Berkshire Hathaway brings brokerage service to Maryland
By By Natalie Sherman and The Baltimore Sun
May 17, 2014 | 3:33 PM
There will be fewer of the familiar blue-and-white Prudential signs marking homes for sale across the Baltimore region next month as some are replaced with plum-colored signs bearing another storied name.
Berkshire Hathaway, the company headed by billionaire investor Warren Buffett, began branding a national network of real estate franchises last year. Nationwide, with more than 28,000 agents and 750 offices, including about 200 Maryland agents, has affiliated with Berkshire Hathaway HomeServices since it launched last September.
"If you haven't yet, many of you will soon be seeing our name on 'for sale' signs," wrote Buffett in his 2013 letter to shareholders released Feb. 28.
Industry members and analysts said Buffett's willingness to give the Berkshire name to the franchise network is a vote of confidence in the housing market from an investor famous for betting on assets he considers undervalued. It also marks an expansion of the company's already significant real estate holdings at a time when the industry is undergoing consolidation, spurred by the recession and possibilities opened by technology.
"Americans spend a lot of money when they're buying and selling homes, and I think Berkshire Hathaway said, 'Well, this might be a very good way to leverage a better position in that industry,' " said Steve Murray, president of REAL Trends, a Colorado-based research and consulting company.
In business since 1998, HomeServices of America — a Berkshire subsidiary — created the Berkshire Hathaway HomeServices brand when it assumed control of Prudential Real Estate as part of a joint venture with the company that bought Prudential Real Estate from the Prudential Inc. life insurance company. HomeServices of America was ranked as the country's No. 2 broker based on number of deals and dollar volume last year, according to REAL Trends.
About 35 percent of the roughly 1 million agents nationwide are affiliated with one of four companies, including HomeServices of America, as the industry consolidates, Murray said.
A 2012 report by the Ibisworld research firm estimated that the number of real estate franchises or enterprises declined 6 percent each year between 2007 and 2012 as smaller groups closed or affiliated with bigger companies to help recession-battered finances and take advantage of scale and training.
The Berkshire name is entering the Baltimore market through Prudential Homesale YWGC Realty, a Pennsylvania-based franchise with 196 Maryland agents that is becoming Berkshire Hathaway HomeServices, HomeSale Realty.
"Berkshire brings a lot of cachet to the business and our agents," said Scott Lederer, Maryland regional president of Berkshire Hathaway HomeServices, HomeSale Realty, noting that a March Harris poll ranked the new name the country's top real estate brand. "Our agents absolutely love the transition."
HomeServices of America also owns Champion Realty, a Severna Park-based group with 236 agents.
The Prudential name isn't going away. Prudential PenFed Realty, with 484 agents in Maryland, is sticking with its brand for now. However, it is a franchisee of a company that is owned by the HomeServices joint venture. Buffett has said HomeServices will gradually rebrand its franchisees and the firms it owns.
In Maryland, where the state licenses roughly 38,000 agents, Virginia-based Long & Foster is the largest company, with 4,049 licensed agents. It's followed by Chicago-based Realogy, the nation's largest residential real estate operation with brands such as Coldwell Banker and Century 21, which has more than 2,000 agents, according to the Maryland Real Estate Commission.
Still, the real estate industry remains fragmented. A 2013 survey by the National Association of Realtors estimated that 56 percent of its members work for independent, non-franchised firms. Many said the power of local networks remain strong, allowing smaller, local companies to thrive.
"When you're small like us, you can be very nimble. You don't have all the overhead, and you can kind of niche yourself into certain aspects or marketplaces," said Daniel Hoff, who leads a two-person real estate team at the Samuel C. Hoff Agency in Westminster.
Murray said he expects the nation's biggest real estate companies — three of which are publicly traded — to continue swallowing smaller brokerages as they work to deliver growing profits to shareholders in an environment of limited housing market growth.
Last year, for example, HomeServices of America made a number of significant brokerage acquisitions, propelling earnings from $82 million to $139 million. Just last week, it announced the purchase of a major Silicon Valley real estate firm.
With the flat real estate market nationwide, the easiest way to grow is by recruiting more agents to sell more homes, Murray said. Many aging brokerage owners are more interested in selling, as the housing recovery makes their companies more valuable, he added.
Technology is driving consolidation too, as companies look to pull together data from different sectors of the housing market," said Susan Wachter, a professor of real estate finance at the University of Pennsylvania's Wharton School.
"The consolidations are made in view of the transformative change," she said. "There's power in national networks and in linkages across different information databases that can only be made by a national player."
Berkshire's HomeServices of America has been a leader in the one-stop shopping approach to home buying, offering mortgage, escrow, relocation and other services under one roof. The company says it creates efficiency and simplifies the home-buying experience.
Other companies have replicated the model, and consumers surveyed by the National Association of Realtors say they like the approach, said Ken Trepeta, the association's director of real estate services. Realogy, for example, owns employee-relocation company Cartus Corp. and the Title Resource Group, which provides title and settlement services.
"It's been something that for more than a decade has been sort of the way of the future for big real estate companies, and HomeServices has been a leader in that from the beginning basically," Trepeta said.
National connections can give bigger companies an edge over smaller brokerages, said Ross Mackesey, president-elect of the Greater Baltimore Board of Realtors.
"The national companies, where they have an advantage over just the small, local realtors is in the relocation business," Mackesey said.
Among consumer advocates, connections between affiliated companies have raised concerns. The lack of transparency, they say, can result in anti-competitive practices, while efficiencies gained from integration are not always passed onto the consumer in the form of lower prices.
"If affiliation is leading companies to steer consumers to their own family of business, then there's not an incentive for the market to work properly," said Gary Kalman, executive vice president with the Center for Responsible Lending. "You fully appreciate the fact that companies can have a consistent platform and can better integrate with an affiliated company, and one would then assume that the advantage to the consumer would be lower pricing … but there is at least some evidence to suggest that the ability to refer in-house is not actually in all instances providing those benefits and lower costs."
HomeServices of America spokeswoman Liz Litin said in a statement that its affiliated companies "compete on service and price only."
Doug Rebert, managing director of Berkshire Hathaway HomeServices, Homesale Realty, said consumers are protected by regulations, which require disclosure, and are aware of their choices in the marketplace.
In addition to the name, Rebert said the affiliation with Berkshire will allow his group's agents, who operate from 28 offices in Pennsylvania and Maryland, to use a new mobile platform expected to launch this summer, as well as tap into a nationwide database of listings.
His company already offered the full suite of services, and its business relationships with service providers won't change with the new name, he said.
"That's not why we did this and that's not why we're going to grow," Rebert said. "It's going to grow because it's got a great name and great tools and services to offer the public and it's a group of great brokers."