Realogy profits nosedive in 2018

With no boost from changes to the U.S. corporate tax rate and a “tough” national housing market, Realogy Holdings’ profits dropped 68 percent to $137 million in 2018.

The final quarter of 2018 was particularly difficult, with the New Jersey-based conglomerate losing $22 million compared to net income of $255 million during 2017’s fourth quarter. (Realogy benefited hugely in 2017 from changes to the U.S. corporate tax rate, which provided it a $216 million windfall.)

For the full year, Realogy generated $6.1 billion in 2018 revenue — a drop of $35 million compared to 2017. Fourth-quarter revenue was $1.4 billion, down $90 million from the prior year, thanks to fewer transactions at NRT, the division that operates the Corcoran Group, Sotheby’s International Realty and others.

“Most of the challenge in the 2018 market showed up in the last half of the year,” CEO Ryan Schneider said during an earnings call Tuesday, in which he acknowledged it had been a “pretty tough” four or five months for the national housing market. Realogy’s transaction volume dropped 5 percent during the fourth quarter; sales volume was down 10 percent in December alone.

Overall, Realogy reported 1.4 million transactions valued at $512 billion in 2018, up 1 percent from 2017. Although NRT’s average sales price rose 2 percent year-over-year, transaction volume dropped 2 percent.

“New York remained pretty weak in Q4. California was incredibly weak, and we’re over-weighted in both of those related to the National Association of Realtors and our competitors,” Schneider said.

To counter the market forces and competition from well-funded rivals, Realogy has piloted new commission models in select markets. Company officials said those programs resulted in 5 percent growth in agent headcount.

“If we can scale these things across our footprint, we can drive [sales] volume,” Schneider said.

The company has also invested in new marketing, technology and lead generation tools to improve its value proposition for agents. “If we can drive recruiting growth, it will pay off on an EBITDA basis,” he said. “You can hold your own.”

Realogy said Tuesday that it is also looking to save $70 million in corporate expenses in 2019, including a reduction in facilities and back-office operating costs.

Schneider was optimistic about 2019 — particularly during the second half of the year. “We believe consumer demand is very strong,” he said. “The fundamentals that held consumers back are easing.”

This fall, Realogy launched an iBuying service through Coldwell Banker. Schneider said the effort was still nascent, but will definitely expand. “Most of the time, people say no to the offer, but we keep the listing,” he said. “So we really like the value proposition here.”