When looking at the 2021 earnings reports of most of the publicly held residential real estate service companies, there are some interesting points, particularly when it comes to the growth of these companies and how the achieved that growth.
Not surprisingly to us, there are two new leading national brokerage companies. As of the end of 2021, it looks like Compass has now become the largest brokerage company in the United States in terms of closed sales volume. eXp Realty has become the third largest brokerage company in the United States In terms of closed transaction sides, maybe higher if you include land, referrals, international, leases and rentals.
Note: This information is based on earnings reports and does not reflect eXp’s or Compass’ ranking in the 2022 RealTrends brokerage rankings, which have not been released. The ranking will be released at the end of March.
What is stunning about this is that, for the most part, Compass wasn’t even in business a decade ago.
First driver: agent growth
For a few, like Compass, eXp, RE/MAX and Realogy, there are two major drivers of their success. First, their success and growth is based, in most part, on the recruiting and retention of real estate agents.
Compass and eXp experienced rapid growth, mainly derived from the growth in the number of agents associated with their firms. There was not much evidence of per-agent productivity growth.
On the other hand, RE/MAX and Realogy didn’t see high levels of agent growth In their 2021 results.
Second driver: home prices
The second big driver of results for all of these companies was the rapid rise in home prices which was offset only slightly by a decline in the national average commission rate.
So the growth of these for leading brokerage companies, as well as for Berkshire Hathaway HomeServices, was resulting from the growth of agents and the rise of the average price of the homes they were selling. The fascinating thing; however, is this is the way the brokerage companies of all kinds have measured growth in years’ past.
Redfin’s business model is similar to most teams, but…
Looking at other firms in the mix, the most surprising was the results out of Redfin. Now in its 14th or 15th year, it still has not developed a path for high growth or one to profitability. And this is surprising because, when we measuring the performance of the largest teams in the country last fall, we found that these teams were far more profitable than Redfin and far more profitable than most brokerage companies.
Yes, large real estate teams are, in several respects, similar to Redfin. Like Redfin, they have large-scale lead generation activities that feed into a lead management system and, ultimately, to real estate agents. From our view, many large teams and Redfin look alike.
But some of the largest teams that we’ve analyzed in terms of their economics are hugely profitable. So, we continue to be surprised by Redfin’s lack of strong growth and profitability.
Zillow returns to its roots
Zillow appears to be returning to its roots of matching housing consumers to real estate professionals. We think they have a huge opportunity yet to be developed fully that will lead to a strong company with strong financial results in the next few years.
I won’t comment much on Opendoor and Offerpad, because frankly, this author has never understood the economics of house flipping as a scalable and high-margin real estate service. So, at this time, I will leave analysis of their results to others.
The technology conversation
It’s worth noting that over the last 25 years, the conversation in our industry — and what has attracted the most attention — has been technology and how it completely changed the landscape of the residential brokerage industry. Surprisingly, while technology is certainly prevalent and has improved processes, our industry is still driven by the ability of major companies to recruit, develop and retain great sales agents.
Analyzing the 700 largest brokerage firms
RealTrends will be releasing some special reports later this year having to do with the performance of the 700+ largest brokerage companies over the last 10 years. The second part will review the financial performance and business metrics of the brokerage industry.
In a sneak preview of this study, there are these two startling facts. First, only 328 of the 733 brokerage firms measured in the study grew their agent population at least as fast as the overall increase in the number of Realtors in the U.S. from 2011 to 2020.
Second, only 433 of the 733 firms increased the total number of closed transactions done by their firm faster than the growth rate of total transactions closed in the whole industry.
We have said often that, despite the investment in technology and related platforms over the past 20 years, the ability to recruit, develop and retain great real estate agents is at the core of a successful brokerage company. Given the results from the largest residential brokerage companies, it looks like nothing has really changed.
This column does not necessarily reflect the opinion of HWMedia’s editorial department and its owners.
This information is based on 2021 public earnings reports and does not reflect eXp’s or Compass’ ranking in the 2022 RealTrends brokerage rankings, which have not been released. The ranking will be released at the end of March.
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