Warren Buffett is sitting on $112 billion cash and wants to expand his housing market footprint

Servicing

It’s a question that comes up during the first weekend of every May: will Warren Buffett, the third-richest man in the world and the CEO of a company that owns the biggest U.S. real estate brokerage, opine on the nation’s housing market?

He has two opportunities: first, in a letter issued the same weekend as his company’s annual meeting known as “Woodstock for Capitalists.” And second, in the lengthy question-and-answer session at the biggest arena in Omaha, Nebraska, in front of more than 18,000 shareholders.

In the last two years, Buffet has discussed his real estate businesses in detail. This year, it didn’t come up except a brief mention of Clayton Homes, a builder and financier of manufactured homes owned by Berkshire Hathaway. During the five hours Buffett sat onstage answering questions, someone asked if Fannie Mae and Freddie Mac should expand lending to buyers of non-traditional homes like the ones sold by Clayton. The short version of Buffet’s answer: yes.

But, there was no mention of HomeServices of America, a Berkshire Hathaway real estate brokerage that recently reached a monumental milestone. Using an industry measure of “sides,” meaning a stake in either the selling or buying side of a home transaction, HomeServices beat behemoth NRT to become the largest brokerage in 2018.

In a highly fragmented industry, that’s not a small feat. HomeServices had 346,629 sides in 2018, and Realogy Holdings Corp.’s NRT had 337,235, according to data provider Real Trends. The next-biggest brokerage, Howard Hanna Real Estate Services, had 83,043, and No. 4 was eXp Realty at 73,458 sides. It’s important to note that NRT still beats HomeServices when it comes to the total dollar volume of transactions.

Buffet may have simply overlooked HomeServices in this year’s letter, said Scott Rothbort, president of LakeView Asset Management. Or, he may not have wanted to call attention to a segment where he is buying.

“If he goes out there and says we’re on the verge of buying more and more residential brokerages, the competition is going to start cherry picking,” said Rothbort. “He likes to buy value, so why would he want to jack up prices?”

A year ago, when HomeServices was ranked second behind NRT in sides, Buffett said in his annual letter that the company would have about 3% market share in 2018. Only “97% to go,” he wrote.

Buffett often cites his involvement in residential brokerages as the result of happenstance. Almost two decades ago when he bought MidAmerican Energy, now named Berkshire Hathaway Energy, it came with HomeServices as a subsidiary.

“I originally paid little attention to HomeServices,” Buffett said in last year’s letter, a story he has told in other missives. “But, year-by-year, the company added brokers and, by the end of 2016, HomeServices was the second-largest brokerage operation in the country – still ranking, though, far behind the leader, Realogy. In 2017, however, HomeServices’ growth exploded.”

That’s when HomeServices bought Long Foster, one of the largest private brokerages in the country. In 2018, it bought companies including Ebby Halliday, one of the largest private residential real estate brokerages in Texas. And in the opening weeks of 2019 it announced the acquisition of a franchisee, Berkshire Hathaway HomeServices Florida Realty, with about 40 offices and about 1,750 agents.

“We’d all like to know what Buffet is going to do with that pile of cash he’s sitting on,” said Rothbort. “One thing for sure, he’s not going to draw attention to whatever moves he’s planning.”

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