The Real Estate Consolidation Era Begins

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In early March, Rocket Companies Inc. signed an acquisition deal to acquire Redfin for nearly $2B. As of this writing, Berkshire Hathaway Inc. led by the Oracle of Omaha, Warren Buffett, is in talks to sell its real estate brokerage business, HomeServices of America (which includes local brand EWM) to New York-based Compass Real Estate. There are hints of other deals afoot, so there is no doubt the consolidation of real estate brokerages is underway.

Image of several real estate company signs going into a meat grinder

Whether Berkshire Hathaway does a deal or not, it is particularly interesting that Warren Buffett is even considering a sale. Buffett is known for making very long-term investments. He acquired HomeServices of America in 1999; therefore, the potential sale is notable, as Buffett rarely sells his businesses unless facing significant challenges. In fact, he was quoted in his latest annual shareholder letter saying, “We don’t sell companies unless we face what we believe to be unending problems.”

So, what are the challenges of today’s residential real estate market and how are they significant enough for Warren Buffett to stray from one of his investment pillars?

Speculation runs the gamut. The Economic Times believes Buffett is seeing a future of lower revenue and increased lawsuit risk. Amy Nixon, a housing and economic analyst, sees the possible sale of Berkshire’s realty business to Compass because Buffett is likely betting on real estate technology to further reshape the industry.

Three puzzle pieces that don't fit each other trying to be put together

I have my theory, and it is a blend of the above. We have seen many industries upended and transformed by technology and the Internet. Brick-and-mortar stores are suffering against online retailers. You can vacation in a short-term rental with just a few clicks on an app. And you can even apply for a mortgage with Rocket Mortgage (a subsidiary of Rocket Companies Inc.) right from your smartphone. So, I am betting that Buffett sees diminishing returns with owning a real estate brokerage that will be commoditized by technology. Further, the industry is embroiled in multiple lawsuits and settlements that forever changed the MLS and regulations in August 2024. It led to HomeServices of America losing a staggering $107 million last year. In short, the risk/reward ratio is too high.

However, this is only a small sliver of the takeaways one should note during this brokerage consolidation era. The sky is NOT falling. The business of real estate is consolidating, but the way to conduct a transaction is not. Where other types of consumer-facing businesses were able to transform into online versions without much loss, I think the residential real estate business is quite different.

Much like you can’t ‘click a button’ to find the perfect doctor or to hire an attorney, I have deep knowledge and experience that tells me that anyone who thinks they can find a Realtor® by ‘clicking a button’ is dead wrong.

Button that says "Automatically Buy Home"

From experience, I know that residential real estate is a personality and people business. Every transaction is different and primarily driven by the personalities of the people involved. Deals are made and lost by compromise and trust, not by cold processed facts on a website. ‘Clicking a button’ is the dream, but the dream is a future nightmare for those that think technology will replace people.

I have countless real-world examples of how the personalities involved in a real estate transaction have either won or lost the deal. Let that sink in! Even with a signed and agreed contract, deals blow up over personalities; so, the dream of ‘just clicking a button’ to buy real estate is just that...an unattainable dream. A good Realtor® has vast experience in how to avoid personality mismatches and (re)actively bringing in professional resources to provide custom, just-in-time solutions that keep a real estate deal together.

Case in point, I recently had a listing with issues regarding the inspections, the buyer’s lender and their ability to obtain insurance. It took cool heads and leveraging industry relationships to find a contractor, insurance company, new lender and title company who worked together to get things back on track for a successful closing. It was only through human cooperation and outside-the-box thinking that this was possible.

So, while you may soon have fewer choices of which brokerage you selected to buy or sell a home with, remember it is most important in how you select and form a personal partnership with an agent. That Realtor® comes with their personality, skills and care, and those factors are paramount to how you will conduct business. The brokerage affiliation does have effect, but it is dwarfed by the personal relationship you have with your Realtor® and how they conduct your business with the buyer or seller on the other side.

So, as you watch the high-level consolidation of real estate brokerages, do not let that cloud your decision-making of choosing a Realtor® who aligns with your beliefs, that you can trust and who has the hyper-local skills to market your property or find you the perfect home.

I would love to hear about your real estate needs and how I might be helpful for you to be successful. I won’t be the right fit for everyone, but I guarantee I’ll be truthful in every aspect of our interactions. Contact Hal here.