“We will continue to buy more brokers, ” said Warren Buffett during the company’s annual shareholder meeting company on Saturday, adding that Berkshire will probably have a couple more deals to announce. “We like it cause it’s a good business.”
The Omaha company with its Berkshire Hathaway HomeServices has been the second largest residential real estate brokerage in the U.S. based on the number of transactions since 2016. It was a feat Buffett heralded in his recent shareholder letter.
Berkshire entered the residential brokerage business in 2000 when it bought a majority interest in MidAmerican Energy (now named Berkshire Hathaway Energy) and in 2017 expanded that business with the acquisition of brokerages Long and Foster, Houlihan Lawrence and Gloria Nilson.
Despite its ranking in the nation, Berkshire only does about 3% of the nation’s total residential real estate transactions, making about $200 million a year. Buffett said he would like the company to eventually do 10% of the residential real estate business in the country, making $600 million-$700 million in pre-tax earnings. Last year, Berkshire reported earning $220 million and revenue of $3.5 billion, up 23% from a year earlier.
Buffett respects real estate agents
Berkshire Hathaway HomeServices, one of the conglomerate’s first subsidiaries to carry its moniker, is a franchise brokerage business with close to 50,000 agents in the U.S. Buffett said Berkshire’s real estate business’s highest average home sale transaction is $600,000, and most sales are in the $250,000 range. With broker commissions for a single real estate transaction at 5%-6% and brokers having to split commissions in deals (when there is a buyer and seller broker), Buffett points out it’s not a very lucrative fee-based business.
“You don’t get rich at a real estate agency,” Buffett said, adding that an agent has to show “a whole lot of homes before closing a deal.”
“People earn money in an honorable and respectable manner in terms of what they get paid,” he said. “People who manage money make a whole lot more money with a whole lot less contribution to the welfare of people they deal with.”
Amanda Fung is an editor at Yahoo Finance.