Hoby Hanna’s advice for indies after Compass-Anywhere merger 

The rapid closing of the Compass-Anywhere acquisition on Jan. 9 surprised much of the real estate industry and immediately reignited debate about consolidation, competition and the future shape of residential brokerage. 

In a wide-ranging conversation with Real Estate News, Howard Hanna President and CEO Howard "Hoby" Hanna IV shared his take on why the deal moved so quickly, why he thinks regulatory concerns were overblown and why he believes residential real estate will not consolidate the way that some are predicting.

This interview has been edited for length and clarity. 

Many people were surprised by how quickly the Compass-Anywhere deal closed. What are your immediate takeaways?

I may be contrarian to some others in the industry. I read the same articles everyone else did, including speculation that the government might require divestitures because of market share.

But my take was different. I didn't see where the government could or would step in and say this combination was too big. When you look at Anywhere, it's still a collection of separate brands, just as it always was. Yes, in some markets the combined market share is significant — but the nature of our industry is different.

In some industries — banking is a good example — regulators might approve a deal but force the acquirer to sell off branches or deposits. But how do you do that in real estate brokerage, where salespeople are independent contractors?

You can't force someone to work for Company B instead of Company A. If an agent doesn't like the deal, they can pick up and move much more easily than in most other industries. Because of that, there is still consumer choice. There are still alternatives in the market.

So while I was surprised by how quickly it happened — January was earlier than I expected; I thought maybe first quarter — I didn't think it would be delayed by regulatory issues.

I've said to others that it's a bold move. It's probably good for both companies' shareholders. But the new leadership team has a tiger by the tail. There's a lot of integration work to do, a lot of unanswered questions — and even with restructured debt, there's still a lot of debt on the business. They still have to perform.

Industry leaders' reactions have varied. Some say 'game on,' others say residential real estate will start to look like commercial brokerage with massive consolidation. What's your take?

Unlike the commercial industry — and this isn't a knock on commercial firms — from the outside, many of those competitors look very similar. Similar services, similar fee structures, similar diversification strategies.

Residential brokerage is different. When people say there will only be three or four brokerage firms left, I always ask, "Three or four of what?"

There are very different models in our industry. You still have commission-based models, but you also have 100% shops, low-fee franchises, traditional independent brokerages, revenue-share models. And the cultures and structures are very different.

So yes, consolidation can happen — but which models consolidate with which? That's the real question.

If you look at the last few years, there have actually been very few active acquirers of brokerage firms other than Howard Hanna and Compass. Anywhere hasn't really been known for acquisitions over the last decade, aside from a few franchise-related moves. Berkshire Hathaway grew HomeServices through acquisitions historically, but we haven't seen much of that recently.

What we're seeing more of is regional growth. Baird & Warner buying Dream Town was in their own backyard in Chicago, not a new growth market. And sure, Windermere has made some acquisitions in California and elsewhere, and William Raveis has expanded into Florida. But beyond that, there hasn't been a massive wave of consolidation.

Where does that leave strong independent brokerages?

I think strong independents with good market share have a great opportunity — but there are some requirements.

First, they have to be very listing-focused. Second, they need to have organized their data so they can understand how to use it — for things like propensity modeling — to help agents grow their business over the next few years.

If you're an independent broker and you don't have essential service offerings where you own the data and the communication, then you're really just renting space from someone else — whether that's an MLS, a mortgage company or another third party.

Putting Anywhere aside, the Rocket-Redfin-Mr. Cooper deal sent a clear signal to the industry. This isn't just about selling a house. It's about the entire housing ecosystem. There are companies that already have that — Windermere, Raveis, Baird & Warner — and others that haven't evolved enough to meet what the business will need over the next five to 10 years.

The future is the home services platform — a platform that serves agents, keeps consumers in an ecosystem of convenience, gives them choice and allows the brokerage to create better products and services.

Does the Compass-Anywhere deal change how you think about acquisitions at Howard Hanna?

No, I think our thesis still works.

That said, we've definitely seen an uptick in conversations since the deal was announced — even going back to the fall. People are thinking more strategically. Some companies would like us to move faster, and sometimes valuations reflect what's happening with Compass and Anywhere.

But we have to stay disciplined. We're acquiring with our own dollars as a family business. We're not looking to leverage the company excessively.

In many cases, the people we acquire become partners and operators. We want them to grow with us and have upside. We've also structured deals where we buy a majority stake but keep strong local leaders in place, giving them growth opportunities through mortgage, title, insurance and property management.

We think that approach makes sense, and we'll stay true to it.