When Michael Liebowitz became CEO of Douglas Elliman in October, he promised a new era for the brokerage after a period of losses, cost cuts and the abrupt departure of its longtime leader, Howard Lorber.
“We’re going to make a lot of money,” Liebowitz said at The Real Deal’s South Florida Real Estate Forum later that month. “We’re going to be a company that is constantly changing, constantly evolving.”
After two years of lackluster sales, Liebowitz pledged to source income from pretty much anything aside from closing deals. On his list of priorities were building out the firm’s property management sector and buying up other businesses in agents’ orbit such as title, insurance and staging companies.
“We all understand the real estate business has a lumpy nature to it,” Liebowitz said during the company’s third-quarter earnings call. “Doing acquisitions and organically starting and growing businesses that sit around the agent will greatly enhance our agent base.”
Liebowitz’s strategy echoes comments from other brokerage executives who want to shore up revenue outside of home sales. When Compass announced its acquisition of @properties, it touted the firm’s title and mortgage business as a meaningful boost to its margins.
Brokerages, including residential giant Anywhere Real Estate, have long included some ancillary businesses, partly to streamline services for clients. But today’s muted sales market has led more firms to find new profit centers, and others to ramp up initiatives already underway.
Some are even thinking outside of the traditional title-and-escrow box, peddling yachts, jets and art. Serhant, founded by former “Million Dollar Listing” star Ryan Serhant, turned to venture capital money to further the development of its AI-powered platform, adding a new revenue stream to a mix that already included a Netflix reality TV show and a coaching business.
More announcements are likely to come in the new year, especially without another boom market expected any time soon. (Home sales in several markets picked up in the back half of 2024, but some executives say it’s not enough to bet on commissions to keep firms afloat.)
“Brokerage firms have to find other sources of revenue in order to survive,” Mauricio Umansky, founder and CEO of the Agency, said. “If we don’t, the whole world is going to be a discount brokerage.”
Margin call
Brokerages operate on thin margins, and firms only bring in revenue when their agents close deals. But brokers have been logging fewer sales, as high mortgage rates and a shortage of inventory slowed transaction volumes. Brokerages lost out on income as a result.
Costs mounted too. Firms made multimillion-dollar payouts to settle antitrust lawsuits over broker commissions. A competitive recruiting environment, which Umansky pinned on Compass’ hiring and acquisition spree in 2018, pushed many firms’ payouts to agents to unsustainable levels. (Compass stopped offering its sign-on incentives around August 2022).
“Ever since Compass started making acquisitions, they got extremely aggressive with commission compression, offering crazy splits to agents,” Umansky said. “Brokerages have had a very difficult time making ends meet. I mean, the gross margins have become tiny.”
“The real estate business has a lumpy nature to it. Doing acquisitions and organically starting and growing businesses that sit around the agent will greatly enhance our agent base.”
Since late 2022, the name of the game for many brokerages has been cost cuts, with firms such as Elliman, Compass and Anywhere announcing significant reductions. But some firms appear to be switching gears: instead of slashing their way back into the black, they’re going for growth.
The Agency started incorporating ancillary services about three years ago, when it brought its escrow business in-house, Umansky said. But the brokerage has been adding more to the fold in recent months, including launching a mortgage-lending platform called Aclara and a title agency known as EastWest.
Its latest venture, though, is of a different variety. In November, the firm announced the opening of the Agency Art House, an art investment advisory service that leverages the brokerage’s existing relationships with clients into art purchases at a variety of price points. Umansky billed the new business as proof that the Agency was not just a brokerage, but a “lifestyle brand.”
“I’ve always been a lover and art aficionado,” Umansky said. “This was more of a passion play for me that happens to fall into the ancillary business world.”
Last summer, Nest Seekers International launched a division to sell jets and yachts to wealthy clients looking for new toys that befit their net worth. Elliman’s top-producing Eklund-Gomes Team, the megagroup of luxury agents, also introduced jets and yachts to its repertoire of luxury goods.
Meanwhile, Serhant took his quest for cash to investors and raised $45 million in venture capital to build out its technology — an investment that theoretically yields more money down the road.
What’s the downside?
Building out ancillary business isn’t just plug-and-play for all brokerages. Adding business lines could distract from the core work, and services that touch the agent experience have to run smoothly in order for brokers to feel comfortable passing them on to their clients. It can take time for a new venture to build credibility.
That’s where brokerages that already built ancillary businesses may have the upper hand over the innovators.
“We are established. We have done this,” said Sue Yannaccone, the president and CEO of Anywhere’s franchise and brokerage business, who said the firm began investing in ancillary businesses about two decades ago. “We are one of the leaders in this space.”
Compass heralded a similar advantage after its acquisition of @properties and Christie’s International Real Estate Group last month. The company launched its title and mortgage businesses more than a decade ago, which Compass’ chief financial officer Kalani Reelitz said allows them to “leapfrog” off their hard work.
“Brokerage firms have to find other sources of revenue in order to survive. If we don’t, the whole world is going to be a discount brokerage.”
“We can kind of save ourselves the learning growth, the growing pains,” Reelitz said during the firm’s call announcing the acquisition.
For services such as title, escrow and mortgage, the growing pains are even more steep, as each has a set of federal regulations and rules that vary state by state. That’s difficult for brokerages to navigate, especially as they simultaneously attempt to balance the business-development challenge of leveraging agent networks for leads.
Take Portfolio Escrow, one of Elliman’s escrow businesses on the West Coast. The firm and its parent company were tangled in a lawsuit with Portfolio’s former president and founder, William Grasska. In the complaint, Grasska claims the brokerage and escrow firm pushed agents to use the escrow service by throwing mixers and offering to pay for headshots and other marketing materials. Two other sources said the escrow firm offered kickbacks.
The trouble with incentives is that federal law prohibits escrow officers — along with title companies, lenders and agents — from accepting “any fee, kickback or other thing of value” in exchange for services. Though authorities haven’t weighed in on Grasska’s accusations, the suit is an example of the gray areas that can arise when mixing businesses.
In response to the lawsuit, Elliman sued Grasska over allegations that he orchestrated his own kickback scheme with a “high-profile Los Angeles real estate broker.” Inman later reported that agent was Jason Oppenheim, whose brokerage the Oppenheim Group is featured in Netflix’s “Selling Sunset.”
Elliman denied the brokerage offered kickbacks and that any of its agents were involved in the alleged kickback scheme. Oppenheim denied any wrongdoing. Elliman and Grasska agreed to settle both lawsuits in December.
Any turn to side hustles could change the perception of real estate agents and the executives who steer them. If a brokerage succeeds in diversifying, agents might really leave behind the old stereotype — that they’re just like car salespeople — and adopt a new one: not just the deal-closing, high-fashion hustlers portrayed on reality TV but also the savvy entrepreneur and lifestyle concierge, advising clients not just on home purchases but on yachts and art and other huge investments.