This opinion piece about Realogy, a company that was also named in a recent Department of Justice anti-trust lawsuit, was written by Brad Inman, founder-owner of Inman, a leader in real estate news and information and founder of the Inman technology conferences. It has been edited for space.
“We believe this case has no merit and have moved jointly with the other corporate defendants to dismiss the case. Additionally, we have joined in NAR’s motion to dismiss.”
–Realogy’s response to DOJ’s lawsuit
by Brad Inman
Realogy has lost more than half of its already depressed value in just three months—and nearly 90 percent in the last five years. [On Thursday], the company tumbled almost 10 percent, with the stock falling to $6.80 per share, a new record low.
Once the powerhouse of the residential real estate industry, the company has been severely humbled. It’s a stark reminder how rapid and devastating industry change can be. One analyst blamed programmatic trading by big investors. But he also asked, is this Wall Street finally recognizing the disruption faced by broker owners industry-wide?
These setbacks come as CEO Ryan Schneider perseveres with his data and tech strategy. Insiders say that despite the recent stock market rout, morale is high at the New Jersey-based company.
To give the stock a boost and show confidence from management, Schneider purchased $1million worth of Realogy stock two weeks ago. The stock price has fallen by about 20 percent since then.
On paper, the market cap comparison with Zillow makes no sense. Realogy has nearly $6 billion in annual revenue, compared to $1.3 billion for Zillow, which loses money. Realogy earned $600 million last year, with super high margins from its franchise business. But the company has $3.6 billion in debt, compared to $1 billion for Zillow.
Schneider inherited lots of problems, the mess is not his doing. The big stinker is NRT, which is emblematic of problems every broker in the country faces: shrinking margins, high overhead and pressure on commissions. NRT is made up of company-owned brokerages, which do not enjoy the fantastical margins of the franchise business.
One big broker owner told me, “This business sucks if you get the math wrong.”
NRT CEO Ryan Gorman is purportedly heads down, using big data to figure out how to get out from under commercial leases, reducing the biggest expense of most broker-owners: office space provided to house weak agents. They are also shedding more and more poor performing agents—something most brokers have been reluctant to do. The realities of a broken business model are coming home to roost.
At today’s market cap, why wouldn’t someone like Warren Buffett, owner of Berkshire Hathaway HomeServices, the industry leader in transaction sides, swoop in and acquire the company?
Activist short seller Andrew Left said: “That will never happen, Buffett likes businesses with moats around them. Realogy has none—and no pricing power.”
A stock shorter’s sassy talk? Maybe not.
The industry faces a wave of staggering disruption. Realogy may be the most glaring and colossal example of the consequences.
Source: Inman
COMMENTS from Inman Readers as of May 24:
I am not a stock picker, but as a Realogy franchisee I love what they are doing under Ryan Schneider and John Peyton’s leadership. Their creation of an open platform will put them in a position to have the cleanest transaction data in the industry while providing their broker/ owners, agents and clients with a seamless experience. This is what matters and Realogy’s positioning themselves to get there first.
One of the downfalls from my point of view is that many brokers are enbracing teams.. What they dont relaize teams are decreasing the profit margin.
You Realize, that teams provide a much beter service to their clients. They usually have personal assistants helping with communications, streamling papaer work,and allowing the agent to better commuinicate with their client. They also have closer coaching for their team members, to better help them succeed in our business, and address problems on a personal level. I feel that Realogy is training from the top down and is missing what is important to the active agent. They offer training, and that is great, but they don’t coach how to use the training. As you can see in college graduates, they can be tought, but once they graduate, they had better be coached to succeed.
Jerry don’t understand your comment on decreasing profit margins for brokers could you expand on that? If a Team is not a producing team I would agree with you. Your further comments would be appreciated. Thanks Jerry.
Don Matheson Teams will typically negotiate better terms/splits than an individual agent since they are spreading the commission around between more agents on the team. That usually cuts into the per-agent split ratios with the trade off being a team is generally more productive than a single agent and their additional volumn makes up for the decreased split to broker.
Interesting that Wall Street values Realogy poorly. Their future model is what is in question. Technology may reduce transactions and revenues for their model.
One only has to look at what has happened in the Chicagoland market. @Properties (Mike Golden & Thad Wong) have taken over. What use to be a Coldwell Banker strong hold from the city to the suburbs. Coldwell Banker is no longer even a player in most markets. Mike & Thad believe in hiring the best managers and putting agents first giving them the tools they need to succeed. The days of big corporate Real Estate deciding from somewhere far away in a big highrise office are over.
Residential Real Estate is local always will be local. It’s not a 1 size fits all platform. So it really is no surprise that NRT is falling and failing….
Residential Real Estate is local always will be local. It’s not a 1 size fits all platform. So it really is no surprise that NRT is falling and failing….
Brad you must be new to our business, brokers have been reducing office space and terminating non producing agents since about 2000 when the internet started to change our business. My average office has gone from 6000 sq. ft to 3000 sq. ft for the same number of agents. So to take a shot at Realogy for downsizing etc. is a surprise. I thought you were up on our industry.
Yeah, let’s leave all the a**holes in the business!
There is nothing new under the sun here and it should come as no surprise to anyone. Tell me the difference between Coldwell, C21, ERA, and the rest. What is Realogy’s unique value proposition, let alone the distinction between the different brands? The unfair comparison to zillow is all about sector preferences, nothing more. I’m surprised the stock took this long to fall.