Realogy Holdings Corp. increased profits in 2016, using more favorable commission splits and new technology to recruit and retain agents across its vast real estate brokerage and franchise empire.
The company posted net income of $213 million in 2016, up 16 percent from the previous year. But that growth came mostly from the company’s title and settlement services provider, as production from Realogy’s in-house brokerage arm, NRT, remained flat.
NRT owns and operates The Corcoran Group, Citi Habitats and ZipRealty, as well as many Coldwell Banker Real Estate and Sotheby’s Realty offices. Realogy’s franchise network, the Realogy Franchise Group (RFG), comprises brands including Century 21 Real Estate, Better Homes and Gardens and ERA.
Revenue, transaction volume and commission
Realogy CEO Richard A. Smith said in a statement that the company’s results reflected the “operating challenges of strong competition for sales agents and soft demand at the high end of the housing market for NRT.”
Revenue climbed 2 percent year over year to $5.81 billion for Realogy, driven by “organic and acquisition revenue increases” at Title Resource Group (TRG), the company’s title and settlement services provider.
Realogy’s combined transaction volume increased 4 percent from the previous year, with a 6 percent gain at the Realogy Franchise Group (RFG).
But transaction volume was flat at company’s brokerage arm, NRT.
Gross commission income generated by NRT slipped to $4.277 billion in 2016 from $4.288 billion the previous year, while franchise fees collected by Realogy increased to $372 million from $353 million.
Commission rates remained resilient. Brokers affiliated with RFG brands enjoyed an average rate of 2.5 percent per transaction side — down from 2.51 percent in 2015 — while NRT’s average rate held steady at 2.46 percent.
NRT is “executing on an aggressive campaign” to recruit productive agents and teams and is enhancing its agent retention and productivity programs, Realogy said in a press release.
NRT used the program to recruit agents who generated about $120 million in revenue during the 12 months before they affiliated with NRT, Smith said in an earnings call.
As part of the campaign, NRT has offered more favorable commission splits. Realogy’s “aggregate” commission split increased to 68.9 percent from 68.42 percent in 2016, and the company expects that number to increase to between 69.5 and 70 percent in 2017, said Realogy Executive Vice President Anthony E. Hull in the earnings call.
Realogy also has “formalized plans for an integrated learning institute” for agents and brokerage managers across both NRT and RFG.
The latest with Zap
RFG has made progress in rolling out Realogy’s proprietary tech platform, Zap. It’s deployed Zap to 1,500 franchisees and expects to do so for the majority of its remaining franchisees in 2017.
Agents who actively use Zap are more productive than other agents, and the platform has “proven to be a particularly attractive enhancement” to prospective franchisees, Smith said.
In a press release, Realogy highlighted strategic initiatives from 2016 and the start of 2017, including:
- On February 15, 2017, Realogy agreed to form a new mortgage origination joint venture (JV) with Guaranteed Rate, one of the largest independent retail mortgage companies in the United States. The new JV, which will operate as Guaranteed Rate Affinity, has agreed to acquire certain assets of the mortgage operations of PHH Home Loans, the existing JV between Realogy and PHH Mortgage. The transaction is expected to be completed in a series of asset sale closings subject to the satisfaction or waiver of certain closing conditions. The initial closing is expected to occur in June 2017, and the final closing is expected to occur during the fourth quarter of 2017. Once these transactions are complete, Realogy expects to realize approximately $30 million of net cash.
- The Company continued to execute on its business optimization program, improving the efficiency and effectiveness of the cost structure of each of the Company’s business units. The Company realized approximately $33 million in actual savings in 2016 and is well positioned to reach its annualized run-rate savings target of approximately $70 million. The total cost to implement the program is expected to be $65 million, of which $49 million has been incurred through December 31, 2016.