Silhouettes of business people shaking hands in a conference room

Why brokerage mergers are about buying ‘hope’ 

A consultant and former Anywhere exec breaks down the actions investors should take when looking to acquire or merge with other real estate firms.

February 4, 2024
3 minutes

Key points:

  • Real estate investors aren’t buying inventory or equipment, they’re buying talent and sales pipelines.
  • In some cases, companies are better off trying to recruit or lure top performers instead of acquiring an entire brokerage or team.
  • Having a lot of tough conversations while also being careful to stroke egos can be the difference between a failed and successful acquisition.

Mergers and acquisitions in the real estate world are similar in many ways to those in other industries — but there are some key differences in identifying prospects and in the potential risk involved.

Before any takeover occurs, there's a lengthy due diligence process which requires research and initial discussions, explained S. Nicolai Kolding during a recent T3 Sixty webinar. Kolding consults on real estate M&A, brokerage operations and other areas.

Unlike other businesses where an acquisition may include inventory, equipment or other tangible assets, in real estate, brokerage investors are effectively buying the talent and sales pipeline of agents and teams. In other words, "you're buying the hope of future production," Kolding said. This creates a unique risk — but it can also bring unique rewards. 

Buy — or just recruit?

When considering an acquisition, a company or investor should be looking for the right match, Kolding explained, which means narrowing down teams or brokerages using publicly available data. Identify the size of the company, their sales volume and company culture. If it seems like a good fit, the next step is to decide whether it makes more sense to recruit instead of buy — and that should happen before starting to explore a deal.

"If you conclude that you're better off just recruiting a couple people, you don't want to be at that point after you've signed an NDA and after you've collected financials," Kolding said.

Ask the right questions, and be prepared for some attrition

If an acquisition seems like the best approach, sign that NDA and discuss the firm's future plans, pain points, needs and whether or not its leader are being realistic about market conditions. One potential pitfall of mergers and acquisitions in real estate is "breakage," Kolding explained, which is where agents with the team or brokerage being acquired leave during or immediately after the acquisition or merger.

Some companies don't do well being merged — there could be differences in culture, or differing perspectives on who the deal has benefitted most.

"If you come right in and say, 'I'm buying you, I'm taking you over,' it sort of feels like one side wins and one side loses," Kolding said. "And even if it is an acquisition, sometimes just talking about things as a 'coming together' or a merger helps culturally kind of put two companies together."

Consider the people factor, and try to eliminate unknowns

Egos can also come into play, Kolding noted. When acquiring other businesses or top talent, Kolding said being aware of the players' image and ego is crucial in ensuring a smooth and transparent process.

And then there's always the unknown. But this is where planning is so crucial, Kolding said. Doing research and due diligence requires almost a standardized procedure with checklists and reports. But perhaps most importantly, having a lot of open conversations about a businesses' revenue outlook, their price tag and ultimately, whether the deal makes sense for consumers is key.

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