Real EstateBrokerage

Warren Buffett’s boring, dominant resi brokerage

HomeServices has methodically and anonymously stayed profitable for years

Gino Blefari HW+
Gino Blefari, Berkshire Hathaway HomeServices of America CEO and chairman

Gino Blefari is a pretty colorful character. The Berkshire Hathaway HomeServices of America CEO and chairman of Berkshire’s franchise network, HSF Affiliates, calls money “dough,” and is fond of tangents – like describing the initial reporting on the JFK assassination, and the best routes to the John Wayne Airport in Irvine, California.

But while Blefari has a clearly defined personality, the residential real estate brokerage he runs doesn’t. Berkshire Hathaway HomeServices of America is not just a boring mouthful of a name, but it is a confusingly layered operation.

There are corporate parents, brokerage branches, brokerage branches with their own branding, mortgage companies, mortgage companies that are joint ventures with a subsidiary brokerage, a title and escrow division, and an insurance division. HSF Affiliates, meanwhile, is a mélange of franchisees with and without the Berkshire name.

“I’d like us to have more of an identity,” Blefari admitted.

This muddle combined with the brokerage’s old-fashioned approach – Blefari is not only the rare real estate CEO who does not wax on about technology, but he actually discussed how fun it was to recently post on Facebook – underwhelms real estate observers, who can offer a fiercely opinionated response about Zillow or Compass at the drop of a hat.

HomeServices is “staid” and “traditional,” said Jonathan Miller, appraiser at Miller Samuel, with “nothing earth-shattering” going on.

But at the same time, Miller acknowledges, the brokerage is “well-regarded.”

Indeed, bland does not mean bad. HomeServices partook in more U.S. home sales in 2020 than any other brokerage in the country, according to data reported to RealTrends.

Perhaps more impressively, HomeServices posted a sizable profit for the third year in the row. It is the rare residential brokerage with both a nationwide presence and consistent annual profits.

HomeServices does not seem to do anything tantalizingly brilliant – except perhaps realizing what a brokerage is and isn’t capable of.

Keeping the lights on

In theory, the HomeServices brand could be a person, Warren Buffett, the CEO of Berkshire Hathaway who took control of the Omaha-headquartered conglomerate in 1965 and is perhaps the most famous business mogul in the country.

But the 90-year-old Buffett did not mention his real estate brokerage holdings once in a 14-page letter to Berkshire shareholders in February, a letter that managed to squeeze in a whole page about BNSF Railways plus Buffett’s penchant for risqué Mae West quotes.

While the CEO, who has a net worth of $100 billion, could buy and sell the 10 biggest brokerages in the country tomorrow, there has never been talk of Buffett either spinning off HomeServices or making a more ambitious real estate brokerage play.

In fact, Blefari said he hasn’t spoken to Buffett in years, and that the larger corporation’s pile of money is completely “siloed” from HomeServices’ operations.

Blefari does sometimes speak with Greg Abel, the chairman and CEO of Berkshire Hathaway Energy.

Just over 20 years ago, Berkshire Hathaway bought Mid-American Energy, a company that held HomeServices, a Minneapolis-based brokerage.

HomeServices has remained part of Berkshire Hathaway Energy ever since, meaning Blefari sits in on Monday conference calls with executives from the likes of Northern Natural Gas and Kern River Gas Transmission Company.

“I know more about the energy business than any other CEO in real estate,” Blefari said.

A Berkshire Hathaway Energy spokesperson acknowledged that “the energy industry and residential real estate market are quite different.”

But the spokesperson added that like all of Berkshire Hathaway Energy’s businesses, HomeServices is locally managed, pursues growth opportunities, and “there hasn’t been a need” to change where the brokerage fits into Berkshire’s corporate hierarchy.

Big and profitable at Berkshire Hathaway

Tired of work from home? HomeServices has 883 offices – physical brick-and-mortar sites – and 43,258 agents at the end of 2020, according to figures the company provided to RealTrends.

The brokerage was party to 343,000 home sales in 2020, which ranks first among brokerage companies in terms of transaction volume. HomeServices was third in sales volume, reporting $150 billion, which puts it behind Realogy’s $184 billion, and Compass’s $152 billion.

(That pencils out to a $438,000 average home sale by a HomeServices agent, about 30 percent more the U.S. median home price.)

Those numbers include a slew of brokerages that HomeServices has steadily acquired, from its purchase of Atlanta luxury firm Harry Norman Realtors in 2006 to the blockbuster acquisition of Northern Virginia’s Long & Foster Companies in 2017.

The Home Services numbers do not include 370 HSF Affiliates franchisees. The franchise network is its own big ball of twine, racking up north of 270,000 transaction sides in total for 2020, per RealTrends.

In 2018, Berkshire Hathaway bought out Brookfield Asset Management’s stake in HSF Affiliates, a deal that at the time valued the franchise network at $490 million.

The arguably low valuation stems from HSF Affiliates mostly subsisting on franchise fees. Conversely, HomeServices has an array of revenue sources.

“The owned brokerage contributes the lion’s share of the revenues and profit of the total enterprise for sure, especially when you consider how large HomeServices is in mortgage and title insurance,” said Steve Murray, president of RealTrends, which was acquired by HW Media in late 2020.

HomeServices gets nary a passing mention in Berkshire Hathaway’s public filings, much less a breakout of its financials.

But Blefari told HousingWire that the brokerage generated $5.4 billion in 2020 revenue, with the money roughly split between real estate agent sales commissions, mortgage fees and commissions, and title and escrow transactions.

HomeServices posted $345 million in net income, Blefari said, riding the wave of the extraordinary pandemic real estate and mortgage boom. But HomeServices was profitable before, claiming $160 million net income in 2019, and $145 million in 2018.

Blefari puffed out his chest about the earnings. There is a “huge difference in money made,” he said, between HomeServices and Realogy, another brokerage conglomerate that includes Coldwell Banker and Century 21, and which posted a $356 million net income loss in 2020.

“At least Realogy tries to make money,” Blefari said – a not too subtle dig against Compass.

What Berkshire Hathaway HomeServices does right

Blefari grew up in Western Massachusetts, but he has spent adulthood in San Jose, California, graduating from San Jose State University in 1978. He began his career as a real estate agent in San Jose.

Blefari fondly recalls San Jose’s sleepiness and affordability before the Silicon Valley tech boom. The CEO’s ambivalence about today’s San Jose comes out in critiques about what competitors spend on tech – and marketing that tech.

“You saw what happened with Keller Williams,” Blefari said, alluding to the franchise brokerage parting ways in February with company president Josh Team, who was tasked with developing proprietary customer relationship management software. “All this hoopla about this great platform, and then it’s all quiet.”

HomeServices has made its own tech-related announcements over the years, including a 2019 announced partnership with Oracle for a “complete suite of cloud applications” to assist agents with lead-generation along with document processing. But different HomeServices branches – and different agents at those branches – choose their own technology, which Blefari said is fine with him.

“I tell agents sometimes, ‘What’s the best CRM? The one you’ve got,’” Blefari said.

The hands-off approach extends to branding. When HomeServices acquired Long & Foster in 2017, Boomer Foster, president of the to-be-acquired business, prophetically told the Washington Post, “Nothing is changing at all. If we didn’t tell anybody this has happened, no one would know it happened.”

Blefari, who became CEO in 2019 but headed HSF Affiliates before then, said that HomeServices learned from Realogy’s experience to let its brokerage branches be.

“Realogy was buying companies and making them all ‘Coldwell Bankers’ and I think that just broke some of these brokerages,” Blefari said.

The lack of brand awareness afflicts not just customers but agents. It took a second for Lance Hanson, an agent in Des Moines, Iowa for the last 34 years, to remember the local HomeServices companies, which are the glamorously titled Iowa Realty and First Realty West.

But Hanson, presently a managing broker at RE/MAX, sang the praises of both brokerages as “solid, full-service providers.”

“I think there is a feeling of optimism with the HomeServices branches that you are not always fighting for survival and the last dollar,” Hanson said.

Cleve Gaddis, a RE/MAX agent himself in the Atlanta area, praised HomeServices ability to train agents. Blefari took pride in this compliment, stating that agent training is a company focus. “We need to get our agents to capture the customer, and be that customer’s forever agent,” he said.

HomeServices’ emphasis on stability and permanence is appealing, said Nick Solis, who in April took the position of managing broker at Drysdale Properties, an HSF Affiliates franchisee in Danville, California.

“They are a real estate company, and that is not sexy press. It is sexy to say a technology company,” Solis said. “HomeServices of America hires, trains, and promotes agents that sell homes. There is flashy, and there is tried and true.”

Tomorrow’s playing field

Steve Withrow had spent 13 years at Long & Foster when he got the big news that HomeServices was spending hundreds of millions of dollars (a Securities and Exchange Commission filing footnote would seem to peg the price at $508 million) to acquire the Washington, D.C. area’s largest brokerage.

Would the move result in the belt-tightening? Would HomeServices give agents more office space or better electronic marketing tools? Would Warren Buffett himself make an appearance? Would Withrow get new business cards?

No, no, no, and no. As Blefari and Boomer Foster said, even HomeServices biggest acquisitions have no discernible effect on the acquired company.

And to Withrow, that was strange and disappointing.

“We were told there wouldn’t be changes,” Withrow said. “That’s not necessarily what we wanted to hear.”

Withrow – and several other Long & Foster agents – jumped to Compass, where he now gets a larger split of his sales commission.

Compass is already a recognized consumer brand, Withrow said, adding, “You feel a lightness about it. Compass is always coming out with new and different programs, and that can make it easier and more exciting to do your job.”

Put simply, HomeServices struggles to keep agents that want more than tried and true.

Some agents described HomeServices splits – sometimes 70% agent, 30% brokerage, even for quality producers – as a relic of a different era. Even Blefari admits concern about HomeServices’ future margins.

“The company dollar has eroded year after year,” Blefari said, lambasting venture capital-infused Compass for not being on a “level playing field” with that company’s bonuses and perks.

Another concern for the CEO is that HomeServices’ amorphous blandness has created cost overruns. 

“I probably have 31 HR directors,” Blefari provided as an example of the bureaucratic mosaic he reigns over. “That could be done more efficiently.”

Having a more defined identity, Blefari added, could create economies of scale. Blefari spoke approvingly of Realogy brands Coldwell Banker and Better Homes and Garden coordinating “back office” work.

But ultimately, Blefari said, HomeServices will never be much of a consumer brand.

While that lack of expenditure on brand awareness turned off Withrow, it suits his former colleague, Neil Bacchus, fine.

“I don’t really need anything new,” Bacchus said. “They have a good commission plan if you work for it, and there’s only so much that you can do with technology.”

A real estate brokerage is obviously important to the salaried workers and executives of each respective brokerage. And outside observers, including Wall Street and the media, generally perceive brokerages to be an important part of the housing economy.

But, Bacchus said, the brokerage is not that important to consumers, and it carries little weight with the seasoned agents he knows.

“The company, it’s just an umbrella,” he said. “When I think about it, I don’t really need a brokerage.”

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