The residential real estate world has been in the spin cycle in the last 24 hours.
A bombshell report from the Wall Street Journal Thursday said Compass, the country’s largest real estate brokerage, was nearing a deal to acquire Berkshire Hathaway’s real estate arm, HomeServices of America.
But HomeServices CEO Gino Blefari denied the report in a memo released hours later to employees.
“I want to confirm to you that there are no discussions, negotiations, or agreements to sell HomeServices or any of its affiliated companies, and that includes the Berkshire Hathaway HomeServices franchise business,” Blefari wrote, adding that “no such sale is being contemplated.”
The statement was a sharp pivot from the picture of “advanced talks” that made headlines, but weren’t enough to shut down the possibility of a deal materializing.
An acquisition, even one of such staggering proportions, would be in line with Compass’ ambitions for market share and inventory. Compass, for its part, stayed quiet amid the mixed messaging, leaving the industry with more questions than answers.
The Berkshire perspective
Blefari himself has acknowledged that he’s not always in the know when it comes to Berkshire Hathaway’s inner workings.
He told Housingwire in 2021 that he hadn’t spoken to Berkshire Hathaway’s CEO Warren Buffett in years, and that the trillion-dollar conglomerate’s performance doesn’t bleed into his brokerage’s operations. In that same interview, he also criticized Compass for not competing on a “level playing field” with its investor-fueled bonuses and lucrative splits.
Any deal for the real estate arm would still be executed by Buffett’s firm, and there’s a chance that Blefari just hadn’t been clued in yet. Blefari has not responded to texts for comment, and an automatic email response said he was traveling for business for the remainder of the week.
But the deal would still be out of character for Buffett, who has a stated aversion to selling subsidiaries.
“Berkshire almost never sells controlled businesses unless we face what we believe to be unending problems,” he wrote in a 2024 shareholder letter.
A sale of HomeServices now would also run counter to Buffett’s guiding ethos of buying low and selling high, and likely signal Buffett’s long-term pessimism about the real estate market or Berkshire’s ability to compete in it.
The brokerage business was consistently profitable, making $160 million in 2019, $375 million in 2020 and $381 million in 2021. But after barely breaking in 2023, HomeServices lost $107 million in 2024, which it attributed to an industry downturn and settlement payments related to the Sitzer/Burnett antitrust lawsuit.
The real estate industry has suffered some of its worst years in recent memory as a result of high interest rates and the surge of buying and selling that came in the aftermath of the pandemic. But real estate is cyclical, and a sale now would likely not be maximizing HomeServices’s value.
An analyst who covers Compass also raised the possibility that the deal is not for the entire brokerage, but for pieces under its umbrella.
The Compass perspective
The deal, while shocking in its scale, is in line with the M&A warpath Compass has been on in the past 12 months. At a recent investor day, Compass CEO Robert Reffkin noted the company’s strong M&A momentum, albeit with a nod toward its appetite for smaller brokerages.
The firm’s biggest move came when it announced a $444 million deal for @properties and Christie’s International Real Estate towards the end of last year. The deals are part of the brokerage’s efforts to get up to 30 percent market share in its top 30 markets in the next five years.
This acquisition would be its largest to date. HomeServices is the fourth-largest brokerage in the country, with $4.4 billion in revenue last year compared to Compass’ $5.6 billion.
By total transaction volume, HomeServices is more than six times as large as @properties.
Bringing on HomeServices would also help grow Compass’ ancillary businesses, said Finley Hair, national director of M&A Advisory at WAV Group, something that brokerages are increasingly focused on to combat their thin margins.
A massive acquisition would be in good company on the residential consolidation front. This week, Rocket Companies announced a $1.75 billion deal to acquire Redfin, and earlier this year Keller Williams announced it was selling a majority stake to private equity firm Stone Point Capital.
Compass has been pushing its off-MLS inventory, which only grows more valuable the larger it gets, and other companies may be seeing the writing on the wall.
“There’s one thing that has never changed in the real estate business,” Hair said. “He who controls the inventory, controls the market — Robert Reffkin understands that, and that’s what he’s going after.”