A Note about Industry Consolidations
Earlier this week, on my way to HousingWire’s The Gathering, I read the news about the possible acquisition of the iconic RE/MAX franchise by a tech-enabled real estate firm with a different business model, REAL. My immediate reaction was a flashback to the morning I received an email telling me that my franchosors parent company, Anywhere, was being purchased by Robert Refkin’s firm, Compass Real Estate.
The proposed purchase of Remax by REAL had many similarities. The purchaser was a competitor for agent affiliation in the real estate business. The purchaser had a different business model and philosophy for conducting the real estate business. The buyer’s real estate business was operated internally and had no franchising experience. And the purchase was a big surprise to the industry.
Humans, when startled, react before they think things through. My first reaction was shock at this unexpected event, my second was to question how that would impact my business, and the third was to calm down as soon as I realized that it wouldn’t impact my business in any way that might be harmful to me because I had a franchise agreement that clearly delineates the responsibilities and obligations of the franchisor and the franchisee. All three things happened in seconds, but weren’t unlike the reactions of a tenant concerned about the sale of the property they rent until the owner or agent reminds them that their lease controls their situation, not the purchaser or the seller. I realized that the sale impacted the buyers and sellers more than it impacted me. The operations of my business and our value proposition to consumers and agents remained the same at their core. ReMAx franchisees are in that same position.
The thing about franchised business operations is that they are not monolithic. There are big ones, mid-size ones, and small ones. The people running the franchises make their own decisions, and some make better decisions than others. Some of the franchises are run by amazing operators, some are middling, and some are not so great. And none of them become fundamentally different because the company that owns their franchise changes.
Everyone Sees Something different
Of course, after these types of things become public, people in the industry react, and their opinions are often formed by their position relative to the event. As C.S. Lewis said, “What you see and what you hear depends a great deal on where you are standing. It also depends on what sort of person you are”.
Competitors see this as a chaos event that might indicate a recruiting opportunity. When the Compass/Anywhere news broker, my agents were immediately solicited by a local competitor who commiserated with them in an email about the uncertainty of change. It had no effect, because I had already sent an email to our entire organization with the subject line “We’re Still Us!”. Of course, their action prompted me to email their agent population the next day, offering them the opportunity to learn about the benefits of affiliating with the world’s largest real estate organization. In other words, business continued as usual with brokers looking for ways to recruit and retain agents, and the net effect of the emails was zero-sum.
Agents with REAL perceive this as a win against a competitor, often assuming that ReMax franchisees will immediately abandon their current business models and adopt the REAL business model and methods. Again, I hasten to point out that a franchisee isn’t about to change their successful business model just because their franchise owner has changed.
Unaffiliated agents or independent brokers see the event as an almost existential threat to boutique practitioners. For a brief, startling moment in reading the news, they might, like me, be startled and then think they need to take action, until they realize that their business is done becuase of their relationship building skills and the effort they put into their businesses, They will probably be least impacted because the people that want to do business with them, want to do business with the individual not the business name or style.
Pundits in the industry (and everyone seems to be a pundit these days) see this as an indication that technology is taking over the industry, and the entire shape of the business will be a desolate (or triumphal) landscape of an AI-fueled, directed, or dominated business. In fact, REAL and Compass are, at their core, real estate businesses, facilitated by technology. They are not technology companies, but they use technology to further their core business of helping consumers buy, sell, lease, and rent real estate. They are companies that actively recruit agents and brokers, without whom they could not accomplish their business goals.
That word you’re using doesn’t mean what you think it means
Across the internet, people kept referring to the acquisition of ReMax as a merger. This is not that. While it might seem like Compass or REAL acquired companies, they did not. Unlike Compass’s rapid growth, these transactions aren’t new offices and agents for the company’s bottom line. They acquired franchise operations that provide tools, systems, and branding to independently owned and operated companies. These offices and agents aren’t assets to be acquired; they are clients to be served. The deal between the buyer and seller doesn’t mean the Broker owners and their agents will buy into the business philosophy of the franchise company’s owner. Robert Refkin knows that and is using his considerable charisma and energy to woo his new clients. I don’t know how REAL accomplishes the same thing for Broker Owners of a brand built on their independent business decision-making. Everything and everyone is transportable, and nothing is predetermined except for the terms and conditions of the existing franchise agreements. Even they can be contested by those with the will and the checkbook to do so.
There are business benefits for companies entering the franchise space, including additional cash flow, the potential to roll in retiring owners’ businesses, and, in the case of Compass, the acquisition of company-owned stores that they may choose to convert to Compass offices at some point in the future. But it is not directly growing the parent company in either case
Our business is done on the Micro Level, not the Macro
Though I believe in the concept of consumer brand preference, we have an incredibly fractured marketplace, where the brand is not a reflection of the quality of the manufacturer or the product, but the quality of the service offered by the real estate company. That quality is affected by the agent’s performance; we all know that the best brands have some low-level agents, the least recognized brands sometimes have terrific agents, and each potential client judges performance based on the agent they meet. Consumers don’t care about REAL or ReMax or Compass or any brand as much as they care about Claire or Sally, or John or Arnold, who is sitting across from them demonstrating their product and neighborhood knowledge, their negotiating skills, and their ability to accomplish the consumer’s mission, whatever it may be. People like to have choices between various brands, but they make choices based on their relationships.
In the end, the whole situation is of more interest to Wall Street than to Main Street, and except for creating a topic for speculation and conversation, of most interest to the people paying the money, receiving the money, and their shareholders. The next pieces of news will revolve around the individuals at both companies who became, as the British say, “redundant”, but they will find new homes in other enterprises or start new ones of their own. The rest of us can just talk amongst ourselves or go about our business, as usual, because the only person who cares less about this than we do is the consumer.