The Real Deal New York

Realogy shelled out $53M in commissions amid hiring push

Expenses were driven by West Coast, where agents earn higher splits
By E.B. Solomont | November 03, 2017 12:30PM

From left: Richard Smith, Pam Liebman, Ryan Schneider and Tony Hull

Nine months after CEO Richard Smith vowed to turn Realogy into a “recruiting machine,” the company is facing a bittersweet reality of a successful hiring campaign: high commission expenses.

During an earnings call Friday, Realogy said commission expenses during the third quarter increased $53 million — largely as a result of broker recruitment on the West Coast, where agents are paid higher splits. Of the $53 million, CFO Tony Hull said $25 million was due to higher splits associated with the recruitment push and $16 million was due to higher sales volume in regions like California, where the company has brought on more agents.

“I don’t want to say it’s a high-class problem,” he said, “but it’s great to see we’re really making huge strides on the West Coast.”

Over the past 12 months, Realogy has doubled its recruiting efforts. During the quarter, gross commission income from new recruits jumped to $600 million a year compared to $250 million a year ago. “This targeting recruiting effort has been very, very successful,” Hull said.

Realogy’s NRT division — which includes the Corcoran Group, Citi Habitats and Sotheby’s International Realty — boosted its agent head count by 4.5 percent over the past 12 months to more than 50,000 nationwide. In New York, for example, Corcoran has attracted big name brokers like Vickey Barron, who was previously at Douglas Elliman.

Overall, Realogy had $1.7 billion in revenue during the quarter, up 2 percent year over year, thanks to higher transaction volume. Net income for the quarter slipped to $95 million from $106 million a year earlier.

CEO Richard Smith said “persistently low inventory,” as well as devastation from hurricanes in Texas and Florida, took a toll on revenue. The storms had a $7 million impact on Realogy’s EBITDA (earnings before interest, tax, depreciation and amortization), which slipped to $258 million compared to $278 million in 2016.

While the recruiting will continue, but Smith said Realogy will try to limit commission expense growth in 2018 by increasing the productivity of agents. “These are agents that are at the high end of their game, so they’re very productive to begin with, but we expect them to be more productive with us,” he said.

Smith, who is set to retire at the end of the year, will be replaced by Ryan Schneider, who was named president and COO of the company in October. On Friday, Schneider said he sees “incredible potential” at Realogy, and he’s “excited to hit the ground running.”