RE/MAX should buy Redfin.
And join one of the Big Four in the real estate tech big leagues race.
ZORC — Zillow, Opendoor, Redfin and Compass — are shaping up to be the future proptech real estate titans. Where Keller Williams, Realogy, HomeServices and RE/MAX fit in is still up for grabs.
Back in the day, huge agent numbers was the best strategy for these franchise giants to achieve scale and win. But now the portals, including Redfin, capture customers more efficiently online than older brokerages warehousing unproductive agents at great expense.
They are up against the wall unless they make major moves.
In some ways, RE/MAX is better poised than any of the other franchise networks to get in the game quickly by acquiring Redfin. With a $2 billion market cap, Redfin is the bigger partner in such a marriage, with RE/MAX currently valued at $1.24 billion. But it has no debt, less brand confusion and a financial structure at its fingertips to swallow Redfin. One big if, however, is whether RE/MAX founder Dave Liniger would give up some equity to make it happen. Such a move would be a major dilution for him even with some company debt to seal the deal.
His upside: He would play in the big tech valuation club, where multiples are so much higher.
Wrapping one’s head around a KW-Redfin or Realogy-Redfin acquisition is harder to imagine.
KW is not a good culture fit for Redfin, and Realogy has too many brands to manage.
Both are playing catch up on the tech front with KW building a closed technology platform for its agents, while Realogy offers an open architecture in hopes it can win the race. That’s great to help agents be more productive, but how do they get their hands on consumers? That’s more complex than just delivering a consumer application, which KW promises is in the works.
KW president Josh Team says he wants to emulate Redfin’s technology, but how does he win over millions of consumers to open up a KW app every day? To even try, it will take a sizeable investment.
But underestimating Gary Keller and his team is stupid and KW has the cleanest cap table in the business that can be leveraged whenever he chooses to.
Realogy’s market cap has dwindled to $1.46 billion from a peak of $7.5 billion six years ago and the company is still sitting on $3.5 billion in debt. Plus, it is challenged trying to leverage its existing brands to compete in the new world of digital real estate. The best it might do is combine them all under one power brand with a clear-cut digital strategy that involves the consumer more directly.
A big move like this may become a radical necessity. Wherever the company goes, its industry leading revenue, margins and global footprint can be leveraged once the strategy is clear.
While big and well-capitalized, HomeServices is harder to place a bet on, as technology changes the rules for real estate.
One test of a potential “Red-MAX” enterprise is their recent partnership.
RE/MAX and Redfin announced a deal last month that will give RE/MAX agents exclusive access to Redfin’s agent referral program — at a discounted rate — in 5,000 U.S. ZIP codes and throughout Canada, where Redfin recently launched its home search website.
As Inman reporter Patrick Kearns observed, “On the surface, the two seem like unlikely dance partners. RE/MAX is a massive franchisor with a more than four-decade history and Redfin is a newer, tech-focused brokerage that employs agents as employees and aims to disrupt the traditional listing fee.”
But leads are leads and money is money. So the operating deal makes sense.
If a RE/MAX agent closes the deal from the referral lead, Redfin gets 25 percent of the commission.
Maybe an acquisition should go the other way, with Redfin acquiring RE/MAX. Redfin’s massive consumer audience is not being monetized efficiently until it gets more agents in more markets. RE/MAX would solve that problem.
Historically, RE/MAX agents have been the most productive of all other franchise brands because of its business model. That fits with the Redfin productivity mantra.
Match made in heaven? Probably not. But these times are calling for big bets.