Anywhere Affiliate Author
March 28, 2022
Rick Ellis, Vice President Global Development, Realogy, walks you through what’s really driving M&A in today’s real estate market.
Perhaps more than ever, large brokerages are driving today’s real estate market. Here’s a fact that may surprise you: Almost half of the entire U.S. residential industry is conducted by approximately 1% of the brokerages. At the top? In 2020, the numbers showed Realogy Holdings Corp. with 15.3%. The next two are Keller Williams Realty with 10.4%, and RE/MAX with 7.9%. That’s more than 30% of the entire market right there. A year later, we are still seeing the same trend. You can find the latest data here.
When analyzing the real estate landscape in 2022, bigger is most certainly better. Which is why, for many real estate broker/owners, the opportunity to sell, merge, acquire companies, or even affiliate with a major industry player can be difficult to resist.
Time after time, it’s been proven to be both a powerful growth—and exit—strategy. Throughout the course of my career, I’ve seen countless successful real estate mergers and acquisitions. But at the same time, I’ve also seen thousands of promising deals crash and burn. Today, I’d like to walk you through the market factors that drive M&A activity in residential real estate brokerages. We’ll also discuss some of the all-too-human misjudgments that can end up torpedoing deals.
Key market factors driving residential mergers and acquisitions
Many broker/owners see periods of low inventory as a harbinger of things to come. Instead of investing more money into their brand, technology, recruitment and other needs, they see it as the ideal time to “take their chips off the table” and sell.
Many logistical factors are involved in scaling growth. A big one is recruitment. When it becomes more difficult to recruit and retain top talent, many broker/owners decide not to invest their own capital, but instead look for outside funding needed to accelerate their growth scale.
Many broker/owners serve as sales agents themselves. That means much of their income doesn’t come from being the CEO of a multi-million-dollar brokerage—it comes from their own commissions. This puts them in direct competition with the same agents they employ.
Most growth-oriented brokerages aspire to become market drivers with many focusing on becoming regional in size. This requires extensive capital investment, so they will need strong financial backing.
Those are just some of the key market factors driving M&A real estate space. There are others as well, including dominance of technology and economic uncertainty.
Of course, not all decisions are purely market-driven. The real estate market affords people plenty of opportunity to make bad decisions that are all too human. From runaway egos, to sloppy details, to too many cooks, let’s take a look at some of the fundamental ways our own behavior can destroy promising real estate deals.
The Top 5 Deal Killers
Real estate M&A deals happen all the time. Deals also fall apart all the time. There are numerous reasons why deals die, but consistently, I’ve seen five that head the list as the “top deal killers.”
NOTE: Before we start, you’ll probably notice that price doesn’t make the list. Why? Because that’s table stakes. If a brokerage doesn’t have enough income to cover operational expenses and debt service, that deal won’t get very far.
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*Please note this document was published prior to Realogy’s rebrand to Anywhere Real Estate Inc. on June 9, 2022.