Indies flex their muscle as the big brokerages get bigger 

Who does the future of residential real estate belong to?

The nation's largest brokerage businesses — most of which are publicly traded corporations — are seizing on the consolidation environment, but industry experts tell Real Estate News that the major regional independents and family-owned companies are "natural acquirers" who will also benefit. 

These privately held players may have other distinct advantages in a future where listing inventory is used competitively and cloud-based models mean savings for agents and consumers. And they face potential challenges too — but don't count them out.

Regional leaders are using their voices at the national level

As the country's top brokerages wage a war of attrition against regional firms and MLSs, local leaders are responding — and their voices are being heard on the national stage. Brokerage leaders such as Windermere's OB Jacobi and Baird & Warner's Stephen Baird have not shied away from media while under threat — and have, in many ways, staged their own public relations counteroffensive in recent months.

It's no surprise that they are doing so, New York-based real estate analyst, appraiser and adjunct associate professor at Columbia University Jonathan Miller told Real Estate News. 

"The family-owned and operated legacy firms are becoming just as vocal as the big firms because their future is at stake and they have skin in the game. And at the same time, the corporate entities are much more reluctant to step out," he explained, adding that he sees legacy family-brand leaders like Jacobi or Howard Hanna's Hoby Hanna as "foundationally more entrepreneurial" than the corporate leaders of other top brokerages.

Craig Cheatham, the president and CEO of The Realty Alliance, told Real Estate News that he has also "sensed a narrative shift in the last year" from the "future being about corporate players and franchise [players]" to one where independents can thrive. 

"The one-two punch of the challenging market and getting left out of the NAR settlement agreement may have created a moment of doubt in the minds of strong independents, but that moment has passed, and the opportunities they are finding have restored any lost confidence in their bright future."

Larger independents poised to benefit from the consolidation moment

Mergers and acquisitions have been a major story this year as the top brokerages — and mortgage players — seek more market share and revenue. But it's no different for regional brands, according to T3 Sixty President and CEO Jack Miller, as they also stand to benefit in this moment of consolidation. (Note: Real Estate News is an editorially independent division of T3 Sixty.)

"What's happening is that large family-owned or independent brands — like Howard Hanna, Windermere, John L. Scott, Baird & Warner and companies like that — since they are usually the biggest independent company in their market, they're natural acquirers within their market," Miller explained, adding that small brokerages will likely start with, or ultimately sell to, these "traditional acquirers."

The big players — whether they are publicly traded or privately owned — will continue to get bigger, Miller added, pointing to industry data in T3 Sixty's Real Estate Almanac. 

"We've seen the top 1,000 brokerages go from about 45% of sales volume to over 60% of sales volume in about a six-year period," Miller said. "That's a concentration of sales volume into the larger companies, and that will continue — and these large regional independents will be part of that consolidation trend."

Cheatham also said he's hearing about independents going into "acquisition mode like never before." Leaders of smaller brokerages who are ready to retire or step back often "see a great match in culture, direction and philosophy" in selling to a larger local competitor. 

Major indies don't always see eye-to-eye — and still face threats

While the top family-brand leaders share some things in common, that doesn't mean they have aligned visions, both Jonathan Miller and Jack Miller said. Jacobi has been outspoken against Compass' private exclusives effort, but Hanna has been openly critical of NAR's Clear Cooperation Policy and has sought to maintain control over how — and where — his firm's listings are used online. 

If the industry continues to lean further into private listings, "what's going to evolve is a patchwork," Jonathan Miller said, where "the competition is going to be about who has the best inventory — it's going to be less about service and be more about the quality of listings." Jack Miller said if major brokerages move to keep listings off the MLS, that will create "friction for the small broker" and ultimately degrade service for their clients. 

Regional and independents also have to worry about single-entity national players like eXp, Real and LPT who have "centralized everything" and continue "pushing down the cost of managing a real estate transaction," Jack Miller said. 

The question then becomes, "how far can these national brokerages push the economics" to where it becomes "unprofitable to run a local company," he explained. Ultimately, "you have to have customers willing to pay for that," he concluded.