3% (Market Share) Down, 97% to Go

[Editor’s Note:  The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway (“Berkshire”), or any other entity referenced. Edina Realty is a subsidiary of Home Services, which is owned by Berkshire.]

HomeServices, Edina Realty’s parent company, rates a positively fulsome four paragraphs in Warren Buffett’s most recent letter to Berkshire Hathaway shareholders.

Readers of stock market tea leaves will further note that Mr. Buffett’s HomeServices remarks aren’t buried way down in the footnotes — the case in many previous years — but appear relatively near the beginning of his missive.

Mr. Buffett enthuses:

“I have told you several times about HomeServices, our growing real estate brokerage operation.  Berkshire backed into this business in 2000 when we acquired a majority interest of MidAmerican Energy (now named Berkshire Hathaway Energy). MidAmerican’s acitivities were then largely in the electric utility field, and I originally paid little attention to HomeServices.

But, year-by-year, the company added brokers, and, by the end of 2016, HomeServices was the second-largest brokerage operation in the country — still ranking, though, far behind the leader, Realogy.  In 2017, however, HomeServices’ growth exploded. We acquired the industry’s third-largest operator, Long and Foster; number 12, Houlihan Lawrence; and Gloria Nilson.

With those purchases, we added 12,300 agents, raising our total to 40,950. HomeServices is now close leading the country in home sales, having participated in $127 billion of “sides” during 2017. To explain that term, there are two “sides” to every transaction; if we represent both buyer and seller, the dollar volume of the transaction is counted twice.

Despite its recent acquisitions, HomeServices is on track to do only about 3% of the country’s home brokerage business in 2018. that leaves 97% to go. Given sensible prices, we will keep adding brokers in this most fundamental business.”

–2017 Letter to Shareholders, pp. 5-6.

Sounds good to me!

P.S.: Consumers may not know the name “Realogy,” but they’re probably familiar with its subsidiary, “Coldwell Banker.”

In the Twin Cities, at least, Realogy and HomeServices’ roles are reversed:  Coldwell Banker Burnet (“Big Blue”) plays 2nd banana to Edina Realty’s market-leading “Big Red.”

See also, “What Motivates Senior Managers at Berkshire Hathaway?“; “Warren Buffett’s Shout-Out to Ron Peltier“; “When Being Close Counts”: Horseshoes, Slow Dancing, and ” Occasionally ” Multiple Offers‘; “Mistaking Cause & Effect: Warren Buffett and the Role of Panic in The 2008 Crash“; and “Ahead for Berkshire Hathaway: Utility-Like Returns?”

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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