Swanepoel's Inner Circle: Real estate's journey to the big leagues and big money
The residential real estate industry has seen epic growth from the days when home computing was new, and the top brokerage did $2.2 billion in annual sales.
Editor's note: Stefan Swanepoel has four decades of leadership experience in many facets of real estate, including brokerage, global franchising, association and MLS management. He is a widely respected strategist, sought-after trend analyst, best-selling author and the founder of Real Estate News and T3 Sixty, one of real estate's leading management consultancies.
While researching the impact of personal computers and technology, and its exponential growth over the past three decades, I couldn't help but wonder how much residential real estate brokerages have grown since the PC started taking off.
Personal computing emerged in the 1974 when a small firm named MITS made the first PC, the Altair. But these machines didn't really enter our homes until the early '80s and didn't capture widespread imagination until the Apple Macintosh of the mid-'80s.
I was able to find in my library an old real estate report from the year 1987 — the first year that the average house price according to the Department of Housing & Urban Development broke the six-figure mark ($104,500) for the first time. Today, according to the National Association of Realtors, the average house price is around $346,900.
So, I decided to use 1987 as my basis for comparison. Fast forward to today: T3 Sixty is busy with its annual brokerages audit and will release its 2022 numbers in April/May, so I grabbed the 2021 edition of the Real Estate Almanac numbers.
That gave me basically a 35-year window to compare and see how change occurred.
And wow — what an incredible change it has been!
Firstly, of the five largest residential real estate brokerages in 1987, all but one changed hands.
Secondly — according to Roulac, a subsidiary of Deloitte, Haskins and Sells — the five largest residential real estate brokerages in 1987, based on annual sales, were:
Century 21 - $2.2B
Coldwell Banker - $1.6B
RE/MAX - $1.1B
ERA Real Estate - $744M
Merrill Lynch Realty - $679M
Quick notes to help readers tie names and brands together:
In 1989, Merrill Lynch & Co. sold its residential real estate operations to the Prudential Insurance Co. of America, which in turn sold it to Brookfield Residential Property Services in 2011, which a year later sold it to HomeServices of America, a wholly owned subsidiary of Berkshire Hathaway.
In 1995, Century 21 and ERA, and in 1996 Coldwell Banker, were all sold to the public company Hospitality Franchise Systems. After a merger with CUC, HFS became known as Cendant, which in 2006 spun the real estate companies into a company called Realogy. Last year, Realogy rebranded to Anywhere Real Estate.
Thirdly, and oddly enough, three of the top five companies back in 1987 were publicly held corporations or owned by a public corporation. Today, 35 years later, three of the top five are also public companies. However, the entities have changed due to mergers and name changes. The notable exception is RE/MAX, that although changed from private to public, is still largely the same original entity.
The top five residential real estate brokerage in 2021, according to T3 Sixty, were:
Realogy (now Anywhere) - $737B
Keller Williams - $500B
RE/MAX - $341B
HomeServices of America - $292B
Compass - $254B
So, the No. 1 company changed from an annual sales volume of $2.2 billion in the late 1980s to annual sales volume in the early 2020s of almost $750B, that's a "B" for billion. That's around a 35,000% increase, or some crazy percentage near that. The Consumer Price Index only went up around 160% over the same period and house prices went up around 250%, so 35,000% is crazy talk.
Of course, the above numbers are not an apples-to-apples comparison. I was simply exploring how residential real estate brokerages of today differ in size from three decades ago … and the difference is astronomical. Residential real estate companies of today are enterprises unfathomable three decades ago.
Yes, there are still tens of thousands of small neighborhood mom-and-pop real estate brokerages, but the residential real estate industry has grown up and graduated from a "cottage industry" to a multi-trillion-dollar industry, with many large, public, diverse conglomerates competing for market share. Not only brokerage giants such as Anywhere, Keller Williams, RE/MAX, Compass, Redfin and eXp Realty, but also portal players such as Zillow and CoStar, as well as diversified holding companies such as Berkshire Hathaway and Brookfield.
According to T3 Sixty's annual Real Estate Almanac — the most detailed and extensive ranking of the residential real estate industry — the top 20 residential real estate enterprises in 2021 had 750,000 agents that collectively completed 6.1 million transaction sides totaling an unbelievable $2.76T in sales volume. That's a "T" for trillion.
To put that big of a number in some kind of perspective — 2.76 trillion seconds would be 875 centuries!
According to World Atlas, the top-grossing industry in the USA, measured by GDP, is real estate, which accounts for approximately 13% of GDP. Under their definition, real estate includes the sale and lease of real estate, new construction and utility payments, and yes, that percentage will most likely go down this year.
So, although there are many lists (enough to drive anyone crazy, including me), it at least gives a person some context. The takeaway for me was that residential real estate is a MAJOR industry, with MAJOR players. Stand proud. After three decades, the residential real estate brokerage industry has graduated into the big leagues!