Consolidation among North America’s largest real estate brands is prompting more brokerage owners to rethink their next move, according to one mergers-and-acquisitions adviser who says the pace of deals is accelerating on both sides of the border.
Mark Lukes, founder and CEO of Real Estate Mergers & Acquisitions Co. (REMA), said headline-making consolidation news from across the industry’s biggest banners is leading more broker-owners to look internally and consider options they may not have contemplated a few years ago.
Lukes pointed to Compass’s acquisition of Anywhere Real Estate and the pending acquisition of Remax Holdings Inc. by The Real Brokerage as some of the most influential forces at play.
Large real estate brands are making different decisions now than they ever had before, probably due to market volatilities, and those decisions will have massive impacts for the next few years, Lukes said.
As large brands reshape their businesses through acquisitions and other strategic changes, Lukes said brokerage owners are increasingly reaching out to discuss what those developments could mean for their own companies.
The big brands are making manoeuvres now that will presumably help them in the future, but that has a significant ripple effect, Lukes said.
Brokerage owners are trying to figure out what their next steps are, due to volatility in the market and various brands.
REMA has averaged about 20 to 25 transactions annually since launching in 2022, but Lukes said it is on pace to facilitate up to 100 deals this year, with some of the biggest ones involving more than 2,000 agents.
Historically, about one-third of the company’s business came from Canada, but Lukes said that figure is expected to reach about half this year.
Housing market swings have also changed the economics for many brokerage owners, Lukes said.
Home prices surged during the COVID-19 pandemic before retreating in many markets, putting pressure on independent brokerages.
Based on REMA’s observations, Lukes estimates roughly half of brokerage owners in the United States are at retirement age, and in Canada, he believes the proportion is even higher.
Some owners are deciding now is the right time to exit while buyer demand remains healthy.
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Value comes down to profitability, Lukes said, and buyers are increasingly focused on team trends and business fundamentals.
Lukes cautioned against relying on artificial intelligence tools or simple rules of thumb to estimate a company’s worth.
“Unfortunately, far too many people are going to ChatGPT and asking what their business is worth,” he said.
“Most of the AI bots are wildly off. It can’t be done that way.”
Instead, he said buyers are looking at how many agents a brokerage has and whether it is profitable.
“We need to get back to business fundamentals. You have to look at how many agents do I have and am I profitable, and if I’m not profitable, then my company isn’t worth what I hope it might be worth.”
Some owners are surprised when they receive a formal valuation because a large agent count does not necessarily translate into a valuable business.
Lukes expects consolidation to continue accelerating as brokerage owners respond to changing market conditions, evolving brand strategies, and an aging ownership base.
“The consolidation and M&A will not only continue to go forward unabated, it will accelerate, at least in the near future,” he said.
The decisions large brands make today could influence the industry’s direction for years, with ripple effects extending well beyond the companies involved, according to Lukes.
Considering past trends in the real estate industry, consolidation can have a significant impact on the market.
Lukes said the industry needs to keep that in mind on both sides of the border, because they’re linked with the brands on both sides.
It will be interesting to see how brokerage owners adapt and what strategies they employ to stay competitive.
