The fourth section of the Real Estate Almanac, Enterprises, reveals that the nation’s 20 largest real estate holding companies, which represent both the company-owned brokerage and franchise divisions of a real estate company, handled 52.79 percent of existing home sales volume in 2019, up from 51.75 percent in 2018 and 49.42 percent in 2017. Transaction side market share for the 20 largest companies jumped similarly over those periods to 46.88 percent in 2019. Total market based on total home sales counts and average home sale price as reported by NAR.
With a 2019 sales volume of $504.21 billion, Realogy Holdings Corp. again ranks as the nation’s largest residential real estate holding company despite seeing a 1.44 percent annual sales volume drop over the last year.
Among the nation’s 20 largest franchise brands by 2019, Keller Williams Realty, with a sales volume of $336.59 billion stands out as the nation’s largest franchise brand for the second consecutive year. Under the franchisor section Realogy is broken up into the separate franchises, Coldwell Banker, Sotheby’s, Century 21, ERA Real Estate, Better Homes and Gardens and Corcoran.
Holding companies really became significant in the residential real estate brokerage industry in the mid-to-late 1990s when Realogy (HFS at the time) became the first company to purchase multiple national real estate brands (Century 21 and ERA Real Estate in 1995 and Colwell Banker in 1996).
A holding company does not deliver brokerage or franchise services itself but owns a controlling stake in one or more companies that do offer those services. In our industry, the biggest two holding companies are Realogy Holdings Corp (NYSE: RGLY) and Berkshire Hathaway (NYSE: BRK).
Realogy delivers its services through company-owned brokerages and franchised operators under a variety of brands, including: Coldwell Banker, Century 21, Sotheby’s International Realty, ERA Real Estate, Better Homes and Gardens Real Estate, Climb Real Estate and Corcoran Real Estate. HomeServices of America provides services through company-owned offices with regional, localized brands such as Edina Realty, Long and Foster Real Estate and Houlihan Lawrence and franchised offices under the Berkshire Hathaway HomeServices and Real Living brands.
These two companies are the industry’s titans. Realogy is particularly unique – it owns the largest brokerage company Realogy Brokerage Group and owns more real estate franchise brands than anyone else (six). In aggregate, it has the highest combined sales volume of any industry entity or holding company, by a large margin. For any ranking of the real estate brokerage to be complete, holding companies need to be included.
The holding company list can be a little confusing; in some cases, a holding company sometimes owns brokerages and sometimes not. Sometimes a holding company owns a franchise brand, and sometime not. Other times a holding company has the same name, or brand, as the brokerage or franchise it owns or operates.
For example, HomeServices of America owns brokerages under its HomeServices of America-named brokerage division; it also owns brokerages that operate under the Berkshire Hathaway HomeServices brand, which it also owns. RE/MAX is another example. The holding company RE/MAX also operates the RE/MAX franchise. In both examples, the two different entities operate under the same name making it easy for readers to get confused.
Therefore, clarifying the entity ranked is critically important to ensure an accurate reflection of the appropriate part of the company being included, or not. In some cases, different numbers appear attributed to what may appear as the same entity to the untrained eye, but, really, they tie to two different entities: a holding company on one side and a brokerage or franchisor on the other.
Analyzing holding companies allows us to clearly identify the influence and impact these titans have. They shape the residential real estate brokerage industry like no other company.
Franchising has had a huge impact on the residential real estate brokerage industry since emerging in the early 1970s. Century 21 Real Estate, ERA Real Estate and RE/MAX hit the scene in the early 1970s with their new franchising systems and national ambitions, and within a decade had an outsized industry influence. For example, Century 21 went public in 1977 after growing its network to 3,300 franchisees in just six years.
A franchisor is a company that owns trademarks, products, intellectual property and business systems and then licenses them as a package to an organization to operate as a franchisee in a certain predetermined location for agreed upon fees. The franchise agreement between these two parties also outlines branding, co-marketing as well as franchisee obligations. Franchisors, however, are not legally or financially responsible for their franchisees.
Franchisors do not have an ownership stake in the real estate offices under their brand unless the franchisor (or holding company) own the brokerage and sign a franchise agreement. Examples of the latter include Coldwell Banker and NRT under the Realogy umbrella and Berkshire Hathaway HomeServices under the HomeServices of America umbrella (these are then generally referred to as company-owned offices).
Franchising in real estate does not fundamentally or automatically alter brokerage operations. Primarily, franchisors provide brokers a brand and an operating system designed to help them grow and improve operations, some technology, referral networks and often some training.
A franchisor derives its primary income from franchisees (brokerages) who pay an ongoing franchise fee. Typically, brokerages pay franchisors a licensing fee as a percentage of their top-line revenue. Traditionally, this fee stands at approximately 6 percent, which then staggers down at predetermined revenue thresholds. Many franchisors also require brokerages to contribute to a national advertising fund.
A franchisee (the party receiving the licensing rights), as most brokerages, usually derives the bulk of its revenue by taking a cut of the commissions its agents receive when they help a consumer buy or sell a house. This is usually a percentage on a sliding scale, but is increasingly becoming a fixed fee. Brokerages often have additional agents fees for technology and marketing.
Franchisors, of course, differ. Some franchisors enforcing tighter operational guidelines and branding application while others have a more laissez faire approach. Each franchisor has distinct business practices, so levels of support around products and service vary widely by brand.
In the residential real estate brokerage industry, conversion or brand franchise systems are significantly more prevalent than business format franchises.
Many food franchises such as McDonald’s and Subway operate as business format franchises, meaning that they provide franchisees a complete, comprehensive system to operate the business, market product and deliver service. Most real estate brokerages already have those systems in place; therefore, real estate franchisees typically just adopt trademarks, marketing programs and client service standards and deliverables.
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The fourth section of of the Real Estate Almanac, Enterprises, reveals that the nation’s 20 largest real estate holding companies, which represent both the company-owned brokerage and franchise divisions of a real estate company, handled 52.79 percent of existing home sales volume in 2019, up from 51.75 percent in 2018 and 49.42 percent in 2017. Transaction side market share for the 20 largest companies jumped similarly over those periods to 46.88 percent in 2019.