Consolidation likely in real estate as smaller players struggle to compete

Smaller and privately-owned real estate firms struggling with the rising costs of technology are increasingly looking at mergers with larger companies in order to remain competitive. An example of this is HomeServices of America’s acquisition of Long & Foster Real Estate last month, the Washington Post reports.

This is just one of several real estate mergers to have taken place in the last couple of months. Others include Long & Foster’s acquisition of Evers & Co. just five days before it was bought by HomeServices. In addition, HomeServices added a second Carolina-based real estate brokerage in the same month, while Douglas Elliman Real Estate in New York recently snapped up Teles Properties, which is based in Beverly Hills, California.

Famed investor Warren Buffet, owner of Berkshire Hathaway, says he expects HomeServices to acquire even more real estate businesses in the coming months and years. “We like both aspects of the real estate business and expect to acquire many Realtors and franchisees during the next decade,” the investor wrote in a note to shareholders recently.

HomeServices’ most recent acquisitions are part of a mission the company has set itself over the last twenty years to “aggregate” companies in key markets, in order to create “scale and synergies,” said the company’s chairman and chief executive officer Ron Peltier. “The industry is very fragmented, [and] with the costs of business continuing to rise, having scale is critical,” he added.

Industry watchers say that HomeServices’ acquisition of Long & Fosyter may prompt further consolidation in the real estate world.

“The fact that [Long & Foster founder] Wes Foster considered doing this has caused many of his peers to reconsider whether they should stay private or seek a buyer,” said Steve Murray, president of REAL Trends, a real estate consulting and communications firm.

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