EXIT Realty’s white paper shows that it’s prime time for mergers — and consolidating is still a way for traditional brokerages to stay competitive.
Legacy real estate giants are turning their resources toward technology. Investments from companies like Realogy and Lennar in startups like Opendoor, OJO Labs and Notarize seem to be marking the path forward for real estate’s largest players.
But that’s not the only way. According to a new white paper by EXIT Realty CEO Tami Bonnell, mergers and acquisitions still pose a major advantage for big and small real estate companies.
“The most important thing to be aware of is that we’re at an opportune time,” Bonnell told Inman. “I’ve been doing mergers and acquisitions for 30 years, and there’s always a window of opportunity.”
Bonnell published her white paper this month. The paper found that right now is prime time both for big companies interested in snapping up smaller brokerages and small brokerages hoping to get acquired.
The median age of real estate professionals — 53 for agents and older for brokers — means that many in the real estate industry will soon be looking toward retirement and an exit for their companies.
Seventy-nine percent of real estate firms are made up of four people or fewer in a single office, the white paper found, which means that many of those smaller firms without large resources have trouble keeping up with advancements in technology.
“Technology will not replace real estate agents, but real estate agents who do not use technology effectively will be replaced by those who do,” Bonnell wrote in her white paper. “Many smaller companies can’t afford the technology, are afraid of it, or don’t want the responsibility of keeping abreast of the latest innovations. Now is the time to make a move.”
Bonnell identified in her white paper 10 reasons for a brokerage to acquire another company:
- To become more profitable: A brokerage that is seeking a better balance sheet can achieve that by adding another successful company to the mix.
- To add a new team of agents: If a brokerage has been competing with or admiring a team from afar, the next move can be to bring them on board their own team.
- To gain market share: Adding a brokerage means adding its market share.
- To form a partnership with another owner or manager: If you’ve admired another owner from afar, a merger is also a great way to join forces.
- To gain a presence in a specific location: If another brokerage in your region has a stronger presence in a certain location, merging with it can give you that location-specific presence.
- To inject new energy into the brokerage: A merger can reinvigorate a lagging office.
- To reduce overhead: Merging often means combining offices and reducing overhead expenses.
- To add exceptional facilities: If another brokerage has an office you love, it’s now yours.
- To increase visibility: Joining forces as marketers can benefit both companies in a merger.
- To add a niche or specialty: If another brokerage is stronger in the luxury or rental market, take advantage of their specialty.
Similarly, Bonnell identified several reasons to sell a brokerage: lack of profitability or reduced margin, leadership struggles, teams taking control of the brokerage, losing agents and the desire to retire.
The opportune time for mergers and acquisitions arrives at the same time as real estate companies are ramping up their investment in technology and outside tech companies.
Consolidating is another way for traditional and indie brokerages to stay competitive when faced with new models like Opendoor and Zillow Instant Offers — both by market cap and by combining their technology resources.
“If they merge with a company that has technology in place, the per-person cost is less,” Bonnell said of the advantage in consolidation.