incur substantial liabilities arising out of Anywhere’s legacy pension plan.
In connection with the Anywhere Merger, we assumed Anywhere’s legacy defined benefit pension plan for which participation was frozen as of July 1, 1997; however, the plan is subject to minimum funding requirements. Anywhere, to date, has met its minimum funding requirements. The pension plan now represents a liability on our balance sheet and will continue to require cash contributions from us, which may increase beyond our expectations in future years based on changing market conditions. In addition, changes in interest rates, mortality rates, health care costs, early retirement rates, investment returns and the market value of plan assets can affect the funded status of the pension plan and cause volatility in the future funding requirements of the plan.
Through our franchise and relocation business, we have expanded, and may continue to expand in the future, into international markets, which will expose us to significant risks.
A component of our growth strategy involves the further expansion of our operations and establishment of real estate professional and franchise base internationally. Our recent acquisition of Anywhere expanded our international reach to include a worldwide relocation services business and other international operations and relationships, including but not limited to international franchisees and master franchisees operating real estate brokerages and franchises outside the United States. We are continuing to adapt and develop strategies to address international markets, but there is no guarantee that such efforts will have the desired effect. For example, we have established relationships with new partners, and may need to establish additional relationships with third parties or acquire businesses in order to expand into certain countries, and if we fail to identify, establish, and maintain such relationships or successfully identify and acquire businesses, we may be unable to execute on our expansion plans. We expect that our international activities will continue to grow in the future as we pursue opportunities in international markets, which may require significant dedication of management attention and significant upfront investment.
Our current and future international business and operations involve a variety of risks, including the need to adapt and localize our platforms for specific countries; unexpected changes in trade relations, regulations, or laws; new, evolving, and more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information; adverse changes to political and economic climates of foreign countries, or in their relations with the U.S.; difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems; increased travel, real estate, infrastructure, and legal compliance costs associated with international operations; fluctuations in foreign currency exchange rates; regulations, adverse tax burdens, and foreign exchange controls that could make it difficult to repatriate earnings and cash; and increased costs and difficulty associated with overseeing affiliates operating outside of the U.S.
Additionally, as we expand our brokerage business internationally, our platform becomes subject to complex U.S. and foreign export controls, economic sanctions, and technology licensing requirements, including the U.S. Export
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Administration Regulations and sanctions administered by the Office of Foreign Assets Control. Complying with these regulations, such as obtaining necessary licenses for encryption technology or screening for embargoed jurisdictions, can be time-consuming and may delay or prevent the deployment of our platform in certain markets. Failure to comply with these laws could result in significant fines, penalties, operational restrictions, and reputational harm. Furthermore, changes in these regulatory regimes or our inability to secure required authorizations could limit the ability to use our platform globally, adversely affecting our business and growth opportunities.
If we invest substantial time and resources to grow our international operations and are unable to do so successfully or in a timely manner, our business, financial condition, and results of operations may be adversely impacted.
Our management team is required to evaluate the effectiveness of our internal control over financial reporting. If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy of our financial reports, which could adversely affect our business.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and to report any material weaknesses in such internal control. Our independent registered public accounting firm is required to deliver an attestation report on the effectiveness of our disclosure controls and internal control over financial reporting. An adverse report may be issued in the event our independent registered public accounting firm is not satisfied with the level at which our controls are documented, designed, or operating.
When evaluating our internal control over financial reporting, we may identify material weaknesses during the year that we may not be able to remediate by year-end. If we identify material weaknesses in our internal control over financial reporting in the future, are unable to comply with the requirements of Section 404 in a timely manner, or assert that our internal control over financial reporting is ineffective, or if our independent registered public accounting firm expresses an opinion that our internal control over financial reporting is ineffective, investors may lose confidence in the accuracy and completeness of our financial reports, which could cause the price of our Class A common stock to decline, and we could become subject to litigation or investigations by the SEC, or other regulatory authorities, which could require additional management attention and which could adversely affect our business.
In addition, our internal control over financial reporting will not prevent or detect all errors and fraud. Because of the inherent limitations in all control systems, no evaluation can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
Our ability to use our net operating losses and other tax attributes may be limited.
Certain of our federal net operating losses (“NOLs”) will begin to expire in 2032 and certain of our state NOLs will begin to expire in 2026. The realization of these net operating losses depends on our future taxable income and there is a risk that these NOL carryforwards could expire unused, which could materially affect our operating results. In addition, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period is subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes, such as research tax credits to offset future taxable income. We have not performed an analysis to determine whether our past issuances of stock and other changes in our stock ownership may have resulted in one or more ownership changes. If it is determined that we have in the past experienced an ownership change, or if we undergo one or more ownership changes as a result of our IPO or future transactions in our stock, then our ability to utilize NOLs and other pre-change tax attributes could be limited by Sections 382 and 383 of the Code. Future changes in our stock ownership could result in an ownership change under Sections 382 or 383 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we were to achieveprofitability.
We rely on assumptions, estimates, and business data to calculate our key performance indicators and other business metrics, and real or perceived inaccuracies in these metrics may harm our reputation and negatively affect our business.
Certain of our performance metrics are calculated using third-party applications or internal company data that have not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring such information. In addition, our measure of certain metrics may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology and as a result our results of operations may not be comparable or compare favorably to our competitors.
Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have an adverse effect on our business, financial condition, and results of operations.
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Generally accepted accounting principles in the U.S. (“GAAP”) and related accounting pronouncements, implementation guidance, and interpretations, such as revenue recognition, lease accounting, stock-based compensation, asset impairments, valuation reserves, income taxes, and the fair value and associated useful lives of acquired long-lived assets, intangible assets, and goodwill, are highly complex and involve many subjective assumptions, estimates, and judgments made by management. Changes in these rules or their interpretations or changes in underlying assumptions, estimates, or judgments made by management could significantly change our reported results and adversely impact our business, financial condition, and results of operations.
We may be unable to continue to securitize certain of the relocation assets of Cartus, which may adversely impact our liquidity.
In connection with the Anywhere Merger, we entered into a performance guaranty for up to $180 million of securitization obligations through the special purpose entities monetizing certain assets of Cartus under one lending facility (which we refer to as the “Apple Ridge securitization program”). The performance guaranty guarantees the obligations of Cartus and its subsidiaries, as originator and servicer under the Apple Ridge securitization program. Our significant debt obligations may limit our ability to incur additional borrowings under our existing securitization facilities. The securitization markets have experienced, and may again experience, significant disruptions, which may have the effect of increasing our cost of funding or reducing our access to these markets in the future.
In addition, the Apple Ridge securitization facility contains terms which if triggered may result in a termination or limitation of new or existing funding under the facility and/or may result in a requirement that all collections on the assets be used to pay down the amounts outstanding under such facility. If securitization financing is not available to us for any reason, we could be required to borrow under the 2025 Revolving Credit Facility, which would adversely impact our liquidity, or we may be required to find additional sources of funding which may be on less favorable terms or may not be available at all.
Our platform is highly complex and our software may contain undetectederrors.
Our platform is highly complex and the software and code underlying our platform is interconnected and may contain undetectederrors, bugs, or vulnerabilities, some of which may only be discovered after the code or software has been released. We regularly release or update software code, which may result in more frequent introduction of errors, bugs, or vulnerabilities into the software underlying our platform, potentially impacting real estate professionals’, franchisees and real estate professionals’ clients’ experience on the Compass platform and our other technology offerings. Additionally, due to the interoperative nature of the software and the systems underlying our platform, modifications to certain parts of our code, including changes to our mobile application, website, systems, or third-party application programming interfaces on which our platform relies, or resulting from integration of acquired technologies, could have an unintended impact on other sections of our software or system, which may result in errors, bugs, or vulnerabilities to our platform. Any errors, bugs, or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of real estate professionals, franchisees or real estate professionals’ clients, loss of revenue or liability for damages, any of which could adversely affect our growth prospects and our business, financial condition, and results of operations.
Furthermore, our development and testing processes may not detect errors, bugs, or vulnerabilities in our technology offerings prior to their implementation as they may not be identified or detected at the time of implementation. Any inefficiencies, errors, bugs, system misconfiguration, technical problems, or vulnerabilities arising in our technology offerings after their release could reduce the quality of our products, system performance, or interfere with real estate professionals’ access to and use of our technology offerings.
Our company culture has contributed to our success, and if we cannot maintain this culture as we grow, our business could be harmed.
We believe that our company culture, which promotes innovation and entrepreneurship, has been critical to our success. We are guided by our principles, including dreaming big, moving fast, learning from reality, and being solutions-driven. However, as we grow, we may face challenges that may affect our ability to sustain our culture, including: failure to identify, attract, reward, and retain people in leadership positions in our organization who share and further our culture, values, and mission; increasing size and geographic diversity of our workforce; inability to achieve consistent adherence to our internal policies and core values; the continued challenges of a rapidly-evolving industry; the increasing need to develop expertise in new areas of business that affect us; negative perception of our treatment of employees or our response to employee sentiment related to political or social causes or actions of management; and the integration of new personnel and businesses from acquisitions.
In addition, many of our employees continue to work remotely, which may adversely affect our efficiency and morale. Certain employees have not agreed with return to office initiatives and as a result have sought employment elsewhere. Furthermore, the integration of Anywhere may create challenges in blending our distinct corporate cultures, which could
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diminish employee morale, reduce engagement, or lead to the loss of key personnel if we are unable to successfully foster a unified and productive work environment.
In addition, we have at times undertaken workforce reductions to better align our operations with our strategic priorities, to manage our cost structure, or in connection with acquisitions. For example, in response to macroeconomic conditions impacting our industry, we took certain cost-saving measures, such as reductions of our workforce in June and September 2022 and January 2023. Although we took deliberate actions to provide impacted employees with equitable separation packages and transition services, there can be no assurance that these actions will not adversely affect employee morale, our culture, and our ability to attract and retain employees. If we are not able to maintain our culture, our business, financial condition and results of operations could be adversely affected.
Some of our potential losses may not be covered by insurance. We may not be able to obtain or maintain adequate insurance coverage.
We maintain insurance to cover costs and losses from certain risk exposures in the ordinary course of our operations, but our insurance does not cover all of the costs and losses from all events. We are responsible for certain retentions and deductibles that vary by policy, and we may sufferlosses that exceed our insurance coverage limits by a material amount. We may also incur costs or sufferlosses arising from events against which we have no insurance coverage. In addition, large-scale market trends or the occurrence of adverse events in our business may raise our cost of procuring insurance or limit the amount or type of insurance we are able to secure. We may not be able to maintain our current coverage, or obtain new coverage in the future, on commercially reasonable terms or at all. Incurring uninsured or underinsured costs or losses could have an adverse effect on our business and financial condition.
Disruption or delays in service from third-party providers could adversely impact our business, including the delivery of our platform and technology offerings.
Our brand, reputation and ability to attract real estate professionals and deliver quality products and services depend on the reliable performance of our network infrastructure and content delivery processes. To deliver mobile app and web content, we utilize a number of third-party service providers to support essential functions of our business, including Amazon Web Services, who we primarily rely on to host our cloud computing and storage needs. We do not own, control, or operate our cloud computing physical infrastructure or their data center providers. We engage with third-party vendors and partners in a variety of other ways, ranging from strategic collaborations and joint ventures and product development to running key internal operational processes and critical client systems. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, system vulnerabilities, earthquakes and similar events at the sites of such providers. Additionally, our third-party partners or vendors could fail to perform as we expect, fail to appropriately manage risks, provide diminished or delayed services to our customers, or face cybersecurity breaches of their information technology systems, or we could fail to adequately monitor their performance. The occurrence of any of the foregoing events could result in damage to systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for losses that may occur.
A failure of our third-party cloud service providers systems could result in reduced capabilities or a total failure of our systems, which could cause our mobile app, technology offerings or website to be inaccessible, impairing our real estate professionals’ and franchisees’ ability to use our platform and technology offerings. Their failure to perform as expected or as required by contract could result in significant disruptions and costs to our operations and damage to our reputation. In light of our reliance on Amazon Web Services and other third-party service providers, coupled with the complexity of obtaining replacement services, any disruption of or interference with our use of these third-party services could adversely impact our operations and business.
We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, which may result from interruptions in our service as a result of system failures. Any errors, defects, disruptions or other performance problems with our services could harm our business, financial condition and results of operations.
We may not be able to generate a meaningful number of high-quality leads for real estate professionals and franchisees.
If we are unable to generate high-quality leads for real estate professionals and franchisees, our ability to recruit and retain real estate professionals and attract and retain new franchisees may be negatively impacted, which could adversely affect our revenues and profitability, including as a result of the loss of downstream revenues at our franchise, brokerage and title businesses as well as our minority-owned mortgage origination and title insurance underwriter joint ventures. In addition, our lead generation business is highly regulated, subject to complex federal and state laws (including RESPA and similar state laws as well as state laws limiting or prohibiting inducements, cash rebates and gifts to consumers), and subject to changing economic and political influences as well as changing industry rules and practices. A change in such laws, more
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restrictive interpretations of such laws by administrative, legislative or other governmental bodies, or changes to industry rules or practices that may result in leads being less valuable could have a material adverse effect on this business.
Continued reductions in the global spending on relocation services or a cessation or reduction in the volume of business generated from multiple significant relocation clients, or the loss of our largest real estate benefit program client could adversely affect our revenues and profitability.
The relocation services business we acquired as part of the Anywhere Merger is subject to many of the general residential housing trends impacting our businesses that derive revenue from home sales. Additionally, global corporate spending on relocation services has continued to shift to lower cost relocation benefits. Even if general residential housing trends begin to improve, spending on relocation services may not return to former levels, which would negatively impact the revenue and operating results of our relocation operations.
Contracts with our real estate benefit program clients and relocation clients are generally terminable at any time at the option of the client, do not require such client to maintain any level of business with us and are non-exclusive. Our real estate benefit program revenues are highly concentrated. If our largest real estate benefit program client or multiple significant relocation clients ceased or materially reduced volume under their contract with us, our revenue (including downstream revenue) and profitability may be materially adversely affected.
Investors’ expectations of our performance relating to environmental, social, and governance factors may impose additional costs and expose us to new risks.
There is a focus from certain investors, employees, and other stakeholders concerning corporate responsibility, specifically related to environmental, social, and governance (“ESG”) factors. Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to corporate responsibility are inadequate. Certain regulators, both in the U.S. and internationally, have adopted or proposed new disclosure and regulatory frameworks which could expand the nature, scope, and complexity of matters that we are required to control, assess and report.
In addition, certain relocation clients have required that we implement certain additional ESG procedures or standards in order to continue to do business with us and additional clients may impose such requirements in the future. Meeting these evolving expectations could be costly and failure (or perceived failure) to satisfy stakeholder expectations and standards could also cause reputational harm to our business and brands.
In addition, we may face increased scrutiny related to any actions or positions we could be viewed as taking in this space. We could be subjected to negative responses (such as boycotts or negative publicity campaigns) by either proponents or detractors of any particular ESG-related topic, including activists and consumers, which could adversely affect our reputation and business.
Natural disasters and catastrophic events may disrupt real estate markets and could adversely affect our business, financial condition and results of operations.
Natural disasters or other catastrophic events, such as fires, hurricanes, earthquakes, windstorms, tornados, floods, power loss, telecommunications failure, cyber-attacks, war and military action, civil unrest, international instability, terrorist attacks, or pandemics or epidemics may cause damage or disruption to our operations, real estate commerce, and the global economy, and thus, could adversely affect our business, financial condition and results of operations. In particular, the COVID-19 pandemic and the reactions of governments, markets, and the general public to the COVID-19 pandemic, caused a number of consequences for our business and results of operations. Additionally, properties located in certain geographies are more susceptible to certain natural hazards (such as fires, hurricanes, earthquakes, floods, or hail) than properties in other parts of the country. A natural disaster or other catastrophic event in any of these geographies could disrupt our operations and have a negative impact on our business. These effects may be compounded when the taxes or insurance costs associated with homeownership in the affected area materially increase in connection with the increasing frequency and severity of weather events or other disasters. Movements away from the use of title insurance in connection with rising affordability concerns could lead to declines in certain services offered by the Company or its joint venture operations. More frequent and/or severe weather events and/or long-term shifts in climate patterns exacerbate these risks. As we grow our business, the need for business continuity planning and disaster recovery plans will increase in significance. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster, and successfully execute on those plans in the event of a disaster or emergency, our business could be adversely affected and our reputation could be harmed.
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Risks Related to Our Legal and Regulatory Environment
We are periodically subject to claims, lawsuits, government investigations, and other proceedings that may adversely affect our business, financial condition, and results of operations.
We are or may be subject to claims, lawsuits, arbitration proceedings, government investigations, and other legal and regulatory proceedings in the ordinary course of business, including those involving labor and employment, anti-discrimination, commercial disputes, competition, professional liability, consumer complaints, personal injury, wrongful death, intellectual property disputes, compliance with regulatory requirements, antitrust and anti-competition claims (including claims related to NAR or MLS rules regarding buyer brokers’ offers of commissions and other listing and marketing practices), securities laws, and other matters, and we may become subject to additional types of claims, lawsuits, government investigations and legal or regulatory proceedings if the regulatory landscape changes or as our business grows and as we deploy new offerings, including proceedings related to the Anywhere Merger or our other acquisitions, integrated services business lines, securities issuances or business practices. Likewise, real estate professionals, franchisees and joint venture partners may be subject to any of the foregoing. We may also be subject to disputes between us and our employees and real estate professionals at our owned-brokerage, which are primarily governed by mandatory arbitration provisions, and become involved in disputes between real estate professionals, where we are not a proper party.
The results of any such claims, lawsuits, arbitration proceedings, government investigations or other legal or regulatory proceedings cannot be predicted with certainty. Any claimsagainst us or investigations involving us, whether meritorious or not, could be time-consuming, result in significant defense and compliance costs, be harmful to our reputation, require significant management attention and divert significant resources. Determining reserves for our pending litigation is a complex and fact-intensive process that requires significant subjective judgment and speculation. It is possible that a resolution of one or more such proceedings could result in substantial damages, settlement costs, fines and penalties that could adversely affect our business, financial condition, and results of operations, or could cause harm to our reputation and brand, sanctions, consent decrees, injunctions or other orders requiring a change in our business practices. Any of these consequences could adversely affect our business, financial condition and results of operations. Furthermore, under certain circumstances, we have contractual and other legal obligations to indemnify and to incur legal expenses on behalf of our business and commercial partners and current and former directors, officers and employees.
In addition, litigation, claims, and regulatory proceedings against companies unrelated to us in the residential real estate or technology industry, or in other industries, may impact us when the rulings in those cases cover practices common to the broader industry. Examples may include claims associated with RESPA compliance, broker fiduciary duties, and sales agent classification. To the extent these claimsagainst unrelated companies are successful and we or real estate professionals at our owned-brokerage cannot distinguish our or their practices (or our industry’s practices), we could face significant liability and could be required to modify certain business practices or relationships, either of which could materially and adversely impact our business, financial condition, and results of operations.
We classify real estate professionals at our owned-brokerage as independent contractors, and if federal or state law mandates that they be classified as employees, our business, financial condition, and results of operations would be adversely impacted.
We engage independent contractors, including real estate professionals at our owned-brokerage, that are subject to federal regulations and applicable state laws and guidelines regarding independent contractor classifications. These regulations, laws and guidelines are subject to judicial and agency interpretation. Moreover, such regulations, laws, guidelines and interpretations continue to evolve. Federal and state governments have introduced and may continue to introduce proposed changes to existing classification laws. If our business is found to have misclassified employees as independent contractors, we could face penalties and have additional exposure under laws regarding employee classification, federal and state tax, workers’ compensation, unemployment benefits, compensation, overtime, minimum wage, meal and rest periods, and discrimination laws. Further, if legal standards for classification of real estate professionals at our owned-brokerage as independent contractors change or appear to be changing, it may be necessary to modify the compensation structure for such real estate professionals, including by paying additional compensation and benefits or reimbursing expenses. We face claims from time to time allegingmisclassification of status and it could be determined that the independent contractor classification is inapplicable to some or any real estate professionals at our owned-brokerage. We could also incur substantial costs, penalties and damages due to any such future challenges by current or former professionals to our classification or compensation practices, including with respect to their status as exempt or non-exempt employees. Finally, we could be subject to classification and other claims from employees of our independent contractors, whose employment practices we do not control. Any of these outcomes could result in substantial costs to us, significantly impair our financial condition and our ability to conduct our business as currently contemplated, damage our reputation, and impair our ability to attract real estate professionals.
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In addition, we work with international staffing organizations that retain contractors in various jurisdictions who are subject to various local laws, including labor and employment laws, that differ from those in the United States. We may be subject to claims as a result of the staffing agencies’ practices, which are outside our control or direction. We may also be subject to claims that these contractors are employees of Compass, subjecting us to corporate tax and other liabilities.
We process, store, and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to data privacy, and violation of these privacy obligations could result in a claim for damages, regulatory action, loss of business, and/or unfavorable publicity.
We collect, store, share, and process personal information and other employee, real estate professional, real estate professionals’ client and consumer information. There are numerous global data privacy laws, as well as regulations and industry guidelines, regarding privacy and the storing, use, processing, sharing, and disclosure and protection of personal information, which are continually evolving, subject to differing interpretations, and may be inconsistent between state and federal governments and across countries or conflict with other rules. Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the internet, may be applicable to our business, such as the TCPA (as implemented by the Telemarketing Sales Rule), the CAN-SPAM Act, GLBA, GDPR, tracking technologies, cookie consent mechanisms, targeted advertising practices and similar consumer protection laws. We seek to comply with industry standards, applicable laws, and legal obligations concerning data security protection, and are subject to the terms of our own privacy policies and privacy-related obligations to third parties. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, making enforcement, and thus compliance requirements, ambiguous, uncertain, and potentially inconsistent. Any failure or perceived failure by us to comply with our privacy policies, terms of service, privacy-related obligations to real estate professionals, real estate professionals’ clients or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized access to or unintended release of personally identifiable information or other real estate professionals or client data, may result in governmental enforcement actions, litigation, or public statements against us by consumer advocacy groups or others. Any of these events could cause us to incur significant costs in investigating and defending such claims and, if found liable, pay significant fines or damages. Further, these proceedings and any subsequent adverse outcomes may cause real estate professionals, real estate professionals’ clients, and other business partners to lose trust in us, which could have a materially adverse effect on our reputation and business.
Any significant change to applicable laws, regulations or industry practices regarding the use or disclosure of personal information, or regarding the manner in which the express or implied consent of real estate professionals, our real estate professionals’ clients, and other business partners for the use and disclosure of personal information is obtained, could require us to modify our platforms or technology offerings and their features, and business processes, possibly in a material manner and subject to increased compliance costs, which may limit our ability to innovate, improve and expand our platforms or technology offerings and their features that make use of personal information. We could also be adversely affected if applicable laws, regulations or industry practices are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations or financial condition.
Numerous U.S. states have enacted, or are in the process of enacting, state level data privacy laws and regulations aimed at creating and enhancing individual privacy rights by governing the collection, use, sharing, disclosure, selling, and retention of state residents’ personal information. The continued proliferation of privacy laws in the jurisdictions in which we operate is likely to result in a disparate array of privacy rules with unaligned or conflicting provisions, accountability requirements, individual rights, and enforcement powers, which may require us to further modify our data processing practices and policies, and may subject us to increased regulatory scrutiny and business costs, and lead to unintendedconfusion among our real estate professionals’ and real estate professionals’ clients.
Real estate professionals operate as independent contractors and are responsible for their own data privacy compliance, as are our franchises and our partners in joint ventures where we own a minority interest. We provide training and our platform provides tools and security controls to assist real estate professionals with their data privacy compliance to the extent they store relevant data on our platform. However, if a real estate professional on our platform or using our technology offerings were to be subject to a claim for breach of data privacy laws, we could be found liable for their claims due to our relationship, which may require us to take more costly data security and compliance measures or to develop more complex systems.
We are subject to a variety of federal, state and international laws, many of which are unsettled and still developing, and certain of our businesses are highly regulated. Any failure to comply with such regulations or any changes in such regulations could adversely affect our business.
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All of our businesses and the businesses of real estate professionals and franchisees are subject to a variety of local, state, federal and international laws, such as RESPA, the Fair Housing Act, the Dodd-Frank Act, the Exchange Act, GLBA, TCPA, and federal advertising, internet, antitrust, import/export (including restrictions with regards to technology), competition, anti-corruption, anti-bribery, anti-money laundering and worker classification, privacy and cybersecurity, and other laws, as well as some comparable state statutes and rules of trade organizations such as NAR and local MLSs.
RESPA and comparable state statutes prohibit providing or receiving payments, or other things of value, for the referral of business to settlement service providers in connection with the closing of certain real estate transactions. Such laws may to some extent impose limitations on arrangements involving our real estate brokerage, escrow services, title agency, lead generation, relocation and mortgage origination services. RESPA compliance may become a greaterchallenge for most industry participants offering title and escrow services and mortgage origination services, including brokerages, because of expansive interpretations of RESPA or similar state statutes by certain courts and regulators. Permissible activities under state statutes similar to RESPA may be interpreted more narrowly, and enforcement proceedings of those statutes by state regulatory authorities may also be aggressively pursued. RESPA also has been invoked by plaintiffs in private litigation for various purposes and some state authorities have also asserted enforcement rights. Ongoing private litigation in our industry reflects increasingly expansive interpretations of RESPA as applied to referral fee programs, lead distribution, and affiliated-service arrangements.
In addition, our title agency services business is also subject to regulation by insurance and other regulatory authorities in each state in which we provide title insurance. We are also, to a lesser extent, subject to various other rules and regulations such as “controlled business” statutes and similar laws or regulations that would limit or restrict transactions among affiliates in a manner that would limit or restrict collaboration among our businesses.
For certain licenses, we are required to designate a broker of record as qualified individuals and/or persons who control and supervise the operations of applicable licensed entities. Certain licensed entities also are subject to routine examination and monitoring by state licensing authorities. We cannot provide assurances that we, or our licensed personnel, are and will remain at all times, in full compliance with state and federal real estate, title insurance and escrow, and consumer protection laws and regulations, and we may be subject to litigation, government investigations and enforcement actions, fines or other penalties in the event of any non-compliance.
As a result of findings from examinations, we also may be required to take a number of corrective actions, including modifying business practices and making refunds of fees or money earned. In addition, adverse findings in one jurisdiction may be relied on by another state to conduct investigations and impose remedies. If we apply for new licenses, we will become subject to additional licensing requirements, which we may not be in compliance with at all times. If in the future a state agency were to determine that we are required to obtain additional licenses in that state in order to operate our business, or if we lose or do not renew an existing license or are otherwise found to be in violation of a law or regulation, we may be subject to fines or legal penalties, lawsuits, enforcement actions, void contracts or our business operations in that state may be suspended or prohibited. Our business reputation with consumers and third parties also could be damaged.
Certain of our businesses may also be subject to the GLBA, which governs how personal information collected in the context of financial services can be used and shared across our businesses and how that information must be protected. The GLBA’s requirements include certain disclosures related to collection of information and sharing practices and implementation of a cybersecurity program that adequately protects the collected information.
Moreover, under U.S. franchise law, we are subject to federal regulations enforced by the FTC governing franchise offers and sales, as well as various regulations in states in which we operate, which may impose additional registration and disclosure requirements. Furthermore, our ability to terminate or refuse renewal/transfer of franchise agreements may be restricted by state-specific “franchise relationship” or “business opportunity” laws.
Compliance with, and monitoring of, the foregoing laws and regulations and other laws and regulations impacting our businesses is complicated and costly and may inhibit our ability to innovate or grow. Our failure to comply with any of these laws and regulations may subject us to fines, penalties, injunctions and/or potential criminalviolations. Any changes to these laws or regulations or any new laws or regulations may make it more difficult for us to operate our business and may have a material adverse effect on our operations.
Risks Related to Our Intellectual Property
Our intellectual property rights are valuable to us, and any inability to protect them could reduce the value of our products, services, and brands.
Our trade secrets, trade names, domain names, trademarks, copyrights and other intellectual property rights are important assets to us, and litigation to defend intellectual property can be expensive and lengthy. Various factors may pose a threat
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to our intellectual property rights, as well as to our platform and technology offerings. For example, we may fail to obtain effective intellectual property protection or effective intellectual property protection may not be available in every country in which our products and services are available. Also, the efforts we have taken to protect our intellectual property rights may not be sufficient or effective; and our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. Despite our efforts to protect our proprietary rights, there can be no assurance our intellectual property rights will be sufficient to protect against others offering products or services that are substantially similar to ours and compete with our business or that unauthorized parties may not attempt to copy aspects of our technology and use information that we consider proprietary.
In addition to registered intellectual property rights such as trademark registrations, we rely on non-registered proprietary information and technology, such as trade secrets, confidential information, know-how, and technical information. To protect our proprietary information and technology, we rely in part on agreements with our employees, investors, independent contractors, vendors and other third parties that place restrictions on the use and disclosure of this intellectual property. These agreements may be breached, or this intellectual property, including trade secrets, may otherwise be disclosed or become known to our competitors, which could cause us to lose any competitive advantage resulting from this intellectual property. To the extent that our employees, independent contractors, vendors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. The loss of trade secret protection could make it easier for third parties to compete with our products and services by copying functionality. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, financial condition, results of operations and competitive position.
We may pursue registration of trademarks and domain names in the U.S. and in certain jurisdictions outside of the U.S. Effective protection of trademarks and domain names is expensive and difficult to maintain, both in terms of application and registration costs as well as the costs of defending and enforcing those rights. We may be required to protect our rights in an increasing number of countries, a process that is expensive and may not be successful or which we may not pursue in every country in which our products and services are distributed or made available. Foreign countries have different laws and regulations regarding protection of intellectual property, and the protection available in other jurisdictions may not be as effective as that provided in the U.S.
We may be unable to obtain trademark protection for our platform, technology offerings and brands, and our existing trademark registrations and applications, and any trademarks that may be used in the future, may not provide us with competitive advantages or distinguish our platform and technology offerings from those of our competitors. In addition, our trademarks may be contested, circumvented, or found to be unenforceable, weak or invalid, and we may not be able to prevent third parties from infringing or otherwise violating them. To counter infringement or unauthorized use of our trademarks, we may deem it necessary to file infringementclaims, which can be expensive and time consuming. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. An adverse outcome in such litigation or proceedings may expose us to a loss of our competitive position, expose us to significant liabilities, or require us to seek licenses that may not be available on commercially acceptable terms, if at all.
Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the U.S. and abroad may be necessary in the future to enforce our intellectual property rights and to determine the validity and scope of the proprietary rights of others. Efforts to enforce or protect proprietary rights may be ineffective and could result in substantial costs and diversion of resources, which could harm our business and results of operations.
Any unauthorized or improper use of our intellectual property by third parties, including real estate professionals at our owned-brokerage and our franchises, could reduce our competitive advantages or otherwise harm our business and brands.
We do not own the Christie’s International Real Estate, Sotheby’s International Realty or Better Homes and Gardens Real Estate brands and rely on our exclusive license right under the applicable license agreements, which allow us to franchise and/or license the brand to our franchisees. The license agreements for the use of such brands are terminable by the respective licensor prior to the end of the license term if in accordance with the terms set forth in the applicable agreement and any such termination could have a material adverse effect on our business and results of operations. Additionally, any disagreements or complications in our relationships with such licensors, difficulties in the franchise business or changes in the licensing strategy could disrupt and/or negatively impact our franchise business and could disrupt our business and/or negatively reflect on the brand and the brand value.
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Our platform, its features, and our technology offerings may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from providing our products and services.
We cannot guarantee that our internally developed or acquired systems, technologies and content do not and will not infringe the intellectual property rights of others. In addition, we rely on products, content, software, technology, and other intellectual property that we license from third parties for use in our platform, its features, and our technology offerings. These third parties may be subject to infringementclaims, the results of which could severely limit our ability to develop our services containing their intellectual property and our business could be disrupted or otherwise harmed. We cannot guarantee that these licenses will continue to be available to us on commercially reasonable terms, if at all, and we may be subject to claims of infringement or misappropriation if we have failed to obtain appropriate intellectual property licenses from such parties, or such parties do not possess the necessary intellectual property rights to the products or services they license to our business. If we are unable to obtain necessary licenses from third parties, we may be forced to acquire or develop alternate technology, which may require significant time and effort and may be of lower quality or performance standards and/or may be prohibited by contract from developing competing products. We have been, and may be, subject to claims that we or real estate professionals at our owned-brokerage have infringed the copyrights, trademarks, or other intellectual property rights of a third party. Any intellectual property-related infringement or misappropriationclaims, whether or not meritorious, could result in costlylitigation and divert management resources and attention. Should we be found liable for infringement or misappropriation, we may be required to redesign some of our systems and technologies, enter into licensing agreements, pay substantial damages, limit or curtail our offerings and technologies, or take other action, which could harm our business and results of operations. Any of the foregoing could prevent us from competing effectively and could expose our business to significant liabilities.
Some of our products and services contain open source software, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative effect on our business.
We use open source software in our products and services and anticipate using open source software in the future. Some open source software licenses require those who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open source code on unfavorable terms or at no cost, and we may be subject to such terms. The terms of certain open source licenses to which our business is subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. Additionally, we could face claims from third parties alleging ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license, or cease offering the products or services unless and until we can re-engineer such source code in a manner that avoids infringement. This re-engineering process could require us to expend significant additional research and development resources, and we may not be able to complete the re-engineering process successfully. In addition, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business, financial condition and results of operations.
Risks Related to Ownership of Our Class A Common Stock
The multi-class structure of our common stock has the effect of concentrating voting power with Robert Reffkin, our founder, Chairman, and Chief Executive Officer, and his financial planning vehicles and affiliated trusts.
As of December 31, 2025, Robert Reffkin, our founder, Chairman, and Chief Executive Officer, together with his financial planning vehicles and affiliated trusts (for purposes of this risk factor discussion, “Mr. Reffkin”) (and including his shares of Class A common stock subject to outstanding RSUs for which the service condition has been satisfied or would be satisfied within 60 days of December 31, 2025), held 8,982,709 shares of Class A common stock and all of the issued and outstanding shares of Class C common stock.
As of December 31, 2025, Mr. Reffkin held approximately 28.0% of the voting power of our outstanding capital stock. As a result, Mr. Reffkin is able to influence any action requiring the approval of our stockholders, including the election of our board of directors, the adoption of amendments to our restated certificate of incorporation and amended and restated bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction. As a stockholder, Mr. Reffkin is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally, and this concentrated voting power may have the effect of delaying, preventing, or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for
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their capital stock as part of a sale of our company, and might ultimately affect the market price of our Class A common stock.
Future transfers by the holders of Class C common stock will generally result in those shares automatically converting into shares of Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning or other transfers by Mr. Reffkin. In addition, each share of Class C common stock will convert automatically into one share of Class A common stock upon certain conditions. However, until one of those certain triggering events occurs, voting power will be concentrated with Mr. Reffkin.
We cannot predict the effect our multi-class structure may have on the market price of our Class A common stock.
We cannot predict whether our multi-class structure will result in a lower or more volatile market price of our Class A common stock, adverse publicity, or other adverse consequences. Pursuant to our restated certificate of incorporation, each share of our Class C common stock will convert into one share of our Class A common stock two days prior to the date specified in writing upon which our shares of capital stock will be included on the S&P 500 index following written notice and confirmation from Standard & Poor’s of such specified date and inclusion. Under certain index providers’ announced policies that restrict the inclusion of companies with multi-class share structures in certain of their indices, the multi-class structure of our common stock would make us ineligible for inclusion in certain indices and may discourage such indices from selecting us for inclusion, notwithstanding this automatic termination provision. As a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to track those indices would not invest in our Class A common stock. It is unclear what effect, if any, these policies will have on the valuations of publicly-traded companies excluded from such indices, but it is possible that they may depress valuations, as compared to similar companies that are included. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected.
The trading price of the shares of our Class A common stock is likely to be volatile.
Technology and real estate stocks historically have experienced high levels of volatility. Accordingly, the trading price of our Class A common stock has historically and may in the future fluctuate substantially, due to factors including: loss of investor confidence in, or significant volatility in the market price and trading volume of, technology companies in general and of companies in the real estate technology industry in particular; changes in mortgage interest rates; variations in the housing market, including seasonal trends and fluctuations; announcements of new solutions, commercial relationships, acquisitions, or other events by us or our competitors; price and volume fluctuations in the overall stock market; changes in how real estate professionals perceive the benefits of our platform and future offerings; the public’s reaction to our press releases, other public announcements, and filings with the SEC, or those of other companies in the industries in which we compete; fluctuations in the trading volume of our shares or the size of our public float; sales of large blocks of our common stock; sales, or the anticipated sale, of a substantial amount of our Class A common stock, particularly sales by our directors, executive officers, or principal stockholders; fluctuations in our results of operations or financial projections; changes in actual or future expectations of investors or securities analysts; litigation involving us, our industry, or both; governmental or regulatory actions or audits; regulatory developments applicable to our business; real estate market conditions; general economic conditions and trends; major catastrophic events; and departures of key employees.
In addition, if the market for technology or real estate stocks, or the stock market in general, experiences a loss of investor confidence, the trading price of our Class A common stock could decline for reasons unrelated to our business, financial condition or results of operations. The trading price of our Class A common stock might also decline in reaction to events that affect other companies in the real estate or technology industries even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Any securities class action litigation could adversely affect our business, financial condition and results of operations.
If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Class A common stock may, to some extent, depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares, change their opinion of our business prospects, or publish inaccurate or unfavorable research about our business, our share price may decline. If one or more of these analysts who cover us ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us or our indebtedness could make it more difficult for us to refinance or restructure our debt or obtain additional debt financing in the future.
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Our indebtedness has been rated by nationally recognized rating agencies and may in the future be rated by additional rating agencies. We cannot assure you that any rating assigned to us or our indebtedness will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, circumstances relating to the basis of the rating, such as adverse changes in our business, so warrant. Any downgrade, suspension or withdrawal of a rating by a rating agency (or any anticipated downgrade, suspension or withdrawal) as well as any actual or anticipated placement on negative outlook by a rating agency could make it more difficult or more expensive for us to refinance or restructure our debt or obtain additional debt financing in the future.
Provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may limit attempts by our stockholders to replace or remove our current management.
Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a merger, acquisition, or other change in control of our company that the stockholders may consider favorable, including provisions that: classify the board of directors into three classes with staggered three-year terms; permit the board of directors to establish the number of directors and to fill any vacancies and newly-created directorships; require super-majority voting to amend some provisions in our charter documents; authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; allow only our chief executive officer, chairperson of our board of directors, or a majority of our board of directors to call a special meeting of stockholders; prohibit cumulative voting; permit the removal of directors only “for cause” and only with the approval of the holders of at least two-thirds of the voting power of the then outstanding capital stock; prohibit stockholder action by written consent, requiring all stockholder actions to be taken at a meeting of our stockholders; expressly authorize the board of directors to make, alter, or repeal our bylaws; and establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management. Moreover, Section 203 of the Delaware General Corporation Law (“DGCL”) may discourage, delay, or prevent a change in control of our company by imposing certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.
Our restated certificate of incorporation and amended and restated bylaws contain exclusive forum provisions for certain claims, which may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation, or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine.
In addition, our restated certificate of incorporation provides that the federal district courts of the U.S. will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or Federal Forum Provision. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court, to the fullest extent permitted by law. However, there can be no assurance that federal or state courts will find the choice of forum provision contained in our restated certificate of incorporation or restated bylaws to be applicable or enforceable in every case.
We do not anticipate paying any cash dividends on our Class A common stock in the foreseeable future.
We have never declared or paid any dividends on our Class A common stock. We currently intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors, and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant.
Risks Related to the Convertible Notes
The accounting method for the Convertible Notes could adversely affect our reported financial condition and results.
The accounting method for reflecting the Convertible Notes on our balance sheet, accruing interest expense for the Convertible Notes and reflecting the underlying shares of our Class A common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition.
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In August 2020, the Financial Accounting Standards Board published an Accounting Standards Update, which we refer to as ASU 2020-06, which simplifies certain of the accounting standards that apply to convertible notes. In accordance with ASU 2020-06, the Convertible Notes are reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the Convertible Notes, net of issuance costs. The issuance costs were treated as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the Convertible Notes. As a result of this amortization, the interest expense that we expect to recognize for the Convertible Notes for accounting purposes will be greater than the cash interest payments we will pay on the Convertible Notes, which will result in lower reported income.
In addition, we expect that the shares underlying the Convertible Notes will be reflected in our diluted earnings per share using the “if converted” method, in accordance with ASU 2020-06. Under that method, if the conversion value of the notes exceeds their principal amount for a reporting period, we will calculate our diluted earnings per share assuming that all of the Convertible Notes were converted solely into shares of our Class A common stock at the beginning of the reporting period and that we issued shares of our Class A common stock to settle the excess. However, if reflecting the Convertible Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Convertible Notes does not exceed their principal amount for a reporting period, then the shares underlying the Convertible Notes will not be reflected in our diluted earnings per share. The application of the if-converted method may reduce our reported diluted earnings per share, and accounting standards may change in the future in a manner that may adversely affect our diluted earnings per share.
Furthermore, if any of the conditions to the convertibility of the Convertible Notes is satisfied, we may be required under applicable accounting standards to reclassify the liability carrying value of the Convertible Notes as a current, rather than a long-term liability. This reclassification could be required even if no noteholders convert their Convertible Notes and could materially reduce our reported working capital.
Conversion of the Convertible Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our Class A common stock.
The conversion of some or all of the Convertible Notes may dilute the ownership interests of our stockholders. Upon conversion of the Convertible Notes, we have the option to pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. If we elect to settle the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, any sales in the public market of our Class A common stock issuable upon such conversion could adversely affect prevailing market prices of our Class A common stock. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of our Convertible Notes could be used to satisfy short positions, or anticipated conversion of our Convertible Notes into shares of our Class A common stock could depress the price of our Class A common stock.
The capped call transactions may affect the value of our Class A common stock.
In connection with the pricing of the Convertible Notes, we entered into privately negotiated capped call transactions with the option counterparties. The capped call transactions are expected generally to reduce the potential dilution of our Class A common stock upon any conversion of the Convertible Notes and/or at our election (subject to certain conditions) offset any potential cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap.
In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and are likely to do so during the relevant valuation period under the capped call transactions or, to the extent we exercise the relevant termination election under the capped call transactions, following any repurchase, redemption or early conversion of the Convertible Notes or if we otherwise unwind all or a portion of the capped call transactions). This activity could also cause or avoid an increase or a decrease in the market price of our Class A common stock.
In addition, if any such capped call transaction fails to become effective, the option counterparties or their respective affiliates may unwind their hedge positions with respect to our Class A common stock, which could adversely affect the value of our Class A common stock.
We are subject to counterparty risk with respect to the capped call transactions, and the capped call may not operate as planned.
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The option counterparties are, or are affiliates of, financial institutions, and we will be subject to the risk that they might default or otherwise fail to perform, or may exercise certain rights to terminate their obligations under the applicable capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions, including the bankruptcy filing by Lehman Brothers Holdings Inc. and its various affiliates. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under such transactions with that option counterparty. Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated with increases in the market price or the volatility of our Class A common stock. In addition, upon a default or other failure to perform, or a termination of obligations by an option counterparty, we may sufferadverse tax consequences and more dilution than we currently anticipate with respect to our Class A common stock. We can provide no assurances as to the financial stability or viability of any option counterparty.
In addition, the capped call transactions are complex, and they may not operate as planned. For example, the terms of the capped call transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur. Accordingly, these transactions may not operate as we intend if we are required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the capped call transactions.
• Results of Operations. This section provides our analysis and outlook for the significant line items on our statements of operations, as well as other information that we deem meaningful to understand our results of operations on a consolidated basis for the year ended December 31, 2025 compared to the year ended December 31, 2024. An analysis of the significant line items on our statements of operations, as well as other information that we deem meaningful to understand our results of operations on a consolidated basis for the year ended December 31, 2024 compared to the year ended December 31, 2023 is included in our Form 10-K for the year ended December 31, 2024.
• Key Business Metrics and Non-GAAP Financial Measures. This section provides a discussion of key business metrics and non-GAAP financial measures we use to evaluate our business and measure our performance.
• Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of December 31, 2025.
• Critical Accounting Estimates and Policies. This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective and often complex judgments in making estimates and assumptions.
• Recent Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by our company or may be adopted in the future.
INTRODUCTION
Following the Anywhere Merger, we are a global real estate services company with a presence in every major U.S. city and approximately 120 countries and territories, and we operate a portfolio of some of the most recognized and iconic brands.
In 2025, we were a leading tech-enabled real estate services company that included the largest residential real estate brokerage in the United States by sales volume, which primarily operates under the Compass brand operating in 39 states and Washington DC, with approximately 37,000 2 agents at our owned-brokerages. We also provide integrated services to real estate agents and their clients, including title, escrow and mortgage. In January 2025, we acquired a company with the
2 In October 2025, we divested our Latter & Blum Texas business, which reduced our total agent count by approximately 900. The divestiture was not material to our consolidated financial statements.
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exclusive, worldwide right to operate, franchise and license the Christie’s International Real Estate brand. We refer to the independently operated brokerages that license the Christie’s International Real Estate brand name as franchisees. Christie’s International Real Estate is among the world’s premier global luxury real estate brands with over 100 independently operated brokerages in over 50 countries and territories. We refer to agents at our owned-brokerage and at our franchises collectively as “real estate professionals.”
Following the Anywhere Merger, which is discussed further under the “Recent Developments” header below, we operate our owned-brokerage business under the Coldwell Banker, Compass, Corcoran, and Sotheby’s International Realty brands and our franchise business under the Better Homes and Gardens Real Estate, Century 21, Christie’s International Real Estate, Coldwell Banker, Coldwell Banker Commercial, Corcoran, ERA, and Sotheby’s International Realty brands. On a combined basis, we served a global network of more than 340,000 real estate professionals in our owned-brokerage and franchise businesses as of January 31, 2026.
We also provide non-brokerage services to real estate professionals and their clients, including title and escrow and, via a minority-owned joint venture, mortgage. The Anywhere Merger expanded these services and added additional services, including relocation and, via a minority-owned joint venture, title underwriting. We refer to these services collectively as “integrated services.”
Our business model is directly aligned with the success of real estate professionals. Real estate professionals at our owned-brokerage business are independent contractors that associate their real estate licenses with us and choose to operate their businesses on our platform. We primarily generate revenue from our owned-brokerage business when we collect a share of the gross sales commissions that these real estate professionals earn from home sales and certain other fees, such as flat transaction commission fees. Gross sales commissions are typically based on a percentage of the home sale price.
We also attract independently operated brokerages that affiliate with us as franchisees or licensees under long-term franchise or license agreements. We generate revenue from our franchise business when we collect royalties from our franchisees, which are based on the percentage of the franchisee’s gross sales commissions, as well as certain other fees, such as marketing and technology fees.
In 2025, we earned substantially all of our revenue from our owned-brokerage business with integrated services and our franchise business comprising a small portion of our revenue.
Our technology offerings provide a strong foundation for agents and empower them to deliver exceptional service to their clients. Agents utilize our technology offerings to grow their businesses, save time and manage their businesses more effectively.
Our Compass platform allows our real estate agents to perform their primary workflows, from first contact to close, with a single log-in and without leaving the platform. The Compass platform includes an integrated suite of cloud-based software for customer relationship management, marketing, client service, brokerage services and other critical functionalities, all custom-built for the real estate industry. The Compass platform also uses proprietary data, analytics, AI, and machine learning to simplify workflows of agents and deliver high-value recommendations and outcomes for both agents and their clients. Additionally, certain title and escrow and mortgage services are integrated and are available on the Compass platform.
Compass One, an all-in-one client dashboard, launched in February 2025, provides a client-facing version of the Compass platform to consumers, allowing agents’ clients to have a differentiated experience where they can access the tools, services and advantages Compass offers to manage their homeownership journey.
Recent Developments
Merger With Anywhere Real Estate Inc.
On January 9, 2026, we completed the merger contemplated by the Agreement and Plan of Merger (the “Anywhere Merger Agreement”) with Anywhere Real Estate Inc., a Delaware corporation (“Anywhere”), and Velocity Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”). Pursuant to the Anywhere Merger Agreement and subject to its terms and conditions, Merger Sub merged with and into Anywhere (the “Anywhere Merger”), with Anywhere surviving as our wholly owned subsidiary. In connection with the Anywhere Merger, we acquired all outstanding shares of Anywhere common stock in a stock-for-stock transaction. Holders of Anywhere common stock received 1.436 shares of Compass Class A common stock for each share of Anywhere common stock, and we issued approximately 162.1 million shares of our Class A common stock.
During the year ended December 31, 2025, we incurred $18.1 million of transaction and integration expenses in connection with the Anywhere Merger. These expenses consist of transaction costs, including legal and investment banking fees,
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incurred in connection with our entry into the Anywhere Merger Agreement, as well as costs related to preliminary integration activities. Such expenses are presented within the Anywhere merger transaction and integration expenses line item in the consolidated statements of operations. Of these amounts, $6.3 million was paid during the year ended December 31, 2025. Additional transaction and integration costs, as well as stock-based compensation costs, are expected to be material and will be incurred in 2026 and future periods in connection with the closing of the Anywhere Merger and the related integration activities.
In connection with the Anywhere Merger, on January 7, 2026 we completed an offering of $1.0 billion in aggregate principal amount of 0.25% Convertible Senior Notes due 2031 (the “Convertible Notes”) to Morgan Stanley & Co. LLC and certain other initial purchasers (collectively, the “Initial Purchasers”). The Convertible Notes will be redeemable, in whole or in part (subject to certain limitations), at our option at any time, and from time to time, on or after April 20, 2029 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price. The initial conversion rate for the Convertible Notes is 62.5626 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $15.98 per share of common stock. The Convertible Notes will mature on April 15, 2031. The net proceeds were used to repay certain existing indebtedness of Anywhere and its subsidiaries, pay related fees, costs and expenses related to the Anywhere Merger and fund the net cost of entering into the capped call transactions (the “Capped Call Transactions”).
Additionally, we entered into the Capped Call Transactions with certain of the Initial Purchasers and/or their respective affiliates and/or other financial institutions. The Capped Call Transactions are expected generally to reduce potential dilution to the common stock upon any conversion of the Convertible Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of such converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the Capped Call Transactions will initially be $23.68 per share of common stock, which represents a premium of 100.0% over the last reported sale price of the common stock on January 7, 2026. We paid $96.5 million for the Capped Call Transactions, funded with proceeds from the Convertible Notes. The net cash proceeds we received from the offering of the Convertible Notes were approximately $880 million after considering the $96.5 million cost of the Capped Call Transaction and $23.5 million of debt issuance costs.
For additional discussion of the impact of the Anywhere Merger and related financing transactions, including the Convertible Notes, the Capped Call Transactions and the assumption of Anywhere’s outstanding debt, on our liquidity, see “—Liquidity and Capital Resources.”.
Impact of Recent Industry Practice Changes on the U.S. Residential Real Estate Market and Our Business
As part of its nationwide class action settlement of antitrustclaims, NAR agreed to implement certain industry-wide practice changes, including, but not limited to, prohibiting buyer brokers’ offers of compensation from being included in listings on Multiple Listing Services and requiring a buyer to enter into a written agreement with their agent that would set forth the buyer broker’s fee before showing the buyer a property. These changes went into effect in August of 2024. Early in the spring of 2024, we entered into our own class action antitrust settlement and agreed to implement certain other practice changes. See Note 11 — “Commitments and Contingencies” to our consolidated financial statements included elsewhere in this Annual Report for more information. Further, we believe the Department of Justice is continuing to focus on the real estate industry, including the practice changes resulting from the NAR settlement, which could result in additional practice-wide changes.
While we continue to assess the effects of the recent industry-wide changes on our business and financial results, the ultimate impact will depend on future developments, which are highly uncertain and difficult to predict, as well as the actions that we have taken, or will take, to minimize any current and future impact on our revenue, profitability, or liquidity. During this time, we have taken significant cost reduction actions that have reduced our operating expense levels to the point that we are able to consistently generate positive operating cash flow, aside from a limited number of seasonally slower transaction volume months during the year.
Operational Highlights for the year ended December 31, 2025
We continue to attract and retain the most talented agents to our platform, which is critical to our long-term success. We grow our revenue by attracting high-performing agents looking to grow their business and increasing the productivity of our agents. We invest in our proprietary, integrated platform designed for real estate agents, to enable them to grow their business and save them time and money. This value proposition allows us to recruit more agents, help them grow their business and retain them on our platform at industry leading retention rates.
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We had approximately 37,000 3 agents on our platform as of December 31, 2025. A subset of our agents are considered principal agents, which we define as either agents who are leaders of their respective agent teams or individual agents operating independently on our platform.
As of December 31, 2025, 2024 and 2023, the Number of Principal Agents 4 was 21,190 5 , 17,752 and 14,683, respectively. The principal agent additions primarily attributable to the residential real estate brokerages acquired since the prior-year period and organic recruitment efforts.
During the years ended December 31, 2025, 2024 and 2023, our agents closed 250,360, 205,122 and 178,848 Total Transactions 4 , respectively. The increase for the year ended December 31, 2025 as compared to the year ended December 31, 2024 was primarily attributable to the residential real estate brokerages acquired since the prior-year period and organic recruitment efforts.
Our Gross Transaction Value 4 for the years ended December 31, 2025, 2024 and 2023 was $267.0 billion, $216.8 billion and $186.1 billion, respectively. Gross Transaction Value is primarily driven by home values in the markets we serve and by changes in the number of our agents in those markets. The increase for the year ended December 31, 2025 as compared to the year ended December 31, 2024 was primarily attributable to the home values in the markets we serve and the increase in the number of our agents in those markets, as well as the residential real estate brokerages acquired since the prior-year period.
Seasonality and Cyclicality
The residential real estate market is seasonal, which directly impacts our businesses. While individual markets may vary, transaction volume is typically highest in spring and summer, and then declines gradually in late fall and winter. We experience the most significant financial effect from this seasonality in the first and fourth quarters of each year, when our revenue is typically lower relative to the second and third quarters. The effect of this seasonality on our revenue has a larger effect on our results of operations as many of our operating expenses (excluding commissions) are somewhat fixed in nature and do not vary directly in line with our revenue. We believe that this seasonality has affected and will continue to affect our quarterly results.
The broader residential real estate industry is cyclical, and individual markets can have their own dynamics that diverge from broad market conditions. The real estate industry can be impacted by the strength or weakness of the economy, changes in interest rates or mortgage lending standards, or extreme economic or political conditions. Our revenue growth rate tends to increase as the real estate industry performs well and to decrease when the real estate industry performs poorly.
Components of Our Results of Operations
Revenue
We generate substantially all our revenue by assisting home sellers and buyers in listing, marketing, selling and finding homes. We hold the real estate brokerage license that is necessary under relevant state laws and regulations to provide brokerage services and therefore we control those services that are necessary to legally transfer real estate between home sellers and buyers. We are the principal in the transaction and recognize as revenue the gross amount of the commission we receive in exchange for those services. Revenue is recognized upon the transfer of control of promised services to the home sellers or home buyers. Accordingly, real estate commissions are recorded as revenue at the point in time real estate transactions are closed (i.e., sale or purchase of a home).
We also recognize revenue from other integrated services related to the home transaction such as title and escrow services and royalties and fees from third-party franchisees. Revenue from these sources has been immaterial through 2025.
3 In October 2025, we divested our Latter & Blum Texas business, which reduced our total agent count by approximately 900. The divestiture was not material to our consolidated financial statements.
4 For the definitions of Number of Principal Agents, Total Transactions and Gross Transaction Value please refer to the section entitled “—Key Business Metrics” included elsewhere in this Annual Report.
5 Number of Principal Agents as of December 31, 2025 reflects the impact from a prior-period correction of 493 non-producing Principal Agents that had been incorrectly included as Principal Agents in connection with acquisitions completed during the second quarter of 2024.
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Operating Expenses
Commissions and other related expense
Commissions and other related expense primarily consists of commissions paid to our agents, who are independent contractors, upon the closing of a real estate transaction and fees paid to external brokerages for client referrals, which are recognized and paid upon the closing of a real estate transaction.
We also charge our agents fees. These fees are either transaction based, where amounts are collected at the closing of a real estate transaction, or in the form of periodic fixed fees. These fees are recognized as a reduction to commissions and other related expense.
Our commissions and other related expense as a percentage of revenue is expected to fluctuate from period-to-period based on the mix of the commission arrangements we have with our agents, the fees we collect and any changes in integrated services and franchise revenue.
Sales and marketing
Sales and marketing expense consists primarily of marketing and advertising expenses, compensation and other personnel-related costs for employees supporting sales, marketing, expansion and related functions, occupancy-related costs for our regional offices, agent recruitment and marketing incentives and costs related to administering the Compass Concierge Program, including associated bad debt expenses. Advertising expense primarily includes the cost of marketing activities such as print advertising, online advertising and promotional items, which are expensed as incurred. Compensation and other personnel-related costs include salaries, benefits, bonuses and stock-based compensation expense.
We expect sales and marketing expense to vary from period-to-period as a percentage of revenue.
Operations and support
Operations and support expense consists primarily of compensation and other personnel-related costs for employees supporting agents, third-party consulting and professional services costs, fair value adjustments to contingent consideration for our acquisitions and other acquisition related expenses.
We expect operations and support expense to vary from period-to-period as a percentage of revenue.
Research and development
Research and development expense consists primarily of compensation and other personnel-related costs for employees in the product, engineering and technology functions, website hosting expenses, software licenses and equipment, third-party consulting costs, data licenses and other related expenses.
We expect that our research and development expense will vary from period-to-period as a percentage of revenue.
General and administrative
General and administrative expense primarily consists of compensation costs for executive management and administrative employees, including finance and accounting, legal, human resources and communications, the occupancy costs for our New York headquarters and other offices supporting administrative functions, litigation charges, professional services fees, insurance expenses and talent acquisition expenses.
We expect that general and administrative expense will vary from period-to-period as a percentage of revenue for the foreseeable future as we focus on processes, systems and controls to enable our internal support functions for our business.
Anywhere merger transaction and integration expenses
Anywhere merger transaction and integration expenses consists of transaction costs, such as legal or investment banking fees, incurred in connection with our entry into the Anywhere Merger Agreement with Anywhere and costs related to preliminary integration activities.
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Restructuring Costs
Restructuring costs consist primarily of severance and other termination benefits for employees whose roles are being eliminated, lease terminations costs as a result of the accelerated amortization of various right-of-use assets and other restructuring costs.
Depreciation and amortization
Depreciation and amortization expense consists primarily of depreciation and amortization of our property and equipment, capitalized software and acquired intangible assets. We expect depreciation and amortization expense to increase as both a percentage of revenue and on an absolute basis as a result of the Anywhere Merger.
Investment Income, net
Investment income, net consists primarily of interest, dividends and realized gains and losses earned on our cash and cash equivalents.
Interest Expense
Interest expense consists primarily of expense related to the interest expenses, including commitment fees for available borrowing capacities, and amortization of debt issuance costs associated with our Concierge Facility and revolving credit facilities. We expect interest expense to increase as a result of the Anywhere Merger.
Benefit from Income Taxes
Benefit from income taxes consists of a partial reduction in the valuation allowance related to the carryover tax basis in deferred tax liabilities from acquisitions netted with the recognition of deferred tax assets in India. Additionally, we incurred current income tax expense from states and our foreign operations in India and the UK. We maintain a full valuation allowance against our U.S. deferred tax assets for income tax purposes because we have concluded that it is more likely than not that the deferred tax assets will not be realized.
Equity in Income (Loss) of Unconsolidated Entities
Equity in income (loss) of unconsolidated entities includes the results of our share of earnings and losses from our equity method investments.
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RESULTS OF OPERATIONS
The following table sets forth our consolidated statements of operations data for the periods indicated:
Year Ended December 31,
(in millions, except percentages)
Revenue
Operating expenses:
Commissions and other related expense (1)
Sales and marketing (1)
Operations and support (1)
Research and development (1)
General and administrative (1)
Anywhere merger transaction and integration expenses
Restructuring costs
Depreciation and amortization
Total operating expenses
Loss from operations
Investment income, net
Interest expense
Loss before income taxes and equity in income (loss) of unconsolidated entities
Benefit from income taxes
Equity in income (loss) of unconsolidated entities
Net loss
Net loss (income) attributable to non-controlling interests
Net loss attributable to Compass, Inc.
(1) Includes stock-based compensation expense as follows:
Year Ended December 31,
Commissions and other related expense
Sales and marketing
Operations and support
Research and development
General and administrative
Total stock-based compensation expense
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Comparison of the Years Ended December 31, 2025 and 2024
Revenue
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Revenue
Revenue increased by $1,332.5 million, or 23.7%, for 2025 compared to 2024. The increase was primarily driven by an increase in the number of agents that joined our platform during 2024 and 2025, including those agents attributable to the businesses acquired since the prior-year period. The Number of Principal Agents for 2025 was 21,190 compared to 17,752 for 2024. Total Transactions for 2025 increased to 250,360, an increase of 22.1% from 2024.
Operating Expenses
Commissions and other related expense
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Commissions and other related expense
Percentage of revenue
Commissions and other related expense increased by $1,045.1 million, or 22.5%, for 2025 compared to 2024. The increase in absolute dollars was primarily driven by increased revenue. As a percentage of revenue, Commissions and other related expense decreased from 82.3% to 81.6%. This decrease as a percentage of revenue was driven by the impact of recent acquisitions which operate with more favorable average agent commissions splits compared to our core brokerage.
Sales and marketing
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Sales and marketing
Percentage of revenue
Sales and marketing expense increased by $9.2 million, or 2.5%, for 2025 compared to 2024. Included in Sales and marketing expense were non-cash expenses related to stock-based compensation of $32.6 million for the year ended December 31, 2025 and $31.5 million for the year ended December 31, 2024. Sales and marketing expense excluding such non-cash stock-based compensation expense was $345.3 million, or 5.0% of revenue for 2025, and $337.2 million, or 6.0% for 2024, respectively. The increase in Sales and marketing expense in absolute dollars, excluding non-cash stock-based compensation expense, was primarily due to increased occupancy and personnel-related costs resulting from recent acquisitions, partially offset by lower agent marketing costs and reduced cash-based incentives for agents. The decrease in Sales and marketing expense as a percentage of revenue, excluding stock-based compensation expense, was primarily driven by the increases in revenue outpacing the year-over-year increases in Sales and marketing expense.
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Operations and support
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Operations and support
Percentage of revenue
Operations and support expense increased by $94.9 million, or 28.4%, for 2025 compared to 2024. Included in Operations and support expense were non-cash expenses related to stock-based compensation of $37.4 million for the year ended December 31, 2025 and $16.5 million for the year ended December 31, 2024. Operations and support expense excluding such non-cash stock-based compensation expense was $392.0 million, or 5.6% of revenue for 2025, and $318.0 million, or 5.6% for 2024. The increase in absolute dollars, excluding such non-cash stock-based compensation expense, was primarily driven by increase in headcount from our acquisitions during the year and core brokerage operations. As a percentage of revenue, Operations and support expense, excluding such non-cash stock-based compensation expense, remained generally consistent compared to the prior-year period.
Research and development
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Research and development
Percentage of revenue
Research and development expense increased by $57.0 million, or 30.2%, for 2025 compared to 2024. Included in Research and development expense were non-cash expenses related to stock-based compensation of $92.4 million for the year ended December 31, 2025 and $58.0 million for the year ended December 31, 2024. Research and development expense excluding non-cash stock-based compensation expense was $153.4 million, or 2.2% of revenue for 2025, and $130.8 million, or 2.3% for 2024. The increase in Research and development expense, excluding stock-based compensation expense, in absolute dollars was primarily driven by an increase in personnel and outside contractor costs. As a percentage of revenue, Research and development expense, excluding such non-cash stock-based compensation expense remained generally consistent compared to the prior-year period.
General and administrative
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
General and administrative
Percentage of revenue
General and administrative expense decreased by $20.9 million, or 12.7%, for 2025 compared to 2024. During the year ended December 31, 2024, General and administrative expense includes a charge of $57.5 million in connection with the Antitrust Lawsuits, which is discussed in Note 11 - “Commitments and Contingencies” to our consolidated financial statements included elsewhere in this Annual Report. Also included in General and administrative expense were non-cash expenses related to stock-based compensation of $39.4 million for 2025 and $21.5 million for 2024. General and administrative expense excluding non-cash stock-based compensation expense and the aforementioned litigation charge was $104.9 million, or 1.5% of revenue for 2025, and $86.2 million, or 1.5% of revenue for 2024. The increase in absolute dollars excluding such non-cash stock-based compensation expense and the litigation charge was primarily due to increased legal fees, transaction expenses incurred in connection with the closing of the acquisition of Christie’s International Real Estate and other general and administrative costs assumed from our acquired businesses. As a percentage of revenue, General and administrative expense, excluding stock-based compensation expense and the litigation charge, remained generally consistent compared to the prior-year periods.
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Anywhere merger transaction and integration expenses
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Anywhere merger transaction and integration expenses
Percentage of revenue
Anywhere merger transaction and integration expenses during the year ended December 31, 2025 represent transaction expenses incurred in connection with Anywhere Merger. These expenses consist of transaction costs, including legal and investment banking fees, incurred in connection with our entry into the Anywhere Merger Agreement, as well as costs related to preliminary integration activities. Additional information regarding the merger is provided in Note 18 — “ Subsequent Events” in our consolidated financial statements included elsewhere in this Annual Report.
Restructuring costs
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Restructuring costs
Percentage of revenue
Restructuring costs during the year ended December 31, 2025 primarily consisted of lease terminations costs, including accelerated amortization of various right-of-use assets and other related costs, as well as severance and other termination benefits for employees whose roles were eliminated. The year-over-year increase was primarily attributable to the absence of comparable severance charges in the prior-year period. See Note 17 — “ Restructuring Activities” in our consolidated financial statements included elsewhere in this Annual Report, for additional information.
Depreciation and amortization
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Depreciation and amortization
Percentage of revenue
Depreciation and amortization expense increased by $30.3 million, or 36.8%, for 2025 compared to 2024. The increase in absolute dollars and on a percentage of revenue basis was primarily due to higher amortization of intangible assets from acquisitions completed since the prior year.
Investment income, net
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Investment income, net
During the year ended December 31, 2025, investment income was $5.5 million and during year ended December 31, 2024, investment income was $6.8 million. Investment income, net decreased during the year ended December 31, 2025 as a result of holding less short-term interest-bearing investments throughout the year.
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Interest expense
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Interest expense
Interest expense increased by $2.6 million, or 40.6%, for 2025 compared to 2024. The increase from the prior year period was primarily driven by the interest expense incurred as a result of balances outstanding during the year on the 2021 Revolving Credit Facility, with no comparable balance outstanding in the prior year.
Benefit from income taxes
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Benefit from income taxes
Benefit from income taxes increased by $0.6 million, or 120.0%, for 2025 compared to 2024. The increase from the prior year primarily resulted from a partial reduction in the valuation allowance offset with current tax in the United Kingdom resulting from the Christie’s International Real Estate acquisition.
Equity in income (loss) of unconsolidated entities
Year Ended December 31,
$ Change
% Change
(in millions, except percentages)
Equity in income (loss) of unconsolidated entities
During the year ended December 31, 2025, Equity in income of unconsolidated entities was $7.1 million, and during the year ended December 31, 2024, Equity in loss of unconsolidated entities was $0.6 million. The income earned during the year ended December 31, 2025 was primarily driven by our share of earnings from our mortgage joint venture, OriginPoint, LLC, as well as income from other equity method investments acquired since the prior year.
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KEY BUSINESS METRICS AND NON-GAAP FINANCIAL MEASURES
In addition to the measures presented in our consolidated financial statements, we use the following key business metrics and non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.
Year Ended December 31,
Total Transactions
Gross Transaction Value (in billions)
Number of Principal Agents (1)(2)
Net loss attributable to Compass, Inc. (in millions)
Net loss attributable to Compass, Inc. margin
Adjusted EBITDA (3) (in millions)
Adjusted EBITDA margin (3)
(1) During the first quarter of 2024, we began to report agent statistics as of the period end. Our Number of Principal Agents and year over year growth reported in this Annual Report is based on the year end count.
(2) Number of Principal Agents as of December 31, 2025 reflects the impact from a prior-period correction of 493 non-producing Principal Agents that had been incorrectly included as Principal Agents in connection with acquisitions completed during the second quarter of 2024.
(3) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For more information regarding our use of these measures and a reconciliation of Net loss attributable to Compass, Inc. to Adjusted EBITDA, see the section titled “—Non-GAAP Financial Measures” below.
Key Business Metrics
Total Transactions
Total Transactions is a key measure of the scale of our platform, which drives our financial performance. We define Total Transactions as the sum of all transactions closed on our platform in which our agent represented the buyer or seller in the purchase or sale of a home. We include a single transaction twice when one or more of our agents represent both the buyer and seller in any given transaction. This metric excludes rental transactions.
Our Total Transactions for the year ended December 31, 2025 were 250,360, an increase of 22.1% from the year ended December 31, 2024. The increase in Total Transactions was primarily attributable to the brokerages acquired since the prior-year period.
Gross Transaction Value
Gross Transaction Value is a key measure of the scale of our platform and success of our agents, which ultimately impacts revenue. Gross Transaction Value is the sum of all closing sale prices for homes transacted by agents on our platform. We include the value of a single transaction twice when our agents serve both the home buyer and home seller in the transaction. This metric excludes rental transactions.
Gross Transaction Value is primarily driven by home values in the markets we serve and by changes in the number of our agents in those markets, as well as seasonality and macroeconomic factors.
Our Gross Transaction Value for the year ended December 31, 2025 was $267.0 billion, an increase of 23.2% from the year ended December 31, 2024. The period-over-period increase was primarily driven by the increase in the number of agents on our platform.
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Number of Principal Agents
The Number of Principal Agents represents the number of agents who are leaders of their respective agent teams or individual agents operating independently on our platform. The Number of Principal Agents is an indicator of the potential future growth of our business, as well as the size and strength of our platform. We use the Number of Principal Agents, in combination with our other key metrics such as Total Transactions and Gross Transaction Value, as a measure of agent productivity.
Our Number of Principal Agents as of December 31, 2025 was 21,190 6 , representing an increase of 19.4% from the year ago period. The increase in the Number of Principal Agents was primarily driven by the agents from businesses acquired during the year. Our principal agents generate revenue across a diverse set of real estate markets in the U.S.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA is a non-GAAP financial measure that represents our Net loss attributable to Compass, Inc. adjusted for depreciation and amortization, investment income, net, interest expense, stock-based compensation expense, benefit from income taxes and other items. During the periods presented, other items included (i) restructuring charges associated with lease termination and severance costs, (ii) litigation charges in connection with the Antitrust Lawsuits and (iii) transaction and integration expenses associated with the Anywhere Merger. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue.
We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. We believe Adjusted EBITDA and Adjusted EBITDA margin are also helpful to investors, analysts and other interested parties because these measures can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, however, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA margin alongside other financial performance measures, including Net loss attributable to Compass, Inc. and our other GAAP results. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA and Adjusted EBITDA margin are not presented in accordance with GAAP and the use of these terms varies from others in our industry.
6 Number of Principal Agents as of December 31, 2025 reflects the impact from a prior-period correction of 493 non-producing Principal Agents that had been incorrectly included as Principal Agents in connection with acquisitions completed during the second quarter of 2024.
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The following table provides a reconciliation of Net loss attributable to Compass, Inc. to Adjusted EBITDA (in millions, except percentages):
Year Ended December 31,
Net loss attributable to Compass, Inc.
Adjusted to exclude the following:
Depreciation and amortization
Investment income, net
Interest expense
Stock-based compensation
Benefit from income taxes
Anywhere merger transaction and integration expenses (1)
Restructuring costs
Other acquisition-related expenses (2)
Litigation charges (3)
Adjusted EBITDA
Net loss attributable to Compass, Inc. margin
Adjusted EBITDA margin
(1) Represents transaction expenses incurred in connection with the Anywhere Merger. During the year ended December 31, 2025, these expenses consist of transaction costs, including legal and investment banking fees, incurred in connection with our entry into the Anywhere Merger Agreement, as well as costs related to preliminary integration activities.
(2) Includes adjustments related to the change in fair value of contingent consideration and adjustments related to acquisition consideration treated as compensation expense over the underlying retention periods. See Note 3 - “Acquisitions” to the consolidated financial statements included elsewhere in this Annual Report for more information.
(3) Represents a charge of $57.5 million incurred during the three months ended March 31, 2024 in connection with the Antitrust Lawsuits. See Note 11 – “Commitments and Contingencies” to the consolidated financials statements included elsewhere in this Annual Report for more information.
Adjusted EBITDA was $293.4 million and $126.0 million during the years ended December 31, 2025 and 2024, respectively. The improvement in Adjusted EBITDA during the year ended December 31, 2025 as compared to the year ended December 31, 2024 was primarily driven by higher revenue resulting from an increased number of agents on our platform.
The following tables provide supplemental information to the Reconciliation of Net loss attributable to Compass, Inc. to Adjusted EBITDA presented above. These tables identify how each of the Operating expenses related financial statement line items contained within the accompanying consolidated statements of operations elsewhere in this Annual Report are impacted by the items excluded from Adjusted EBITDA (in millions):
Year Ended December 31, 2025
Commissions and other related expense
Sales and marketing
Operations and support
Research and development
General and administrative
GAAP Basis
Adjusted to exclude the following:
Stock-based compensation
Other acquisition-related expenses
Non-GAAP Basis
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Year Ended December 31, 2024
Commissions and other related expense
Sales and marketing
Operations and support
Research and development
General and administrative
GAAP Basis
Adjusted to exclude the following:
Stock-based compensation
Other acquisition-related expenses
Litigation charge
Non-GAAP Basis
Year Ended December 31, 2023
Commissions and other related expense
Sales and marketing
Operations and support
Research and development
General and administrative
GAAP Basis
Adjusted to exclude the following:
Stock-based compensation
Other acquisition-related expenses
Non-GAAP Basis
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2025, we had cash and cash equivalents of $199.0 million and an accumulated deficit of $2.7 billion. During the year ended December 31, 2025, we generated $216.7 million in cash flows from operations.
We also maintain a 2025 Revolving Credit Facility that is available to us, subject to compliance with certain financial and non-financial covenants. As of December 31, 2025, there were no outstanding borrowings and $219.1 million was available for borrowing under the facility, after giving effect to $30.9 million of letters of credit. Subsequent to year end, in connection with the closing of the Anywhere Merger in January 2026, total capacity under the 2025 Revolving Credit Facility increased automatically by $250 million to $500 million. We were in compliance with all financial and non-financial covenants as of December 31, 2025. See Note 9 — “Debt” to our consolidated financial statements included elsewhere in this Annual Report for additional information.
Following the completion of the Anywhere Merger in January 2026, our primary sources of liquidity consist of cash flows from operations, cash on hand, amounts available under the 2025 Revolving Credit Facility and funds available under the Apple Ridge securitization program assumed from Anywhere. In January 2026, we completed a private offering of $1.0 billion aggregate principal amount of Convertible Notes and used a portion of the net proceeds to repay in full approximately $500 million of outstanding borrowings under the Anywhere revolving credit facility, eliminating these variable-rate borrowings.
Our principal uses of liquidity include funding working capital and day-to-day operations, continued investment in our technology offerings, market footprint expansion, and strategic initiatives designed to simplify the real estate transaction experience. Liquidity is also used to service debt, including interest payments on the Convertible Notes and the $2,150 million of fixed-rate senior notes assumed in the Anywhere Merger, which bear a weighted-average interest rate of 6.94% and mature in 2029 and 2030. Additionally, we expect to fund merger and integration-related expenses from our available liquidity.
After giving effect to the completion of the Anywhere Merger, the issuance of the Convertible Notes, the repayment of the Anywhere revolving credit facility and the payment of transaction-related costs, combined cash and cash equivalents of the Company and Anywhere totaled approximately $530 million as of January 31, 2026. We believe that our existing cash and cash equivalents, together with cash flows from operations and availability under our 2025 Revolving Credit Facility, will be sufficient to meet our working capital requirements, including those related to the integration, capital expenditures, and debt service obligations for at least the next twelve months. The issuance of the Convertible Notes provides additional
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liquidity to support seasonal working capital needs typically experienced in the first quarter, without reliance on our variable-rate 2025 Revolving Credit Facility.
For more information regarding our indebtedness including the senior notes assumed from Anywhere, see the section titled “—Contractual Obligations and Commitments.”
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
(in millions)
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Operating Activities
For 2025, net cash provided by operating activities was $216.7 million. The inflow was primarily due to a $58.7 million net loss adjusted for $308.5 million of non-cash charges and a net cash outflow due to changes in assets and liabilities of $33.1 million. The non-cash charges are primarily related to $202.7 million of stock-based compensation expense and $112.7 million of depreciation and amortization expense. The changes in assets and liabilities resulted in a cash outflow primarily due to an decrease of $24.6 million in accrued expenses and other liabilities, primarily driven by the final settlement paid in connection with the Antitrust Lawsuit, a $12.0 million outflow from net operating lease right-of-use assets and operating lease liabilities, an increase of $6.8 million in other non-current assets and a $2.8 million decrease in accounts payable. The cash outflow from changes in assets and liabilities was partially offset by a inflow of $7.1 million in accounts receivable due to timing of receipts and a $5.3 million inflow from Commissions payable.
For 2024, net cash provided by operating activities was $121.5 million. The inflow was primarily due to a $154.5 million net loss adjusted for $215.1 million of non-cash charges and a net cash inflow due to changes in assets and liabilities of $60.9 million. The non-cash charges are primarily related to $127.5 million of stock-based compensation expense and $82.4 million of depreciation and amortization expense. The changes in assets and liabilities resulted in a cash inflow primarily due to an increase of $42.0 million in accrued expenses and other liabilities, a $23.1 million increase in Commissions payable, a $21.3 million decrease in other currents assets and a decrease of $7.0 million in other non-current assets. The cash inflow from operations was partially offset by a $17.4 million outflow from net operating lease right-of-use assets and operating lease liabilities, an increase of $8.0 million in accounts receivable due to timing of receipts, a decrease of $6.3 million in accounts payable due to timing of payments and a $0.8 million decrease in Compass Concierge receivables. The benefit to operating cash flow in 2024 provided by changes in assets and liabilities is impacted by timing and may reverse in future periods and negatively impact operating cash flows at that time.
For 2023, net cash used in operating activities was $25.9 million. The outflow was primarily due to a $320.1 million net loss adjusted for $259.2 million of non-cash charges being offset by a net cash inflow due to changes in assets and liabilities of $35.0 million. The non-cash charges are primarily related to $158.2 million of stock-based compensation expense, $90.0 million of depreciation and amortization expense, $4.4 million of bad debt expense and $3.3 million of equity in loss of unconsolidated entities. The changes in assets and liabilities resulted in a cash inflow primarily due to a $21.4 million decrease in other currents assets, a $18.0 million decrease in Compass Concierge receivables, a $11.6 million increase in Commissions payable and a decrease of $9.1 million in other non-current assets. The cash inflow from operations was partially offset by a decrease of $10.6 million in accrued expenses and other liabilities, a decrease of $9.8 million in accounts payable due to timing of payments, an increase of $3.5 million in accounts receivable due to timing of receipts and a $1.2 million outflow from net operating lease right-of-use assets and operating lease liabilities.
Investing Activities
During 2025, net cash used by investing activities was $191.3 million, consisting of $174.0 million in payments for acquisitions, net of cash acquired, $13.4 million in capital expenditures and $3.9 million for investments in unconsolidated entities.
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During 2024, net cash used by investing activities was $36.6 million, consisting of $18.9 million in payments for acquisitions, net of cash acquired, $15.7 million in capital expenditures and $2.0 million for investments in an unconsolidated entity.
During 2023, net cash used by investing activities was $11.7 million, consisting of $11.2 million in capital expenditures and $1.2 million for investment in an unconsolidated entity, partially offset by $0.7 million in net cash acquired from acquisitions.
Financing Activities
During 2025, net cash used in financing activities was $50.2 million, primarily consisting of $61.1 million in taxes paid related to net share settlement of equity awards, $7.4 million in payments related to acquisitions, including payments of contingent consideration and $4.1 million in payments of issuance costs related to the new Revolving Credit Facility, partially offset by $17.8 million in proceeds from the exercise of stock options and $2.9 million in proceeds from the issuance of common stock under the Employee Stock Purchase Plan.
During 2024, net cash used in financing activities was $28.0 million, primarily consisting of $35.0 million in taxes paid related to net share settlement of equity awards, $3.4 million in payments related to acquisitions, including payments of contingent consideration, and $1.2 million in net payments on drawdowns and repayments on the Concierge Facility, partially offset by $9.5 million in proceeds from the exercise of stock options and $2.2 million in proceeds from the issuance of common stock under the Employee Stock Purchase Plan.
During 2023, net cash used in financing activities was $157.4 million, primarily consisting of $150.0 million in net repayments of drawdowns on the 2021 Revolving Credit Facility, $23.5 million in taxes paid related to net share settlement of equity awards, $14.6 million in payments related to acquisitions, including payments of contingent consideration, and $7.1 million in net payments on drawdowns and repayments on the Concierge Facility, partially offset by $32.3 million in proceeds from the issuance of common stock in connection with the Strategic Transaction (see Note 12 - “Preferred Stock and Common Stock” to our consolidated financial statements included elsewhere in this Annual Report for more information ) , $4.5 million in proceeds from the exercise of stock options and $2.5 million in proceeds from the issuance of common stock under the Employee Stock Purchase Plan.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2025:
(1) As of December 31, 2025, we have additional operating leases for real estate that have not yet commenced of $25.8 million payable through 2038, which have been excluded from above.
Indebtedness
Concierge Facility
In July 2020, we entered into a Revolving Credit and Security Agreement (the “Concierge Facility”) with Barclays Bank PLC, as administrative agent, and the several lenders party thereto, which was subsequently amended on July 29, 2021, August 5, 2022, August 4, 2023 and August 1, 2025. The Concierge Facility provides for a $75.0 million revolving credit facility and is solely used to finance a portion of our Compass Concierge Program. The Concierge Facility is secured primarily by the Concierge Receivables and cash of the Compass Concierge Program. The interest rate on the drawn down balance of the Concierge Facility was 6.57% as of December 31, 2025. Pursuant to the Concierge Facility, the principal
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amount, if any, is payable in full in January 2028, unless earlier terminated or extended. As of December 31, 2025 and 2024, there were $22.7 million and $23.6 million, respectively, in borrowings outstanding under the Concierge Facility.
We have the option to repay our borrowings under the Concierge Facility without premium or penalty prior to maturity. The Concierge Facility contains customary affirmative covenants, such as financial statement reporting requirements, as well as covenants that restrict its ability to, among other things, incur additional indebtedness, sell certain receivables, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions. Additionally, in the event that we fail to comply with certain financial covenants that require us to meet certain liquidity-based measures, the commitments under the Concierge Facility will automatically be reduced to zero and we will be required to repay any outstanding loans under the Concierge Facility. As of December 31, 2025, we were in compliance with the covenants under the Concierge Facility.
2021 Revolving Credit Facility
In March 2021, we entered into a Revolving Credit and Guaranty Agreement (the “2021 Revolving Credit Facility”), with Barclays Bank PLC, as administrative agent and as collateral agent, or the Administrative Agent, and certain other lenders, which was subsequently amended on May 1, 2023. The 2021 Revolving Credit Facility provided for a $350.0 million revolving credit facility, subject to the terms and conditions of the 2021 Revolving Credit Facility. The 2021 Revolving Credit Facility also included a letter of credit sublimit which is the lesser of (i) $125.0 million and (ii) the aggregate unused amount of the revolving commitments then in effect under the 2021 Revolving Credit Facility. Our obligations under the 2021 Revolving Credit Facility were guaranteed by certain of our subsidiaries and were secured by a first priority security interest in substantially all of our assets and subsidiary guarantors.
Borrowings under the 2021 Revolving Credit Facility bear interest, at our option, at either (i) a floating rate per annum equal to the base rate plus a margin of 0.50% or (ii) a rate per annum equal to the secured overnight financing rate, or SOFR, plus a margin of 1.50%. The base rate was equal to the highest of (a) the prime rate as quoted by The Wall Street Journal, (b) the federal funds effective rate plus 0.50%, (c) the SOFR term rate for a one-month interest period plus 1.00%, and (d) 1.00%. The SOFR term rate was determined as the forward-looking term rate plus a 0.10% adjustment. In November 2025, we terminated the 2021 Revolving Credit Facility.
2025 Revolving Credit Facility
In November 2025, we entered into a Revolving Credit and Guaranty Agreement (the “2025 Revolving Credit Facility”) with Morgan Stanley Senior Funding, Inc., as administrative agent and as collateral agent and a syndicate of other lenders. Under the 2025 Revolving Credit Facility, we obtained revolving commitments from lenders in an initial amount of $250 million. The lenders’ commitments under the 2025 Revolving Credit Facility automatically increased by $250 million to an aggregate amount of $500 million upon the completion of the Anywhere Merger in January 2026. The 2025 Revolving Credit Facility also includes a letter of credit sublimit of $100 million (which automatically increased to $170 million once the Anywhere Merger was consummated). Our obligations under the 2025 Revolving Credit Facility are guaranteed by certain subsidiaries and are secured by a first priority security interest in substantially all our assets and our subsidiary guarantors, subject to customary exceptions. See Note 18 — “Subsequent Events” for further information regarding the Anywhere Merger.
Borrowings under the 2025 Revolving Credit Facility bear interest at Term SOFR plus an applicable rate between 1.50% and 2.25% per annum, based on a pricing grid in which the levels are set based on our Total Net Leverage Ratio (as defined in the underlying agreement). We are also obligated to pay other customary fees under the 2025 Revolving Credit Facility, including (i) a commitment fee to the lenders on amounts they have committed, which are unused, of between 0.175% and 0.35% per annum, based on a pricing grid in which the levels are set based on our Total Net Leverage Ratio, (ii) fees associated with the issuance of letters of credit, (iii) administrative agent fees and (iv) upfront fees.
The maturity date of the 2025 Revolving Credit Facility is November 17, 2030. In the event there is an aggregate principal amount outstanding on certain of Anywhere’s second lien and unsecured notes that exceeds $50 million on the date that is 91 days prior to the respective final stated maturity dates of such notes, the 2025 Revolving Credit Facility is subject to an earlier springing maturity on such 91st day. We do not expect such early maturity to occur as we currently intend to repay or refinance such notes. More information related to Anywhere’s second lien and unsecured notes is described below under the headers “Anywhere Secured Notes” and “Anywhere Unsecured Notes”.
We have the option to repay our borrowings, and to permanently reduce the commitments in whole or in part, under the 2025 Revolving Credit Facility without premium or penalty. As of December 31, 2025, there were no borrowings
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outstanding under the 2025 Revolving Credit Facility and outstanding letters of credit under the 2025 Revolving Credit Facility totaled approximately $30.9 million.
The 2025 Revolving Credit Facility contains customary representations, warranties, affirmative covenants, and negative covenants. The negative covenants restrict us and our restricted subsidiaries’ ability, among other things, incur liens and indebtedness, make certain investments, declare and pay dividends, dispose of, transfer or sell assets, make stock repurchases and consummate certain other matters, all subject to certain exceptions. The financial covenant under the 2025 Revolving Credit Facility requires that following the consummation of the Anywhere Merger, we maintain a Total Net Leverage Ratio level of no greater than 5.00 to 1.00, stepping down to 4.50 to 1.00 on December 31, 2027 and 4.25 to 1.00 on December 31, 2028 (with no requirement to maintain a minimum Liquidity level or a minimum Consolidated Total Revenue level). As of December 31, 2025, we were in compliance with the covenants under the 2025 Revolving Credit Facility.
We have $30.9 million of irrevocable letters of credit with various financial institutions, primarily related to security deposits for leased facilities. As of December 31, 2025, these letters of credit were under the 2025 Revolving Credit Facility.
0.25% Convertible Senior Notes due 2031
In connection with the Anywhere Merger, we completed an offering of $1.0 billion in aggregate principal amount of Convertible Senior Notes due 2031 (the “Convertible Notes”) to Morgan Stanley & Co. LLC and certain other initial purchasers (collectively, the “Initial Purchasers”). The Convertible Notes will be redeemable, in whole or in part (subject to certain limitations), at our option at any time, and from time to time, on or after April 20, 2029 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price. The initial conversion rate for the Convertible Notes is 62.5626 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $15.98 per share of common stock. The Convertible Notes will mature on April 15, 2031. The net proceeds were used to repay certain existing indebtedness of Anywhere and its subsidiaries, pay related fees, costs and expenses related to the Anywhere Merger and fund the net cost of entering into the capped call transactions (the “Capped Call Transactions”).
Additionally, we entered into the Capped Call Transactions with certain of the Initial Purchasers and/or their respective affiliates and/or other financial institutions. The Capped Call Transactions are expected generally to reduce potential dilution to the common stock upon any conversion of Convertible Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of such converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the Capped Call Transactions will initially be $23.68 per share of common stock, which represents a premium of 100.0% over the last reported sale price of the common stock on January 7, 2026.
Anywhere Secured Notes
Following the Anywhere Merger, the 9.75% Senior Secured Second Lien Notes and the 7.00% Senior Secured Second Lien Notes (collectively the “Anywhere Secured Notes”) continued as obligations of Anywhere Real Estate Group LLC and Anywhere Co-Issuer Corp. (together, the “Issuers”). The Anywhere Secured Notes mature on April 15, 2030 and bear interest payable semiannually in arrears on April 15 and October 15 of each year. As of December 31, 2025, the principal outstanding under 9.75% Senior Secured Second Lien Notes and the 7.00% Senior Secured Second Lien Notes were $500.0 million and $640.0 million, respectively.
We may redeem all or a portion of the 9.75% Senior Secured Second Lien Notes or the 7.00% Senior Secured Second Lien Notes, as applicable, at the redemption prices set forth in the applicable indenture. Prior to April 15, 2027, we may only redeem the 9.75% Senior Secured Second Lien Notes at a make-whole redemption price calculated in accordance with the indenture. On and after April 15, 2027, the notes may be redeemed at the applicable call prices set forth in the indenture, beginning at 104.875% of the outstanding principal amount, plus accrued and unpaid interest.
As of the Anywhere Merger, the Anywhere Secured Notes are (1) guaranteed on a senior secured, second priority basis by all material domestic subsidiaries that are guarantors under the 2025 Revolving Credit Facility; (2) guaranteed by Compass on a voluntary and unsecured senior subordinated basis; and (3) secured by substantially the same collateral as our existing first lien obligations under our 2025 Revolving Credit Facility, but on a second priority basis.
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The indentures governing the Anywhere Secured Notes contain various covenants that limit the Issuers’, our and our restricted subsidiaries’ ability to take certain actions, which covenants are subject to a number of important exceptions and qualifications. These covenants are substantially similar to the covenants in the indenture governing 5.75% Senior Notes due 2029 and 5.25% Senior Notes due 2030, as described below under the header “Anywhere Unsecured Notes”.
Anywhere Unsecured Notes
Following the Anywhere Merger, the 5.75% Senior Notes and 5.25% Senior Notes (collectively the “Anywhere Unsecured Notes”) continued as obligations of the Issuers. The 5.75% Senior Notes mature on January 15, 2029 with interest on such notes payable each year semiannually on January 15 and July 15. The 5.25% Senior Notes mature on April 15, 2030 with interest on such notes payable each year semiannually on April 15 and October 15. As of December 31, 2025, the principal outstanding under the 5.75% Senior Notes and 5.25% Senior Notes were $559.0 million and $449.0 million, respectively.
We may redeem all or a portion of the 5.75% Senior Notes or 5.25% Senior Notes, as applicable, at the redemption price set forth in the applicable indenture governing such notes.
The Anywhere Unsecured Notes are guaranteed on a general senior unsecured basis by Compass (on a voluntary basis) and all material domestic subsidiaries that are guarantors under the Credit Facilities and our outstanding debt securities.
The indentures governing the Anywhere Unsecured Notes contain various negative covenants that limit the Issuers’, our and our restricted subsidiaries’ ability, among other things, to incur or guarantee additional indebtedness, or issue disqualified stock or preferred stock, pay dividends or make distributions to their stockholders, repurchase or redeem capital stock, make investments or acquisitions, incur restrictions on the ability of certain of their subsidiaries to pay dividends or to make other payments to Anywhere Group, enter into transactions with affiliates, create liens, merge or consolidate with other companies or transfer all or substantially all of their assets, transfer or sell assets, including capital stock of subsidiaries and prepay, redeem or repurchase debt that is subordinated in right of payment to the Anywhere Unsecured Notes, all subject to certain exceptions. The financial covenants under the Anywhere Unsecured Notes require that (i) the cumulative credit basket is not available to repurchase shares to the extent the consolidated leverage ratio is equal to or greater than 4.0 to 1.0 on a pro forma basis giving effect to such repurchase (ii) the consolidated leverage ratio must be less than 3.0 to 1.0 to use the unlimited general restricted payment basket; and (iii) a restricted payment basket is available for up to $45 million of dividends per calendar year (with any actual dividends deducted from the available cumulative credit basket).
Anywhere Securitization Obligations
Following the Anywhere Merger, the secured obligations of Apple Ridge Funding LLC continued under a securitization program which expires in May 2026. As of December 31, 2025, the Company had $180.0 million of borrowing capacity under the Apple Ridge Funding LLC securitization program with $143.0 million being utilized leaving $37.0 million of available capacity subject to maintaining sufficient relocation related assets to collateralize the securitization obligation.
For purposes of the securitization program, certain Anywhere entities are consolidated special purpose entities that are utilized to securitize relocation receivables and related assets. These assets are generated from advancing funds on behalf of clients of Anywhere’s relocation operations in order to facilitate the relocation of their employees. Assets of these special purpose entities are not available to pay Anywhere Group’s general obligations. Under the Apple Ridge securitization program, provided no termination or amortization event has occurred, any new receivables generated under the designated relocation management agreements are sold into the securitization program and as new eligible relocation management agreements are entered into, the new agreements are designated to the program. In January 2026, Anywhere Group entered into an agreement to, among other things, provide that events arising solely from the Anywhere Merger will not trigger an amortization event before May 29, 2026 as long as a performance guaranty with Compass, as performance guarantor is in full force and effect prior to such time. On January 8, 2026, Compass executed such a performance guaranty to be effective upon the Anywhere Merger.
The Apple Ridge securitization program has restrictive covenants and trigger events, the occurrence of which could restrict our ability to access new or existing funding under this facility or result in termination of the facility, either of which would adversely affect the operation of the relocation services.
Off-Balance Sheet Arrangements
We administer escrow and trust deposits which represent undistributed amounts for the settlement of real estate transactions. We are contingently liable for these escrow and trust deposits totaling $294.4 million and $147.1 million as of December 31, 2025 and 2024, respectively. These deposits are not our assets and therefore are excluded from our
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consolidated balance sheets. However, we remain contingently liable for the disposition of these deposits. We did not have any other off-balance sheet arrangements as of or during the periods presented.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates and therefore, if material, our future financial statements will be affected.
A thorough understanding of our critical accounting policies is essential when reviewing our consolidated financial statements. We believe that the critical accounting policies listed below are the most difficult management decisions as they involve the use of significant estimates and assumptions as described above.
See Note 2 — “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report for more information.
Business Combinations
We account for business combinations under the acquisition method of accounting. This method requires us, among other things, to allocate the fair value of the purchase consideration to the tangible and intangible assets acquired and the liabilities assumed at their estimated fair values as of the acquisition date. We record the excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities as goodwill. When determining the fair value of assets acquired and liabilities assumed, our management makes estimates and assumptions, especially with respect to intangible assets. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable, and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, we reflect any subsequent adjustments in the consolidated statements of operations. We expense acquisition costs, consisting primarily of third-party legal and consulting fees as they are incurred.
Intangible Assets
We account for intangible assets resulting from the acquisition of entities using the acquisition method based on our management’s estimate of the fair value of assets received. Our intangible assets are finite lived and mainly consist of customer relationships, workforce and acquired technology, and we amortize these over their respective estimated useful lives. We determine the useful lives by estimating future cash flows generated by the acquired intangible assets. We amortize these intangible assets on a straight-line basis over their estimated useful lives within our operating expenses.
On January 13, 2025, we completed the acquisition of At World Properties Holdings, LLC, known as @properties Christie’s International Real Estate (“CIRE”) and its consolidated subsidiaries, including the @properties brokerage business. The acquisition resulted in the recognition of $58.0 million for the @properties agent network and $42.3 million related to the CIRE affiliate network. The acquisition also resulted in the recognition of a $29.2 million technology intangible asset related to the @properties brokerage. The fair values of the @properties agent network and the CIRE franchise network were determined using the multi-period excess earnings method, while the fair value of the technology intangible asset was determined using the relief-from-royalty method. The valuation of these intangible assets required the use of significant management judgment and estimates, including assumptions related to revenue growth rates, projected margins, royalty rates, and discount rates.
RECENT ACCOUNTING PRONOUNCEMENTS
For a description of our recently adopted accounting pronouncements and accounting pronouncements issued but not yet adopted, see Note 2 - “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report.
