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Why the sudden interest by outside investors?

Tons of money has been thrown into the residential real estate brokerage space over the past few years. Here’s why.

Many in our industry are amazed at how much money has been invested into the residential real estate brokerage space over the past few years. To give you some perspective, let me offer these thoughts.

This high level of interest is not all that new. For those who don’t recall, 40 years ago, Merrill Lynch and Sears began investing in brokerages. Then, Metropolitan Life and Prudential invested in the real estate brokerage business.
In fact, dozens of savings and loan companies and credit unions have invested in brokerage firms. The interest by most was the potential cross sale of housing-related financial services, such as mortgage, title insurance, escrow services and property casualty insurance. So, the interest in brokerage by outsiders is not all that new.

Some reasons for interest by outsiders

Now, let’s get into the reasons for the interest:

  • The residential real estate industry makes a lot of money – $85.9 billion in 2020 gross revenues.
  • There is strong demand for housing with limited supply of inventory, which is likely to create a strong market for many years to come and a strong desire in many Americans to be homeowners.
  • A fragmented market where the five largest national firms have less than 35% of the market, and the 500 largest brokerage firms have only a 38.5% market share.
  • The strengthening of brokerage firms’ ability to cross-market housing-related financial services, and a predictable regulatory environment in which to do so.
  • The belief that various technologies will break Americans’ habit of choosing an agent based on relationship, and change it to one based on features, benefits and cost savings, and deliver higher gross margins to the owner of the technology platform.
  • A consumer market in which the combination of com-missions, financial services and related homeownership products and services has created a consumer market that’s in the trillions of dollars of annual revenues and valuation.

These factors explain the most recent fascination with residential brokerage. These key points are not going to go away soon—if ever.

Steve Murray is a senior advisor to RealTrends and a partner in Colorado-based RTC Consulting.

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