The Real Deal New York

Big commissions payouts, new dev slowdown cut into Realogy’s bottom line

The company's quarterly earnings report singled out NRT for a $67M decline
By David Jeans | May 03, 2018 04:30PM

Ryan Schneider (Photo by Jhila Farzaneh)

A slowdown in new development and a $40 million increase in agent commissions in its NRT division brought negative profits to Realogy Holdings during the first quarter.

In its quarterly report released Monday, the New Jersey-based real estate and franchise giant reported $1.2 billion in revenue, a 2 percent increase compared with the first quarter in 2017, which it said was driven by increases in home sale transaction volume, valued at $100 billion.

But it noted a string of declines driven by a drop in EBITDA, which had halved to $34 million. Net loss more than doubled to $67 million, compared to the first quarter of 2017, while loss per share was $0.51, down from $0.20. Negative cash flow also doubled to $166 million.

The slump in profit was blamed on pressures facing NRT, which includes Corcoran GroupCiti Habitats, Sotheby’s International Realty and Coldwell Banker.

“The year-over-year decline of $27 million was largely due to a $24 million decline at NRT, which was primarily a result of greater agent commission costs and softness in the New York City market,” said Anthony Hull, the company’s treasurer.

Realogy’s chief executive, Ryan Schneider said the high commission rates contributed the “lions share” to the profit decline, but added rates are expected to moderate for the remainder of 2018.

“The New York City market is challenging right now,” Schneider said. “When New York City and the Hamptons are included in the overall numbers, NRT’s Northeast volume was actually down 9 percent.”

Hull said NRT commission expenses increased by $40 million.

“Of the $40 million increase, approximately one-third was due to volume growth, about half from agent retention and recruiting and the remainder was due to new development activity,” said Hull.

In Wednesday’s earnings call, Schneider said the conglomerate is turning to investments in technology and data products, and have already developed four products for agents to increase efficiency.

Earlier this year, Schneider dismissed rivals he said were “spending millions of dollars” trying to replicate the company’s size, after it reported an increased market share to 15.9 percent, up from 15.7 percent. The comments came after the vowed to become a “recruiting machine” in the face of rivals with deep pools of capital.