Brokerage Notes

Section Definition + Intro

Residential real estate brokerages are an essential element in the industry: they provide the legal mechanism for homebuying and selling, support agents with company structure and training and collaborate with local competitors to ensure the real estate market remains as healthy and fluid as possible.

Brokerages offer administrative, operational, marketing, technology, legal and branding and training services to real estate agents who hang their license with them. Agents typically interact directly with consumers to buy and sell homes. Consumers typically recognize brokerages as a corporate or umbrella brand on shopfronts, for sale signs, websites and legal contracts.

A residential real estate brokerage is a company – usually an incorporated firm, a limited liability firm or a sole proprietorship – licensed to sell real estate in the US. For the Mega 1000’s purposes, a brokerage company’s numbers includes subsidiaries in which the parent firm owns at least 50.1 percent of the company.

For example, the nation’s second-largest brokerage, HomeServices of America, owns and operates approximately two dozen regional or local brands, such as Edina Realty, Long and Foster Real Estate, Intero Real Estate and Ebby Halliday Realtors. The annual sales volumes of those brokerages, and others within the HomeServices of America stable, roll up to HomeServices of America because it owns at least 50.1 percent of each of those brokerages. NRT has a similar situation; it owns numerous regional Coldwell Banker-branded companies as well as some companies under other brands such as Corcoran Group and Climb Real Estate.

Some brokerages stand alone or operate under a single entity or brand such as Redfin, Compass and eXp Realty.

Brokerages can be affiliated with a franchise, or not affiliated. Brokerages not affiliated with a franchise are referred to as independents. Examples of large franchisors include Re/Max, Keller Williams Realty and Coldwell Banker. 79.8 percent of the brokerages in the Mega 1000 are affiliated with a franchise and 20.2 percent are independent.

Some brokerages, particularly the larger independents (although these are increasingly joining franchises) hold membership in a real estate network such as The Realty Alliance, Leading Real Estate Companies of the World or Christie’s International Real Estate.

The Brokerage Landscape

As we outlined in the 2019 Swanepoel Trends Report, the brokerage landscape is undergoing a period of rapid change. The influx of vast amounts of capital combined with maturing technology is restructuring the way homes are bought and sold and how real estate brokerages operate. Many new companies founded in the last decade have grown rapidly and are realizing disproportionate market share growth.

The Mega 1000 clearly reflects this.

The inaugural 2018 Mega 1000 report showed two relative newcomers – Redfin and Compass – solidly in the top 10 and another, eXp Realty, rapidly rising. This momentum explodes this year, with Compass jumping to the nation’s third-largest brokerage on the back of its acquisition spree of fellow top 10 broker Pacific Union International (No. 8 in the 2018 Mega 1000) in August 2018. Its March 2019 acquisition of another top 10 company, Alain Pinel Realtors (No. 10 in the 2018 Mega 1000), will add to its staggering growth, which the 2020 Mega 1000 will continue to reflect.

Given the industry’s current state of flux, new brokerage business models have cropped up and are having a disproportionate impact. Newer models include the tech-powered discount brokerage, such as Redfin, the agent flat-fee model such as Realty One Group, HomeSmart and United Real Estate, the cloud-based model epitomized by eXp Realty and the proliferating Direct Buyer model (also known as iBuyer model) epitomized by Opendoor, Offerpad, Knock and Zillow Offers.

Review Trend No. 1 in the 2019 Swanepoel Trends Report “Mapping the New Residential Real Estate Brokerage Landscape” for more information and nuance on the brokerage business model evolution.

Mega 1000 Brokerages

The largest part of the residential real estate brokerage industry is still populated with small, localized brokerage companies. Per the National Association of Realtors’ 2019 Profile of Real Estate Firms:

  • Seventy-nine percent of residential real estate firms have a single office, typically with two full-time real estate licensees.
  • Eighty-four percent of brokerages are independent and non-franchised, and 11 percent are independent franchised firms (significantly different percentages to those of the top 1,000 brokerages as reflected in the Mega 1000).

Given the plethora of small brokerages, the much fewer bigger players stand out and dominate in market share. Those that fall in the category we call Mega Brokers have an annual median of 2,255 transactions and $589.4 million in annual sales. Although the Mega 1000 consists of just over 1 percent of the U.S.’s 86,000 brokerages, the companies covered account for an estimated 66 percent of the total sales volume U.S. agents generate each year.

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