BrokerageReal Estate

Realogy makes money amid home sale boom

The brokerage conglomerate says business is coming from homebuyers who telecommute

What a difference a year makes. Residential real estate brokerage conglomerate Realogy reported a net income of $149 million on its quarterly earnings call Thursday. The New Jersey-based company tallied $2.3 billion in gross revenue for the months of April, May, and June, and $903 million in revenue when agents’ cut of their commissions are subtracted.

The positive financial numbers are a far cry from Realogy’s 2nd quarter 2020 when the company posted $1.3 billion in gross revenue and lost $14 million in net income during the first months of the coronavirus pandemic. That quarter came on the heels of Realogy cutting salaries of employees in March 2020. And for all of 2020, the company lost $356 million.

But now Realogy is “firing on all cylinders,” according to Charlotte Simonelli, Chief Financial Officer of the company, who spoke on the earnings call. Throughout the presentation, Simonelli and company CEO Ryan Schneider said that Realogy is riding the wave of not just a hot housing market but, more specifically, higher-income people having the luxury to work from home,

Work-from home is “here to stay,” Schneider predicted, and will “Push people to live in different houses and different geographies.”

Schneider singled out luxury brand Sotheby’s International Realty as enjoying a particularly strong quarter.

The homebuyer journey is changing – So should you

While the role and future of the real estate transaction process for a homebuyer are lively debated, we need to have more dialogue on how brokerages can capture the most important stakeholder of all: The homebuyer. Let’s dive into two areas that technology partners and independent brokerages can align to ensure that demand is captured and more at-bats are won.

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The result of multiple corporate mergers, Realogy includes familiar brands such as Coldwell Banker, Century 21, Sotheby’s, Better Homes & Gardens, and the Corcoran Group. The company is split between a brokerage group, a franchise group, and a title operation that a mortgage joint venture with Guaranteed Rate is enveloped into.

The brokerage group was the no. 1 brokerage by sales volume in the country in 2020, according to RealTrends, with $184 billion in self-reported sales volume.

Realogy is on pace to shatter that $184 billion figure in 2021: The brokerage group has done $116 billion in sales volume for the first six months of 2021. The number is calculated by multiplying the number of deal sides a Realogy agent has been involved on – 103,943 – by the average price of each home sale, which was $678,978.

Those impressive-sounding figures have yet to impress Wall Street. Realogy trades on the New York Stock Exchange and had a market cap Thursday morning of $2.2 billion. By contrast, younger brokerages eXp and Compass each are valued at more than $5 billion.

One issue may be what money Realogy can make in addition to the company’s cut on commissions, of which 78% go to the company’s independent contractor agents. Realogy generated $147 million in revenue from franchise fees in the last quarter, and $314 million in service revenue, which includes shepherding homebuyers through the title and, sometimes, mortgage process.

The company reported a decline in its volume of mortgage refinancing, which Schneider attributed to an increasingly crowded market. Competitors will soon include Compass and eXp, which each announced a mortgage joint venture this month – with Compass joining up with Guaranteed Rate itself.

“Everybody in this industry should have a mortgage business,” Schneider said in response to an analyst’s question. The CEO added that time will tell if competitors can hire 500 loan officers or generate $126 million in operating income from the mortgage joint venture, which the company reported in 2020.

“I am more interested in your question when there’s other people making $100 million-plus in mortgage,” Schneider said.