Real estate M&A, shakeups and commission drama
The last week has seen a flurry of big real estate news. In this episode of HousingWire Daily, Editor in Chief Sarah Wheeler interviews Tracey Velt, editorial director at RealTrends, about real estate M&A, the shakeup in leadership at RE/MAX, the drama over buyer agent commissions, and more.
Here’s a small preview of the interview, which has been lightly edited for length and clarity:
Sarah Wheeler: Let’s talk about buyer agent commissions and all the drama surrounding that. Can you give us some background on what’s going on there with NAR?
Tracey Velt: There is an antitrust lawsuit that was put forth by some homebuyers and sellers. And it is specifically about buyers’ brokers — that they’re not disclosing the commissions that are paid to them and that’s because the listing broker offers the commissions to buyer brokers through the MLS. And buyer brokers in the past have — I haven’t heard this, but — they have been advertising their services as free but they are not free. The seller still pays for them. And recently some unsealed court documents presented a big headache for Realogy Brokerage Group CEO and Coldwell Banker CEO Ryan Gorman.
In the document, he called for NAR to end the requirement that listing brokers offer commission to buyer brokers, in order to submit listings to the MLS. Now Realogy, along with NAR, RE/MAX, Keller Williams and Home Services of America, are defendants in several antitrust lawsuits that want to have homebuyers pay their broker directly rather than have the listing broker pay the buyer broker from what the seller pays. So, Gorman was forced to defend that position, saying that Realogy doesn’t disagree with the cooperative compensation policy, they just don’t want it to be mandatory, they would rather be voluntary. And then he also went on to say that he believes by representation is extremely valuable…really at the core of the issue is how much the public understands that commissions are negotiable.
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Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:
Sarah Wheeler: Tracey, welcome to “HousingWire Daily.”
Tracey Velt: Yeah, thanks for having me.
Sarah Wheeler: This has been such a busy week for real estate news. Like, so much is happening. We’re gonna get into all of it, but from your perspective, what’s the biggest headline over the last seven days?
Tracey Velt: You know, it’s really hard to decide the biggest one. I am going to go with the RE/MAX Holdings CEO, Adam Contos, stepping down as of March, the end of March. And a board member, Stephen Joyce, is going to be appointed the interim CEO while they form a search committee for the new CEO. And I think a lot of people are really speculating that Nick Bailey, who heads up the RE/MAX LLC, which is their realty side, will be taking over that position, but we’ve really heard that Nick is happy in the position that he is. They’ve expanded his opportunities there, and they’re looking for outside leaders for that position. And I totally believe that…Adam Contos has been very open about why he’s leaving, to spend more time with his family, but I’m expecting news of him popping up in the next…I don’t know, within the next year about new ventures that he’s working on. So, I don’t think he’s gone for good. Maybe gone from RE/MAX, but not gone for good.
Sarah Wheeler: Interesting insight there. We will definitely be looking. I think that Nick…the conversation around Nick is because, in some ways, he’s a much more public-facing person.
Tracey Velt: I think that’ll continue. You know, Nick is really very knowledgeable, very good in the spotlight. He’s been with RE/MAX for a long time with a short stint as the CEO of Century 21, but the realty side is huge, and he’s got a lot cut out for them. They recently took over one of their franchise, the RE/MAX Integra, which they brought back into the company-owned fold, and he’s managing all of that. So, I expect they’re gonna be looking for someone different to manage Holdings.
Sarah Wheeler: It’s gonna be really interesting to look at. You mentioned the HomeSmart IPO.
Tracey Velt: Yes.
Sarah Wheeler: You know, tell us about that.
Tracey Velt: So, HomeSmart was founded in 2000 by Matt Widdows, and they’ve always touted themselves as a technology-based real estate company. They were ranked number 7 by closed transactions sides, and number 10 by sales volume in the 2021 RealTrends 500 broker rankings, which is very high. If all goes according to plan, the firm will be trading on the NASDAQ. And, you know, we have seen a lot of real estate companies going public in the last couple years. The most recent was Compass. The year before we saw Fathom Realty and Open Door. One people are speculating about, but time will tell, is Keller Williams. I mean, they’re one of the big ones that, you know, they haven’t gone public yet. They’re pretty closed-lipped about it, so we don’t really know, but yeah, we expect that they are going public to facilitate their M&A and their growth. So, yeah.
Sarah Wheeler: Over the last year we saw a lot of mortgage companies go public as well. And so, you know, from a mortgage side, it has been interesting for us because we know this is a cycle, right? Real estate is a cycle, mortgage is a cycle, and so, you know, how do those companies plan on delivering, you know, value to their shareholders when we’re not in this kind of crazy market? And really even looking at the rest of this year, inventory is still gonna be such a problem. You know, does that ever come up? Like, how does this work, you know, a year from now, two years from now?
Tracey Velt: You know, the thing about real estate is that, you know, people assume that the market share is dominated by these really large companies, but that’s not true. Of the RealTrends’ 500 largest brokers in the country, they only capture 38% of the market share, so there’s a lot of growth opportunity for these companies no matter what the market holds. So, I think that they’ll be competing. HomeSmart will be competing against a lot of larger companies for money, for sure. So, that’ll be interesting to see how that all shakes out, but there’s a lot of room to grow in the real estate market.
Sarah Wheeler: That’s a really interesting point that, you know, yes, okay, so, the pie is…you know, the pie might be finite because of inventory, whatever, but, like, the pieces of the pie are still very much up for grabs.
Tracey Velt: Right. Definitely. Yeah.
Sarah Wheeler: It’s so interesting. We’ll have to keep an eye on that. So, you know, that kinda leads into our next thing which is realty consolidation.
Tracey Velt: So, you know, the beginning of the year is always a big time of change for a lot of brokers. They close a lot of transactions at the end of December, and then announce them in January, and I know HomeSmart recently acquired a company in Houston. United Real Estate acquired another brokerage, a huge market right now. National-based Park Realty acquired three different independents, and then Home Services of America closed on five different transactions at the end of December. Four of them were real estate brokerages, and two of which were actually Berkshire Hathaway franchises that are now being brought into the company fold. And a lot of…I’ve been getting a lot of questions from brokers on, you know, “What’s going on? Is this good, is this bad?” You know, it’s actually a very positive thing.
There’s a lot of money available to purchase brokerage firms right now, and we’re seeing it from a lot of different places, more than we have in the past. You’ve, of course, got Home Services, and Realogy, and you know, several different, Compass, that are looking to acquire companies. But you’ve also got Peerage and Karin Real Estate, which are…they’re not necessarily public equity companies, but they have a lot of money to put into the real estate brokerage, and they’re not always purchasing 100% of these brokers either. Some of them are only purchasing a portion of them in order to help them grow. So, I think it’s positive. There are a lot of different players, and they are all really interested in banking on the future of real estate brokerage. They all think it’s a great place to be, so I think it’s a really good thing.
Sarah Wheeler: Interesting insight there. You know, you wrote a piece for our December-January magazine about…that kind of goes to this, have you clearly define your brokerages’ value proposition?
Tracey Velt: Right.
Sarah Wheeler: And to me, part of that is, like, whether that’s, you know, you’re growing or you’re trying to attract investment or, you know, you’re trying to go public with that kind of thing, but walk us through some of that. One of the biggest things you said was, like, kind of the emerging new business models.
Tracey Velt: Yeah, I mean, there’s a lot of different things. Of course, we’ve got all of these innovative financing models right now, like Knock, and EasyKnock, and Zavy [SP] and what I’m seeing is that, you know, you’ve got your core services of mortgage title insurance, and I believe that the consumers are asking for some of these other options. And that’s gonna be brought into the real estate brokerage as another core service of, you know, we’ve got the private equity, there’s a lot of money coming in that way, not necessarily going public, but raising capital for a lot of these brokerages. A lot of that is to either grow through their…the use of their technology suite or build their own technology suite, or grow through mergers and acquisitions. And a big focus I see is around agent productivity, boosting agent productivity, and that would be more of an in-house type of thing that they would be doing on providing leads and really helping their agents.
Sarah Wheeler: You’ve written a lot about how, you know, that agent productivity is dependent, like you said, on a lot of the technology that these companies are investing in.
Tracey Velt: Yeah.
Sarah Wheeler: It, to me, really points out, like, how do you, as a smaller shop or a smaller brokerage, compete against these big shops that can invest in that kind of technology?
Tracey Velt: You know, it is about defining your value proposition, because there’s room for the boutique shops and the smaller brokers in the business. You know, the idea is you have to define whether you want to be that small boutique shop that really focuses on a niche, or you want to be that big, you know, growing office or offices. And I think the people in the middle are the ones who are gonna feel the squeeze the most. You can be in the middle size-wise, but be a boutique, niche…have a boutique, niche market, and do really well.
Sarah Wheeler: Really interesting insights there. You know, I think it’s notable to me that you brought up title and some of those other things, because one of the biggest trends from my perspective across mortgage and real estate, so, you know, housing, while we’re trying to be all things housing, we’re trying to cover all things housing. One of the reasons that we bought RealTrends and brought you on board, and Steve Murray, and others, you guys have such a great business, title is one of those things that is been really hard for me to know, should it be in mortgage or should it be in real estate? Like, when we cover title, should it go on HousingWire or should it go on RealTrends because the lines are so blurry now, and you have…you know, whereas mostly it’s real estate people saying, “Here’s who we use for title,” but yet you have mortgage companies, real estate companies, all merging, right? All trying to get to that end-to-end transaction.
Tracey Velt: Yeah, yeah. It’s definitely the lines are merged. I don’t know that you can necessarily decide one or the other, to be honest with you. I know that title has the highest capture rate within a brokerage, generally because consumers don’t always shop around for title. It’s one of those things that’s easy to just say, “Okay, that’s what I want.” But yeah, I mean, I think more and more brokers are building those one-stop-shops that are gonna include title, mortgage, insurance, and other services, concierge services, and relocation services, and the financial services, which might be rolled into what their mortgage company is offering, depending. So, yeah.
Sarah Wheeler: And we see, you know, to me, I ask different people that I’ve been interviewing, you know, who’s gonna get there first? Who’s the one that’s gonna really solve this puzzle of that end-to-end transaction as far as buying the home, and is that going to be, you know, a real estate company that does their mortgages, a mortgage that’s bought a real estate company? What does it look like? And I would love to get your opinion on that.
Tracey Velt: Yeah, you know, it’s hard to say because most of the mortgage companies are doing it a little bit differently. The mortgage companies that are going into real estate, they are hiring salaried agents so that they can control the transaction because they’re salaried. And most, other than Redfin, most brokers are not…they’re not…they’re still going with the independent contractor model. So, it’s hard to say. I mean, I think a lot of the mortgage companies are going into real estate in order to get that referral business through the real estate agents because they know that the real estate agents are the ones who are out there all the time developing those relationships, whereas the mortgage, you might get a mortgage every, you know, whatever, you know, 7 years, I guess, 7 to 10 years, or refinance. But in real estate, they’re consistently staying in touch with people, you know, even if they’re not ready to buy, so they’re building more relationships rather than just trying to reach them, you know, every couple of years or so, and they’re hoping to capitalize on that relationship business.
Sarah Wheeler: That’s such a great point, especially this year and most of last year, where really now, especially in a purchase market, I mean, refi, we’re seeing rates go up, we just read a story this morning, rates are going up. And also, I mean, you just refied almost everybody who would have been a good candidate already, and so you’ve got…you know, the purchase market is gonna be…and purchase is all about referrals. It’s all about that business with the real estate agency, it makes total sense, you know, that that partnership becomes more important than ever.
Tracey Velt: Yeah. Definitely.
Sarah Wheeler: You know, the last thing I wanted to ask you, Tracey, was, like, RealTrends does some great research around, you know, which brokerages are on top, which agents are on top, and I’d love for you to talk about that as it relates to what we’ve been talking about with the brokerages, what you see in some of those top brokerages, and how that relates?
Tracey Velt: Sure. You know, the rankings are opening right now, so for the RealTrends 500, which is the top brokerages in the country, and then also the RealTrends The Thousand in America’s Best, which is the top real estate agents and teams in the country. So, the data we have is really from last year right now, and of the brokerages, they actually increased market share by…I don’t remember the exact amount, but it was a record amount. You know, I think that was a lot due to the market. But we also do a lot of other research, you know, with…right now we’re working on an agent productivity study that will look over the 10-year data of some of the 500 companies talking about, you know, who is the most productive on a per-agent standpoint in growth? And that’ll be really interesting to know too. We also do some benchmarking. Actually, RTC Consulting does the benchmarking, but they share some of that data with us on growth and advertising cost, marketing cost, so that brokers can benchmark what they’re spending compared to others. I’m not sure if I answered your question or not, but…
Sarah Wheeler: No, you did because I was really looking just to give our audience a bit more of a feel for what you guys do, and the fact that…I mean, your data goes back how many years?
Tracey Velt: Oh, gosh. I think for the broker rankings it’s more than 20 years. For the agent rankings it’s the same. So I think…I can’t even remember. I think we’re in our, like, 30th year or something like that, so we have a lot of data. And it’s interesting because there are a lot of new companies that we don’t even…that you would think would be in the 10-year, but we don’t have 10 years worth of data on them. In fact, last year was the first year that we had enough data from eXp and from Compass to pull them into our Game Changers, which is the five-year growth of percentage transaction sides. We pick 15 who had the highest growth percentage transaction sides, and people were shocked that the year before they weren’t even on the list. But we didn’t have enough data on them yet, so there’s a lot of new players. I fully expect to see a lot more coming up. So, it’ll be really interesting. A lot of changes this year, I think. I think we’re gonna have some surprises as well in the industry.
Sarah Wheeler: This is gonna…this is such a pivotal year. I said that the last two years, but it is true. So much is changing, you know? This is…we are a cyclical industry, but still, even given that, so much. And I feel like a lot of it is what you referenced before, it’s just the introduction of technology and really the innovation and, like, what is brokerage and how do we best compete in all those? You know, one of the things that we, on a regular basis, we talk about agents jumping ship to different shops. So, we had a little bit of that news this week. Is that something that you see typically at this time of the year?
Tracey Velt: A lot of agents will close out their 2021 books and then move to a different brokerage. We see it a lot with teams. Not always the top teams, but this year it seems like several top teams have moved brokerages, but we definitely see a lot of movement at the beginning of the year. It’s kind of the same with brokers, you know, brokerages, purchasing other offices or other companies. It just seems to be the time of year to do it, so, yeah.
Sarah Wheeler: Yeah, we’re always interested in that, seeing who’s moving where and, you know, for…we don’t always know the reasons either, right? Doesn’t mean that one is better than the other. And then sometimes a year later, they go back. So, you never know.
Tracey Velt: Exactly. And needs change. I mean, they might be looking for something a little different or they might be looking to grow a little faster than they’re growing and there’s some service offered by a different brokerage that they feel they can use to their advantage. So, yeah.
Sarah Wheeler: Well, let’s end this out with talking about buyer-agent commissions and all the drama going on about that. Can you give us some background on what’s going on there with NAR?
Tracey Velt: So, basically there is an anti-trust lawsuit that was put forth by some homebuyers and sellers, and it is specifically about buyers brokers are not…they’re not disclosing the commissions that are paid to them, and that’s because the listing broker offers the commissions to buyer broker through the MLS. And buyer brokers in the past have…I haven’t heard this, but they have been advertising their services as free, but they are not free, the seller still pays for them. And recently some unsealed court documents presented a big headache for Realogy Brokerage Group CEO and Coldwell Banker CEO Ryan Gorman. In the document, he called for NAR to end the requirement that listing brokers offer commission to buyers brokers in order to submit listings to the MLS.
Now, Realogy along with NAR, RE/MAX, Keller Williams, and Home Services of America are defendants in several anti-trust lawsuits that want to have homebuyers pay their broker directly, rather than have the listing broker pay the buyer broker from what the seller pays. So, Gorman was forced to defend that position, saying that Realogy doesn’t disagree with the cooperative compensation policy, they just don’t want it to be mandatory. They would rather be voluntary. And then he also went on to say that he believes buy representation is extremely valuable. Now, no one else who was named a defendant in the lawsuit has spoken up for or against. And really at the core of the issue is how much the public understands that commissions are negotiable. And that is something that [inaudible 00:19:51] is looking at and also several of these lawsuits. So, we’ll see where that goes.
Sarah Wheeler: I was gonna say, what’s the next step in that? Are we just right in the middle of plaintiffs and defendants?
Tracey Velt: Yeah, we’re right in the middle of discovery right now with that one. The DOJ, I’m not really sure where we are, they haven’t completely made their position clear. We know they’re looking at this cooperative compensation, but you know, at this point, I haven’t heard of any action with that at this point, so we’re still in the middle of those.
Sarah Wheeler: Well, we will be looking to you and the RealTrends team for that coverage, and for the continued coverage of all the exciting things that are happening in real estate. So, Tracey, thank you so much for being on “HousingWire Daily.”
Tracey Velt: Yeah, thanks for having me.