Realogy Holdings Corp., the sprawling real estate conglomerate, tallied $6.1 billion in revenue in 2017, up 5 percent from the previous year, as senior executives on Tuesday indicated a “moderation” in commission rates in 2018 and a $200 million investment in new technology.
The company, which counts among its portfolio of brands Coldwell Banker and Century 21, reported a net income of $431 million in 2017, up 102 percent from $213 million in the previous year, according to an earnings call Tuesday, the first for newly installed CEO Ryan Schneider. The passage of the Tax Cuts and Jobs Act in December, meanwhile, reduced Realogy’s corporate tax rate from 41 percent to an estimated 29 percent, or about $50 million annually.
“Realogy has a powerful financial engine,” said Schneider during the earnings call. “We’ve generated $1.5 billion in free cash flow in the past three years and our balance sheet is strong, with little exposure to rising interest rates or near-term debt maturities and $1.4 billion of revolver capacity. While residential real estate is an intensely competitive market, I’m convinced the best place to compete is from Realogy’s positions of strength.”
Agent commission rates rose significantly in 2017, by 173 basis points, and were up by 204 basis points in the fourth quarter, but will be reduced in the second half of 2018, Schneider said. The company, he said, will take a different approach in 2018, with a “substantial moderation” beginning in the second quarter.
While fielding questions from investors, Schneider suggested that the reduction could come, in part, through the recruitment later this year of second-tier agents, who command lower commission splits than their top-tier colleagues. However, he declined to elaborate further.
“You’ve seen our agent commission rates rise substantially over the past 15 months,” said Schneider, who was accompanied during the earnings call by Tony Hull, executive vice president and chief financial officer with Realogy. “While we are subject to competitive market forces, we will use a different approach to this issue in 2018, including providing you with greater strategic clarity and the implications of our choices.”
The adjustment in commissions comes as Realogy and its competitors in the real estate industry are dramatically shifting focus and resources to new technology, including customized Customer Relationship Management platforms, artificial intelligence and other digital solutions. On Tuesday, Schneider did not elaborate on how the company would invest in new technology in 2018, but said it would continue to invest in third-party products.
In January, however, the former Capital One executive said that data across a dozen business units — nascent, but purportedly greater in size than any of its competitors — could soon be deployed to deliver a variety of new products and services, for the benefit of Realogy’s estimated 286,000 sales associates.
“Realogy, as I understand it if I got my history right, disclosed the $200 million technology spend in our Investor Day last year, and my view is that’s an awesome asset for the company in the sense that it truly shows the technology scaled and the potential it has,” said Schneider on Tuesday.
“I personally think that will be enough, but as you probably expect I think there will be two different changes that happen,” Schneider added. “One is that where we spend that in the future is likely to be different than in the past, both given how the world is changing and some of the strategic priorities I’m laying out, so I think there will be opportunities for us to reallocate some of that money. And second, when I talk about our cost reduction, I do think one trend happening at companies across America is how do you find ways to reduce costs in other parts of your business so you can invest more in technology, so I think if there are incremental technology dollars, they’ll come from us being more efficient in other places.”
The earnings call came on the heels of a corporate restructuring under Schneider, who took the reins Jan. 1, and has included the appointment of Ryan Gorman as president and chief executive at residential brokerage NRT and the hiring of David Gordon as Realogy’s chief technology officer, among other executive shifts.
Realogy operates numerous business units and brands, many of which are well-known in real estate, including:
- Better Homes and Gardens Real Estate
- Century 21
- Coldwell Banker
- Coldwell Banker Commercial
- The Corcoran Group
- ERA
- Sotheby’s International Realty
- ZipRealty
- NRT LLC
- Cartus
- Title Resource Group
- ZapLabs, Realogy’s technology development subsidiary
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