Latest / NOISE vs SIGNAL by Inman / HomeServices of America CEO Chris Kelly on Real Estate's Next Chapter

Transcript

HomeServices of America CEO Chris Kelly on Real Estate's Next Chapter · NOISE vs SIGNAL by Inman

0:00
Today I had the pleasure of meeting with Chris
0:01
Kelly, President and CEO of HomeServices of
0:04
America. We discuss why he's the adult in the
0:07
room. who the children are, and what's to come
0:10
in the battle between NAR and ARA. This is not
0:14
one you're going to want to miss. to see how
0:38
agentic AI can put your business growth on autopilot.
0:43
Everybody in the business of home has a pitch.
0:45
Almost nobody gets asked a hard question. This
0:48
show fixes that. Welcome to Noise vs. Signal.
0:52
I'm your host, Inman CEO Tom Bohn. Each week
0:55
we sit down with the top producing agents, industry
0:58
CEOs, prop tech founders, and the people shaping
1:01
the future of the business of home. Then we break
1:05
down the week's biggest headlines and decide
1:07
what's noise and what's signal. Let's get into
1:10
it. Hey, good afternoon, everyone. My guest today
1:14
runs one of the largest residential real estate
1:17
companies in the country, HomeServices of America,
1:20
which owns the Berkshire Hathaway franchise,
1:22
plus the roster of company -owned mortgage brands.
1:25
He came up as a real estate attorney in Kansas
1:28
City, ran three brokerages as CEO, and took the
1:31
top job in April of last year. For most of its
1:35
life, HomeServices was considered the quiet giant.
1:38
But Chris has spent the last year deciding it
1:41
will no longer be quiet. Chris Kelly, welcome
1:43
to The Signal. Hey, good morning, Tom. Good to
1:45
be with you. Thank you. Appreciate it. Thanks
1:47
so much. I appreciate it. I've been following
1:49
what you're doing. And you have, I think, a luxury
1:52
that not a lot of other businesses have in the
1:56
real estate sector, which is you're owned by
1:58
Berkshire. Hathaway, which is notorious for two
2:01
things. One, smart investing and betting on the
2:05
winners, okay? And two, being incredibly patient
2:08
for an overall process. Tell me how that's benefited
2:11
you in your role as CEO. Do you feel pressure
2:14
or do you feel that comfort of being in that
2:16
Berkshire Hathaway stratosphere? Yeah, it's a
2:19
good question because I do think it runs both
2:21
ways. Right. So that there there is a comfort
2:24
level to know that like they they they buy more
2:27
than they ever sell. Right. Especially on the
2:29
wholly owned side and that they are always looking
2:32
towards the longer term. And our industry sometimes
2:34
can get a little bit too obsessed with the short
2:37
term. Right. Like what's happening in the next
2:39
quarter or the next six months. And we have the
2:42
luxury of always being able to look. at a longer
2:45
runway, perhaps, than maybe, you know, some other
2:47
companies do that have quarterly earnings and
2:50
some shareholders they've got to satisfy. The
2:52
other part that comes with it, though, is there
2:54
is a high level of expectations around the discipline
2:57
of operating within the Berkshire world that's
2:59
due. And, you know, we actually kind of fall
3:01
within a vertical with Berkshire Hathaway Energy,
3:03
which is its own weird story, too, that we can
3:05
dive into if you ever want. But I would say operating
3:09
in that vertical, we have to operate with a level
3:11
of financial discipline that sometimes gets lost
3:13
in this industry as well, where we're chasing
3:15
headlines, right? Like, okay, someone else did
3:16
an M &A, now we've got to do an M &A. And you're
3:19
kind of fighting for headlines as opposed to
3:21
maybe what's the right thing for your business.
3:22
And so overall, being part of the Berkshire Hathaway
3:26
structure is really, really great. There's the
3:28
knowledge that you can tap into is pretty amazing
3:31
from the different industries that you can learn
3:32
from. I always think there's more to learn outside
3:34
of our industry than just looking internally.
3:36
But then there's also that expectation that you
3:38
have to perform financially, right? Like that,
3:40
you know, we expect that our businesses make
3:42
money. Even in a downturned market, like we've
3:45
been in the last handful of years, you've got
3:46
a right size and you still have to find a way
3:48
to be a profitable business, even in these types
3:50
of environments. overall, it's a pretty great
3:53
place to be, but you got to perform. If you have
3:57
the luxury of being part of it, you've got to
3:58
perform and you got to show that you can do it.
4:00
And the other thing that obviously is the biggest
4:02
misnomer that we went through with the litigation
4:03
is this idea that Berkshire comes down and just
4:06
like floods you with cash or resources. No one
4:08
floods anyone with cash. That's the biggest misnomer,
4:10
including private equity. Yeah, exactly. And
4:13
so that's the biggest misnomer that we sometimes
4:15
fight sometimes is this idea that there's this
4:18
kind of golden pot behind you. Have you met Warren
4:21
Buffett in your journeys there yet? And A, what
4:23
is he like? Because I'm a huge fan of him and
4:26
his discipline and his outlook in a world of
4:29
billionaires popping up every day. He's one of
4:31
the good guys, right? But what is the outlook?
4:34
What is his outlook? What is your larger economist
4:36
outlook on the residential housing market? Yeah.
4:40
So we've had the pleasure of being with Warren,
4:43
let's say, in larger environments. We actually
4:46
have a really good relationship with Greg Abel,
4:48
who was Warren's successor, who stepped in in
4:50
the CEO role in January. Greg came up through
4:52
the energy vertical, used to be on our board
4:55
at Home Services as well. So he has a really
4:57
high degree of familiarity with Home Services
5:00
and with our industry. I think the biggest thing
5:02
I can point to that reflects their attitude about
5:05
residential housing was about two months ago,
5:08
I guess, at this point. they announced the acquisition
5:11
of Taylor Morrison, which is a really large scale
5:13
on -site builder in about 11 states and 40 markets.
5:17
And to me, that one was very evident that there
5:21
is, again, looking at that long game, right?
5:23
We've been under building new construction in
5:25
this country for over a decade at this point
5:28
as a result of the great recession and so many
5:30
builders going out of business. And there's this
5:31
massive influx of housing to demand that will
5:34
come. It will be there just based on the generational
5:36
demographics that happen. And we're going to
5:39
need that replacement housing. So their view
5:41
of the first acquisition that Greg did in the
5:44
seat of CEO was the acquisition of Taylor Morrison,
5:46
to me, was a really big strike in the favor of
5:49
what they foresee coming with residential housing,
5:52
which is good for all of us, whether you're owned
5:53
by Berkshire or not. some really smart investors
5:56
at Berkshire Hathaway thought housing is still
5:58
going to be a great place to put your money.
6:01
And that's why they made that acquisition. Inman
6:03
is now owned by a private equity platform, has
6:05
been for a number of years. And I think that
6:07
was one of the most telling signs that we've
6:09
seen in quite a while that said the American,
6:12
the U .S. in particular, residential housing
6:15
market is going to be OK. Yeah. Yeah. Well, because
6:19
we've never seen, as you look at the demographics,
6:20
right, there was a prediction. I remember it
6:22
starting about 10 years ago. It was applied to
6:24
the millennial generation that, oh, they're not
6:26
going to want houses, you know, they're going
6:27
to live differently and stuff. And while we've
6:29
seen delays in that, right, like family formation
6:32
delays, child delays, buying a house delays.
6:35
the actual aspiration to be a homeowner has not
6:37
changed at all it's just a matter of when it
6:39
happens um and then so you look at the gen z
6:42
generation right now as well too and you can
6:44
see the same patterns playing out that uh home
6:47
ownership is still a very big aspirational dream
6:49
for the vast majority of americans um when it
6:52
happens may change from what it did for let's
6:54
say baby boomers or gen x um but housing to us
6:57
is still a it's going to be continue to be the
7:00
big generational wealth builder that it's always
7:02
been for everybody. Not a doubt. Do you guys
7:04
get first dibs on those homes that are those
7:06
net new homes to sell them? So it hasn't closed
7:09
yet, right? So once it closes, you know, I will
7:11
love to reach out to their leadership and have
7:13
conversations around that. And the interesting
7:15
thing about Berkshire is there is no real, let's
7:18
say, forced collaboration. Of course. You know,
7:21
when you find opportunities to collaborate, it
7:24
works out really well. So like in the Midwest,
7:26
for example, they own a massive furniture store
7:29
called Nebraska Furniture. I mean, like, you
7:31
know, 12 football fields could fit inside these
7:32
buildings and stuff in Omaha, Kansas City and
7:34
Dallas. It's the Buc -ee's of furniture. A hundred
7:37
percent. It's exactly right. Like you could spend
7:39
all day there. I think when Nebraska Furniture
7:41
Mart opened in Kansas City for at least two years,
7:44
it was the number one tourist attraction in the
7:47
state of Kansas. Like just by the number of people
7:49
going in and out of the door, it was like the
7:51
number one destination in Kansas. How high is
7:55
that bar in Kansas? You know, I mean, you know,
7:58
there's the Speedway. There's a NASCAR track
8:00
right next door to it. You know, so like, you
8:02
know, like, yeah, there's, you know, it's all
8:04
it's all relative. Right. But in Dallas, even
8:06
it was a big deal, too. And so. But, you know,
8:09
our companies connected with Nebraska Furniture
8:11
Mart and said, hey, what happens when people
8:12
buy a house? They need, typically, they got to
8:15
replace all the furniture. They don't like the
8:16
old stuff. And so we worked out deals with them,
8:18
you know, so some cross -collaboration. So it's
8:20
typically not forced, but where there's opportunities,
8:23
you at least have, you've got a door open to
8:25
have a conversation. Love that. And let's talk
8:27
about 2027. Predictions are all over the place,
8:30
right? You know, and they're about as accurate
8:31
as, you know, as my betting on the FIFA World
8:35
Cup these days. Tell me, like, what are you all
8:38
seeing in 27? Where do you think we're going
8:40
interest rate -wise, volume -wise? You know,
8:43
what does it look like? Yeah, so it's funny you
8:46
say. The more someone talks with certainty right
8:49
now, the more nervous I get. So I'm going to
8:52
preface it with that. And I will just say, as
8:55
of now, as we sit here, you know, mid -year point,
8:58
it certainly appears that 27 will largely be
9:03
probably reflective of what we've had in 26.
9:07
You know, 26, a little bit of a moderate improvement
9:09
over 25, a little bit of moderate improvement
9:11
over 24. But there doesn't seem to be any economic
9:14
conditions coming down the road that are going
9:17
to somehow, you know, create some massive acceleration
9:20
over the next year. So the way we are planning
9:24
is that we should expect 27 to look moderately
9:27
better than 26. Every year we go forward. The
9:31
number starts to shift of the people that have
9:33
their precious little, you know, 3 % or lower
9:36
mortgages. You know, I think it was just in the
9:38
last handful of months, the same number of people
9:39
that have a 3 % or lower mortgage is the same
9:42
number of people that have a 6 % or higher. Every
9:45
year we go forward, it will start to favor less
9:47
people having that lock in effect or whatever,
9:50
because, you know. life circumstances gotten
9:51
away. So I would foresee some better improvement,
9:55
but there doesn't seem to be anything. When we
9:57
look at the 10 -year yield and the impacts that
9:59
hit the 10 -year yield with inflation and job
10:01
numbers, they're just barring some other type
10:04
of economic calamity that we can't predict. It
10:06
just certainly seems like a little bit of more
10:08
of the same is what it's starting to feel like.
10:10
And that's what we're planning for. Don't expect
10:12
something miraculously to come around the corner
10:15
and save your business or as an agent to accelerate.
10:19
All of a sudden, I'm going to have all this demand
10:20
out there. You are going to have to be responsible
10:23
for making it happen for you as opposed to waiting
10:25
for the market to do it for you. NAR just did
10:28
some great work in getting that huge legislation
10:30
passed. Do you think that's going to have an
10:32
impact, an appreciable impact anytime soon? I
10:35
don't think it does anything in the short term.
10:38
Most of these things were longer term to kind
10:41
of help inventory and supply over a period of
10:44
time. The other thing was, is that in order for
10:47
it to become effective, it has to be carried
10:50
out by local operations, right? So it was basically
10:53
like, hey, let's get rid of some of the red tape
10:55
around zoning. Let's get rid of some of the bureaucracy
10:57
around where you can put housing and how high
11:00
you can go. That stuff doesn't change overnight.
11:03
And it has to be now enacted and implemented.
11:06
at the local level. And so we were glad that
11:09
it passed in the weird way that it did, you know,
11:12
passed, not signed, signed, not signed. I'm glad
11:15
it went through, but it is definitely more of
11:16
a long term, you know, a handful of years from
11:19
now, hopefully we start seeing the acceleration
11:22
of new housing starts, whether that's multifamily
11:25
or single family, whatever it may be, that the
11:27
wheels have been greased a little bit. Because
11:29
when I talk to builders, you know, what they'll
11:31
say is. 30 % now of the cost you're paying for
11:35
that new house is cooked in with all the local
11:38
ordinances and zoning and everything they have
11:40
to go through in order to basically build that
11:42
house. Like 30 % of the cost is there before
11:44
they even touch the dirt that the house is built
11:46
on. If we can improve that a little bit, then
11:48
that's certainly helpful. You're talking about
11:51
Berkshire. We also have a sister company called
11:53
Clayton Homes that does manufactured home building,
11:56
which I think is a really great opportunity to
11:58
address the affordability problem that we have.
12:00
And one of the things in that bill, which was
12:02
actually pretty cool, isn't sexy, but it's pretty
12:04
cool, is that you no longer have to include a
12:06
chassis in a manufactured home because 90 % of
12:09
these manufactured homes are going to a site
12:11
and they're never being moved. But even if they
12:13
were built as... Yeah, even if they were built
12:16
as two story, the second story has to be engineered
12:18
for like a trailer chassis, which adds all kinds
12:21
of expense to it. So stripping that out and allowing,
12:24
let's say, the expansion of manufactured housing
12:26
is one way that we can bring or at least introduce
12:30
more product onto the market in that first time
12:32
home buyer price point. It's at the Berkshire
12:35
shareholder meeting every year on the expo floor,
12:37
like all the different companies have a little
12:39
booth or whatever. Clayton, they bring in a real
12:42
house. There's an actual house they built in
12:44
there and you walk through it and it does not
12:46
feel like whatever you would perceive to be a
12:48
manufactured home. It's a really nice product.
12:51
If we can have more of that out there in more
12:52
neighborhoods, that will really help on that
12:54
affordability side because most sticks and brick
12:57
builders are having a hard time building anything
12:59
in that affordability range. And so this is an
13:01
option. I was just in Montana with the LPT group
13:04
and they're repping a really interesting community
13:07
out there that is entirely modular built. It's
13:10
really fascinating to watch it. Here's the key
13:12
though. They're starting at $900 ,000. So even
13:16
though, right? So again, depending on where you're
13:19
at, that Montana land is not getting any cheaper.
13:22
No, yeah. Yellowstone didn't do any favors for
13:24
the affordability in Montana. Yeah. We're going
13:27
to pivot to home services here in just a second,
13:29
but I just want to get one more thing out on
13:31
macro. So I've got the... The luxury and the
13:34
pleasure of talking to some really cool people.
13:35
And in the past week, I've had conversations
13:37
with both Robert Palmer, you know, Robert Palmer
13:40
Companies and LPT and Ryan Serhant. And they
13:43
both had wildly different takes on realtors in
13:47
general. Robert says that it's going to be about
13:49
the. individual hustling and working and sometimes
13:53
selling five and sometimes selling 20 or 30.
13:56
And Ryan's saying that it's going to be a lot
13:59
less realtors and it's going to come down to
14:01
Serhat and Compass in terms of companies, right?
14:05
And I know that's Ryan, right? I love him, but
14:07
he's a master at it. Where do you stand? Number
14:10
of realtors, a lot less, same, more? Yeah, I
14:13
don't think the number I mean, we've already
14:15
seen the number come down a little bit. And that
14:17
typically happens anytime you go through, let's
14:19
say, an extended or elongated period of market
14:22
challenges. You know, someone who's not selling
14:24
any houses and they'll say, well, do I really
14:26
want to pay the five, six hundred dollars to
14:28
renew my license? And so I'm going to get out
14:30
of the business. So you see a natural decline
14:32
in that. I don't see anything major because the
14:35
industry infrastructure hasn't shifted to where
14:37
we're intentionally trying to push any of those
14:39
people out. You know, most companies have referral
14:42
networks for those that aren't actively engaged
14:44
anymore. Those referral network agents still
14:46
count as, you know, a licensed agent. So I really
14:49
don't ever get fixated on how many number of
14:51
people are out there licensed as real estate
14:54
professionals. Because we still know about 25
14:56
to 30 % are doing 80 % of the actual transactions
14:59
of that, let's say 1 .4 million licensed. professionals
15:02
across the country. I think what we are going
15:05
to see happen, and you already do see it happening,
15:08
is there seems to be a fork of two different
15:10
models that are becoming prevalent. And it's
15:13
either going to be the cost -based model, which
15:15
it would be the LPTs, the REELs, the EXPs, which
15:18
provide an awesome business model for agents
15:21
who are, that's what they're after. And then
15:23
you're going to see full service. Anything kind
15:25
of in the middle where you're not, let's just
15:27
say you're trying to be full service everything.
15:30
and you're not the cheapest, right? I think that's
15:32
where you're going to get lost in the middle.
15:33
And we've seen that happen in other industries
15:35
as well, like retail, whatever it is. If you're
15:38
either high -end Nordstrom's or you're affordable
15:41
Target, Walmart, and that stuff that used to
15:43
be in the middle, the JC Penney's or whatever,
15:45
they're just gone. And so I think the same thing
15:47
happens here a little bit. And there's a huge
15:49
opportunity for either you're growing big and
15:53
national. Or you're going to become boutique
15:55
and boutique could mean like we specialize in
15:57
a niche type of clientele, a niche price point,
16:00
a niche market. I've seen that happen in my prior
16:02
world law firms where you either started growing
16:04
to become a big national law firm or you became
16:07
kind of boutique and niche on the type of law
16:10
that you practice. And consumers were drawn to
16:12
that or types of businesses were. And that's
16:14
where we seem to be going right now, which isn't
16:17
a bad thing, right? I think in the past, real
16:18
estate was like every model was trying to attract
16:21
100 % of the types of agents out there, which
16:24
is really hard to do. And so now it's like. know
16:27
who you are, like know the profile of the agent
16:29
you want to attract, lean into that. That means
16:32
you're not going to get everybody. That's okay.
16:34
The agent that would typically want to be with
16:36
home services or Berkshire Hathaway Home Services
16:38
is probably not the agent who's going to be highly
16:40
attracted to LPT. And that's fine. That's great.
16:43
It's awesome that there are different models
16:45
to appeal to different types of agents, different
16:47
business models, different seasons of their careers,
16:50
whatever it may be. And so this kind of myopic
16:52
view of like, there's only going to be two at
16:54
the end of the day. It just doesn't play out.
16:56
That's sizzle, right? Yeah, it's sizzle. But
16:58
even if there were like that, that would only
17:00
give rise to someone else to be a differentiator
17:03
from those things and stuff, you know? So it's
17:05
definitely going national in show, but there's
17:07
an opportunity for, I think, the unique boutique
17:10
type firms as well too right now. Yeah, yeah.
17:12
I think the barriers of entry to become a realtor
17:14
and the tools that are available from AI and
17:18
everything now make the barriers to entry so
17:20
low that I can't see consolidation happening
17:22
across couples. It's not like, making cars, right?
17:26
Anyone who has the hustle and the drive and the
17:28
ability to build a great brand can do it. Yep.
17:32
And we've seen that. I mean, if you went back
17:33
20 years, you'd say there's the big three automakers
17:36
in Detroit. You know, now you fast forward to
17:38
today and stuff, no one would have envisioned
17:40
a Tesla coming along and, you know, and a Rivian
17:42
and all these other models and different brands
17:44
out there. And the same thing always happens.
17:46
There's always going to be something that is
17:48
differentiated or something that kind of takes
17:50
the current model and just spins it just a little
17:52
bit different. So let's talk about you and home
17:55
services now. Let's get to the heart of it. You
17:57
have spent the past part of the year saying that
18:00
you guys are done being quiet. What does that
18:03
mean and what does that look like? Because you're
18:05
a pretty buttoned up leader, very highly respected.
18:08
I can't imagine you out running around out there
18:11
creating headlines or crazy headlines like Ryan
18:13
and some of the other personalities. So what
18:15
does that look like for you and why? Yeah, I
18:17
think for us, what I met by that and what we've
18:20
tried to follow through on is that historically
18:22
home services operated very much as a holding
18:25
company, almost a mirror of what very similar
18:28
to what Berkshire was, which is we would buy
18:30
brokerages. We would do nothing. It was literally
18:33
like Ron Peltier, our founder would, you know,
18:35
when he bought a company, he'd go on stage. We
18:37
love you. Keep doing what you're doing. You'll
18:40
never see me again. Good night. You know, like
18:42
that was the stump speech. And what's happened
18:44
over the last 15 years is just the margins have
18:46
changed. Right. So like this whole idea of being
18:49
able to have, you know, 40 independently operated
18:52
companies or even the back end. Right. So let's
18:54
say accounting and. finance, IT, who paid the
18:56
utility bills, all of that stuff, you know, being
18:59
duplicated 40 different ways across the country,
19:01
that really just becomes less feasible in today's
19:05
market. So partially margin driven to where we
19:08
said, you know, there's a lot of things we're
19:09
asking our companies to do that we could probably
19:11
do on the back end at an enterprise level much
19:14
more efficiently and allow us to invest those
19:17
saved monies into things that actually matter
19:18
to the agent and the consumer. That was part
19:21
of it. The other thing, too, is that over the
19:22
last decade, if you went back and looked at the
19:24
top 10 brokerages 10 years ago, except for like
19:27
home services and let's say NRT at the time,
19:30
almost all of them are regional. And it's all
19:32
if you look at the top 10 now, it's almost all
19:34
national at this point. There's a couple that
19:35
I would call super regionals like Douglas Elliman,
19:37
Howard Hanna, you know, calling them regional
19:39
is underplaying how big they really are. So it's
19:42
essentially a national game at this point in
19:44
that in that level. And there's conversations
19:46
that are happening now that would have been local.
19:48
All this talk about private listings and MLSs,
19:51
those all would have been these little market
19:52
by market conversations that are happening on
19:54
a national level. And we found that it became
19:56
increasingly important that home services have
19:58
a voice in those conversations, be vocal out
20:01
in the marketplace as an industry leader, and
20:03
transition from what I call being a holding company
20:06
to a parent company. We are not going in and
20:09
changing the brands of our local operators, how
20:11
they interact with agents, how they interact
20:13
with consumers, how they market. That stuff all
20:15
makes them unique and special. But we understood
20:17
that we had to give them value. What did it mean
20:20
to be part of home services? In the past, I don't
20:22
think anyone could articulate that. So we had
20:24
to create the value proposition. If you're part
20:25
of home services, it means this. And part of
20:28
this is that home services need to have a state
20:31
in the game. We need to have a seat at the table,
20:33
need to have a stronger voice on a national level
20:35
on behalf of those agents and all of our companies.
20:38
So it's not about chasing headlines. It was really
20:40
just more about like, let's just make sure that
20:41
it means something to be part of home services.
20:44
Tell me on your tech stack in particular, like
20:47
there's a lot of obviously everything's about
20:49
AI, like literally people tell me stop asking
20:51
about AI, but it's hard to avoid. It's such a
20:53
critical aspect of everything. Now, in fact,
20:56
I think it's a lot more impactful than. that
20:58
everyday people actually understand. Sure. What
21:01
are you all doing in that regard? Is that a build
21:04
or a buy for you? It's a both. It's a both. This
21:07
is a perfect technology stack is a perfect example
21:09
of where we were doing it 40 different ways across
21:12
our 40 different companies. And none of them,
21:13
I would say, were differentiated because it was
21:16
making it special or really attractive. It was
21:18
just different for the sake of different. Doing
21:20
technology 40 different ways across the country
21:22
made it really hard for us to do anything fast
21:24
and innovative, right? You want to start layering
21:26
in AI, but you've got to integrate it with 40
21:29
different technology stacks. It's essentially
21:31
impossible. So we have migrated to a more unified
21:34
stack across the entire country. Things that
21:37
are really good off the shelf, like transaction
21:40
management, CRM. automated marketing. Those are
21:44
things that we will work with selected partners
21:46
with. And we're moving from about 130 vendors
21:49
down to three to make that much more easier to
21:51
do. And what we learned, our hard lessons learned
21:53
from our agents were, it's not about the bells
21:55
and whistles. It is about take as many of those
21:58
tools and put them into one place. I want to
21:59
go to one app on my phone. I want to go to one
22:01
place on my desktop to do everything I need on
22:03
my business. And so we really said, we got to
22:05
bring everything together on that end. So that's
22:07
kind of the buy side of it. Because it changes
22:10
so fast that we felt like, look, if we started
22:12
building out a CRM, by the time you're done,
22:14
you might have a VCR because things are changing
22:17
so fast. And, you know, why would we, you know,
22:19
why would we do that? On the build side, the
22:21
unique thing about our model being owned brokerage,
22:24
owned mortgage, owned title, owned insurance.
22:27
that connection of those things is something
22:29
that we are building on. There's nothing available
22:32
to buy there. So that's what we're building is
22:34
to connect all of those business segments into
22:37
one singular place. So as a consumer, I have
22:40
one place to go on my phone in order to access.
22:42
everything that I need in order to buy and sell
22:44
real estate in one place. Dana Stranbo, who's
22:47
our recently retired CLO, would say home services
22:50
has been a very convenient strip mall where you
22:52
had those business segments very conveniently
22:54
lined up next to each other, but it didn't feel
22:56
like a singular experience. Where we are now
22:58
with technology and AI is we can actually create
23:01
one door where you enter one portal and you can
23:03
access all of those different segments that you
23:05
need in one place. And I think that's what the
23:07
consumer's really after is. They just want real
23:09
estate to feel a little more simple when they're
23:11
buying and selling, and that's what we think
23:12
we can provide. So it's a little bit of buy and
23:16
a little bit of build. It's a little bit of both.
23:18
So how many calls do you – I mean, you've addressed
23:21
the compass is going to buy you thing, and it
23:23
is what it is. So we're not going to go there.
23:26
But let's talk about how many calls a week do
23:28
you get from people reaching out and saying,
23:30
hey, we'd love to buy home services? Yeah. You
23:33
know, it's funny because some of them you're
23:35
like, is this real? Like, is that how like you
23:37
would reach out to reach to send me an email
23:39
or a message through LinkedIn? You know, like
23:40
that's your that's your play. Yeah. You know,
23:43
it comes in waves. And, you know, what I've kind
23:46
of learned is that there aren't a lot of external
23:49
players that want to get into our industry. and
23:53
own, let's say, the brokerage space. Like I look
23:56
at Zillow, for example, they want to do about
23:58
everything in the transaction except the brokerage
24:01
side of it. It comes with the thinnest margin.
24:03
It comes with the most, let's say, risk management.
24:06
It comes with the most having to kind of work
24:08
through a team of independent contractor agents
24:11
and stuff. And so they want to do everything
24:13
else like that. When I see private equity getting
24:15
into our business, typically it's not singularly
24:18
brokerage. It's I'm going to own brokerage and
24:20
I'm going to own these other. parts of the transaction
24:22
or tools so that I can kind of create these synergies
24:25
and bring them together. And so being part of
24:28
Berkshire, I think it scares some folks off from
24:30
even making the ask because like, well, clearly
24:32
they're not going to sell, but it doesn't scare
24:34
off everybody. But more often than not, it doesn't
24:37
seem to be anything that is of any real interest
24:40
or going to go anywhere. Because of Berkshire,
24:42
you have deep pockets. And so what is your next
24:45
acquisition look like? Are you a buyer of a portal,
24:47
a data company, another mortgage platform? What's
24:50
next for you? you? Are you actively looking at
24:53
things? Yes, absolutely. So for us, where we're
24:56
going to target capital is completing, let's
24:59
say the consumer flywheel. And so, you know,
25:02
one of the things that we did a couple of years
25:03
ago that, you know, again, it's not a sexy headline,
25:05
but we bought into an interest and have an ownership
25:08
interest in a title underwriter, right? Those
25:11
aren't the things people, you know, that's not
25:13
front head page. But like we were spending millions
25:16
of dollars every year, you know, on title underwriting.
25:20
It's not sexy, but it's revenue. Yeah, absolutely.
25:22
Like, why would we not own a part of that? Right.
25:24
And so when we have brokerage, mortgage, title,
25:27
insurance, you know, that's you think of that
25:29
as the flywheel. But the honest answer is that
25:31
after you get to that one stage, the consumer
25:33
floats out into space for a handful of years
25:35
before they come back to you. And so we're looking
25:37
at things where how do we complete that flywheel?
25:40
And so on the. mortgage side, servicing is an
25:41
example of that. Where do we get into the play
25:44
of where we can still stay in touch with the
25:46
consumer past the closing of the transaction?
25:48
So I look at what Rocket's doing with the acquisition
25:51
of Redfin, the acquisition of Mr. Cooper. That's
25:54
what I look at as saying, okay, those are the
25:56
things that I want to keep my eye on because
25:57
I look at what Rocket's doing is very similar
26:00
to home services model. We're coming at it from
26:02
two ends of a spectrum, right? We're all trying
26:04
to get to the middle, which is how do I give
26:06
the consumer everything they need to do a real
26:08
estate transaction in one place? They're coming
26:10
at it from more of, let's say, the pure technology
26:12
stage. We're coming at it from like, we have
26:14
the human capital deployed across the country
26:16
of loan officers, actual title people, actual
26:19
insurance professionals, agents, and now supplementing
26:22
them with better technology and AI, but trying
26:24
to get to the same place. And so I look at what
26:26
they're doing. on the same plane as what home
26:29
services is trying to do, maybe just coming at
26:31
it from two different places. This is inside
26:32
ball, but I'm asking because I'm curious, just
26:34
because it's the world I come from. Do you guys
26:36
handle that with a corporate development team
26:38
internally? Are you working with a series of
26:39
investment bankers across the country, you know,
26:42
looking at opportunities as they arise? It's
26:44
mainly internal. We've always kind of done things
26:46
internal. That's kind of another kind of model
26:48
within Berkshire is you handle a lot of your
26:51
M &A internally. Sometimes the party that you're
26:53
talking to, they may have their own external
26:55
third party that they're working through. But
26:57
oftentimes we're doing, and because Berkshire
26:59
Ability was built off of M &A, there is an internal
27:02
inherent expertise internally that you can tap
27:04
into that you don't oftentimes have to go external
27:06
for. So it's kind of just become part of the
27:08
culture of this organization of that most of
27:10
this is done on an internal basis. Fantastic.
27:13
So let's talk about clear cooperation. It's still
27:16
in the NAR playbook, but it's pretty much ignored
27:18
now at scale. You know, Compass walked away for
27:21
it. MRED built a private listing network. And,
27:24
you know, there's all types of drama out there.
27:26
Where do you all stand on that? And where does,
27:30
where does NARA need to go? Yeah. So it's interesting.
27:34
I think when clear cooperation passed, whenever
27:36
that was 2020, there was a thought that it was
27:38
so restrictive that it would eliminate all private
27:42
listings. I know clearly no one would do an exclusive
27:45
listing under the, you know, under these like
27:48
kind of burdensome rules of clear cooperation.
27:50
And it had the inverse effect. It drove them
27:53
even further underground. So I think it's actually
27:55
not accomplished what it was after, which was
27:58
to shine light on more listings. I think it drove
28:01
actually exclusive listings even further underground
28:04
and harder to find. And I think gave rise to
28:06
where we are today in this current conversation.
28:08
I hate the fact that our industry would need
28:12
a set of regulations or rules to tell us to do
28:15
the right thing. that when I'm an agent and I'm
28:19
meeting with a seller, that based on the seller
28:22
circumstances, the uniqueness of the property,
28:25
the price points, whatever it may be, my job
28:27
as an agent is to do what's best for that property,
28:30
best for that seller. And the fact that I'd have
28:32
to have a rule that tells me you better do the
28:34
right thing here and stuff, it just feels a little
28:36
bit unnecessary from a broad perspective. So
28:39
we scrap it? Yeah, because it's not doing what
28:41
it said it was supposed to do. Now, our belief
28:44
at Home Services is that the vast, vast, vast
28:48
majority of all listings should get the widest
28:51
exposure possible. And that there are very few
28:54
sellers that come into listing their home that
28:57
believe limiting the exposure of their property
29:00
is actually positive for them. In fact, I saw
29:02
some of the more recent surveys that came out
29:04
that they did some consumer surveys where most
29:07
consumers had no idea really about private listings
29:09
until the agent said, you should consider doing
29:12
this. And again, there are certain properties
29:14
that makes sense for. But the markets I've been
29:17
in, in Kansas City, Dallas, for example, there's
29:20
very few properties. I can think of a handful
29:22
where like, okay, that makes sense. But the $450
29:24
,000 brick house in Plano, that should be blasted
29:27
out to as many people as possible. And it feels
29:30
like both ends, right? Because of the restrictiveness
29:33
of the rules and the pushback against it, we've
29:36
actually seen more properties being kind of pushed
29:39
in that direction than I think otherwise would
29:40
have been if clear cooperation never existed
29:43
in the first place. Okay. And so that's kind
29:46
of our view on it is I don't think it's needed.
29:47
It's not doing what it was supposed to do. And
29:49
if a law or rule is no longer meeting the objective
29:52
that it was enacted for, then why have it? So
29:56
that brings up my next question and a good point.
29:58
You have said you wanted home services to be
30:00
the adult in the room. That was a very adult
30:01
answer considering the personalities that I interview
30:04
in this. So if you guys are the adult, who are
30:07
the children? The ones that cannot seem to stop
30:10
fighting with one another. Right. And it's I
30:13
mean, I was so shocked as we came out of the
30:16
let's say the industry wide litigation. You thought
30:19
that would have created a taste in everybody's
30:21
mouth that. Being involved in litigation accomplishes
30:25
nothing. It doesn't better the process for the
30:28
consumer. It didn't improve anything for the
30:30
agent. I certainly didn't improve the economics
30:32
for the brokerages that were involved. And the
30:35
fact that we are seeing so many parties right
30:37
now that are rushing to litigate with one another
30:39
is really confounding for me. And that's partly
30:42
maybe because. I'm a former litigator. My prior
30:45
life, I did real estate litigation and I don't
30:47
really see a lot of positives coming out of it.
30:50
You know, in the Compass Zillow fight was really
30:52
interesting because homes .com wasn't included,
30:56
but then they tried to get in. Like they filed
30:58
a motion saying. Judge, please let us in this
31:01
matter. We have things to say here. And the judge
31:02
was like, no, get out. And so just this kind
31:05
of thought that we're going to improve the consumer
31:07
experience or better the industry through the
31:10
continued litigation and infighting is really
31:12
bananas to me because all it is is airing all
31:16
of this dirty laundry. And for a consumer, and
31:19
this is the headline that really scared me last
31:20
week, was the Wall Street Journal headline that
31:22
said, thinking about selling your house, it's
31:25
more complicated than ever. And it's like, oh,
31:28
my God, like that's where we're at now. We're
31:30
not are not like Inman, like, you know, the publication
31:33
that, you know, that is directed towards the
31:36
industry. But an external one is now saying,
31:39
hey, because of all this stuff you guys have
31:40
been talking about with private listings and
31:42
this and that and national MLS is whatever it
31:44
may be. It's now more complicated to sell your
31:46
house. And that's my concern is that the agent
31:49
consumer relationship has been so sticky. for
31:52
so long, like no matter what disruptor came in,
31:56
the internet, iBuying, whatever, the consumer
31:59
was like, I still like working with an agent.
32:00
The second we make it harder for the consumer
32:03
to work with us, that's when I feel like it starts
32:05
to pull apart. And a true disruption can kind
32:08
of get in the middle where the consumer says,
32:09
I don't need you anymore. There's about to be
32:11
some really significant news that I can't share
32:14
yet, but it probably will be by the time this
32:16
comes out about ARA, the American Real Estate
32:21
Association. And then obviously there's NOR,
32:23
who's the standard bearer. What's your thoughts
32:25
on that whole take? Is that just a sign of the
32:27
times or where does that all go? And are you
32:31
supporting one versus the other or all? Yeah,
32:34
you know, we haven't, you know, I like the concept
32:38
of competition, right? I'm great with kind of
32:41
an alternative association, you know, coming
32:43
up. We have not done much on that front as we
32:47
kind of wait for it to get legs and decide where
32:49
is it going? What's it going to be about? If
32:51
I could design, you know, and again, I've had
32:54
a lot of meetings with Nikea and her team, and
32:56
I do appreciate where they are attempting to
32:59
take the National Association. I think the elimination
33:02
of so much of the pomp and circumstance around
33:05
that where let's have a gala and a ball every
33:07
year for the incoming, you know, it was just
33:09
so much like, you're just like, these are people's
33:11
dues monies, right? Like, what are we doing?
33:13
They're focusing on the stuff that's more serious.
33:16
Ideally for me, the most effective use for the
33:19
National Association is the lobbying efforts
33:22
at the federal, state, and local levels. Amen.
33:25
I've said that a million times, hard stop. 90
33:28
% of their work should be directed about Driving
33:32
homeownership, property rights, and then advocating
33:34
for the industry and the professionals that are
33:36
attempting to continue to elevate homeownership
33:39
in the United States. And if they just worked
33:41
on that, I think there wouldn't be a need for
33:44
an alternative association. I think people would
33:46
not be looking to leave the National Association
33:48
if that's what really felt like the main driver
33:51
was. And so part of that is, is while they've
33:53
cleaned house quite a bit, it also probably in
33:56
order to get to that point, you've got to eliminate.
33:58
a lot of these other committees and all the other
34:00
things that have, you know, PAGs and all this
34:02
other stuff that, you know, that has come up
34:04
over the last, you know, several decades to really
34:06
focus on that effort. And that will eliminate
34:08
some of the people that have been the staunchest,
34:10
let's say. you know party goers to the to the
34:12
nar events um but i really think for longevity
34:15
purposes if they really got to be just like the
34:18
most professional trade association advocating
34:21
for home ownership and property rights and for
34:23
the industry that serves those two things i think
34:26
they'd have a longevity they'd have a long runway
34:28
to go and people would be highly supportive of
34:30
continue to be members agree 10 years from now
34:33
what do you think is going to be the one thing
34:35
that we look back and say man we really were
34:38
wrong on that we screwed the pooch Oh, as an
34:40
industry or just me personally? My personal list
34:43
could be really long. Yeah, I agree. We both
34:45
have a huge list on that. I'm still working on
34:48
that. But in terms of the industry and the prognosticators
34:51
and everyone out there talking about what do
34:53
you think we're going to look back 10 years like
34:54
we do now, whatever the case may be, we're going
34:57
to say, man, we were really, really wrong. Yeah.
35:01
So for me, the one that I would say there is
35:04
a potential for us to be wrong on is right now
35:08
we're in year four. of sub 5 million existing
35:12
home sales. And you look over the track record
35:15
of the United States, 5 million is your average
35:18
almost every single year. You go through these
35:19
dips, like we'd had four years of sub five after
35:22
the great recession. We're in year four now of
35:24
it again. And there's this assumption that, oh,
35:27
once these little conditions approval, they'll
35:29
automatically, we'll just bounce right back up.
35:31
My concern is because of the affordability issues
35:34
from mortgage rates, from the price of homes.
35:39
that next generation of homeowners may not be
35:42
able to enter the market the way that previous
35:44
generations have had to. And so we literally
35:46
could start seeing an erosion of what the annualized
35:49
home sales looks like in the United States, simply
35:52
because owning a home becomes something more
35:54
of a higher income level that you can do. And
35:58
if you're under a certain threshold, it just
35:59
no longer becomes accessible for you. So like
36:01
in 10 years, we could look back and go, wow.
36:04
four to four and a half million became the new
36:06
norm because of everything else that's happened
36:09
in housing. That one's a little scary to think
36:11
about, but it's absolutely on the horizon based
36:14
on the demographic numbers that we see and that
36:17
we put out and we've looked at is that the thought
36:19
that every Gen Z and millennial, and really younger
36:22
millennials at this point, because they're in
36:23
their prime home money, but then let's say Gen
36:25
Z and then Gen Alpha after that are automatically
36:27
going to be able to become homeowners and on
36:29
the normal trajectory that the rest of the generations
36:31
have had is not something that we should. just
36:34
assume that's going to happen, which means we
36:35
need to fight for it, which means we really do
36:36
need to be addressing these concerns to get more
36:39
people to become homeowners. Well, I think, you
36:41
know, I think back, there was a book in the middle
36:43
of my career and it was, I don't know if you
36:45
remember, it was like Dow 20 ,000. Do you remember
36:47
this? Yeah, yeah, yeah. Okay. And everyone was
36:50
like, that's never going to happen. The Dow is
36:53
now at, I think, just over 50 ,000. So when we
36:56
think back at some of these wild changes, no
36:59
one would have, you know, forecast that or thought
37:02
that could happen. So I think, I agree. I think
37:05
our bigger, better, stronger days are ahead of
37:07
us. It's funny. I always like to point out too,
37:09
like, I remember when iBuying first kind of came
37:12
into prominence, like there was a fear and our
37:14
industry is a hair on fire industry anyway. And
37:16
it was like, oh my gosh, this is the only way
37:18
people are ever going to buy a house. And, you
37:19
know, every company announced their own iBuying
37:22
program and all that kind of, you know, and now
37:24
it's like, no one even thinks about it. You know,
37:26
it's a little niche market, which is great. I
37:28
applaud Opendoor for still doing what they're
37:30
doing. And there is a market for a certain type
37:33
of consumer that would want to sell in that fashion,
37:35
which is great that there's an opportunity for
37:36
them. But, you know, this thought that these
37:39
radical changes come sometimes, I think the only
37:41
way we separate the consumer from the agent is
37:43
the industry essentially doing it to themselves
37:45
and not really an outside disruptor coming in
37:48
and making it happen. Okay, Chris, this is the
37:51
part of the podcast where we do a lightning round
37:53
called Signal or Noise. Okay. All right. I'll
37:56
read off a couple of topics and you're going
37:58
to tell me whether they're signal or noise. And
38:00
if it's really provocative, we'll dip into why.
38:02
Okay. Signal or noise. Private listing networks
38:05
as the replacement for MLSs. Noise. Noise. Okay.
38:11
All right. You know, it's interesting. MLSs,
38:14
from my perspective, I think they have a lot
38:17
more opportunity than they understand. Would
38:19
you agree with that? Yes. I think the silver
38:22
lining from the litigation was the removal. of
38:25
compensation from the MLS because it now allows
38:28
progressive forward -thinking MLSs to focus on
38:31
what they do best, which is not governance between
38:34
brokerages, but being excellent technology vendors
38:38
for the brokerages and for the agents. A master's
38:42
at disseminating, aggregating real estate content,
38:45
real estate data. There's no reason to have to
38:47
rebuild that infrastructure that some of the
38:49
best MLSs already have. Getting them out of the
38:52
governance of our business, I think was a really
38:54
good thing. Some of them are being more, are
38:56
slower to respond to that new world that they're
38:58
in than others. But there are some others that
39:00
are really leaning into the new opportunities
39:02
they have. If they do that, then yeah, I think
39:04
the private listing network thing is noise. Okay.
39:07
Signal or noise? Attorneys make better brokered
39:10
CEOs. I'll say noise. They come from all walks
39:19
of life. I will say that my experience in the
39:22
past, especially as we went through the litigation,
39:24
was certainly helpful. But I refer to myself
39:27
as a recovering lawyer now. We have really smart
39:28
attorneys at home services, and I defer to them
39:30
100 % of the time now. So yeah, noise. Love it.
39:34
Signal or noise? AI writing the listing, pricing
39:37
the home, and matching the buyer. Noise. Noise.
39:41
Yeah, I think it's, you mentioned it, right?
39:45
I think it becomes a tool and the agent who effectively
39:48
uses it will have a really good advantage in
39:51
the marketplace. And my bad example I like to
39:53
use is an agent, let's say in 2015, who was still
39:57
trying to operate in a pre -internet era, right?
39:59
Like, consumer, I'm not going to set you up on
40:02
a safe search. I'm going to come to your house
40:04
every few days and deliver a set of MLS sheets
40:06
to you in a book. And that's how you're going
40:08
to look at homes. We're going to do it the old
40:09
fashioned way and stuff. And they would not have
40:11
been successful. Agents are going to be able
40:14
to. give information to their consumers at a
40:17
faster, more accurate clip because of AI, but
40:20
I don't see it replacing that kind of human value.
40:23
And that consumer research I was mentioning before
40:24
kind of bore that out. Consumers are comfortable
40:27
using AI for valuation models, for asking it
40:31
what are some things that I should do, where
40:33
to invest money. But when it comes down to, let's
40:36
say, negotiations, pricing the home, whether
40:40
they should accept an offer. All of it ranked
40:42
out that the consumer still prefers to use the
40:44
human for that side of it. And I always call
40:46
it the therapy work. We undervalue the therapy
40:49
work that agents provide to the consumer. It
40:51
is such an emotional roller coaster to buy or
40:53
sell a house. That therapy part of it is such
40:56
a huge part. And I think it was the New York
40:58
Times a couple weeks ago published an article
41:00
from someone who said, I used AI to sell my house
41:02
and here's everything I did. And they went through
41:04
it. And I think it was basically trying to scare
41:05
like, oh, AI could replace all the agents. I
41:07
read it and I said. 90 % of the consumers will
41:10
not want to do anything that that seller just
41:12
did. They will not want to take all the time
41:14
to do that. And really all it was describing
41:17
was for sale by owner with the use of an AI tool.
41:20
I mean, it was the exact same thing you do 10
41:21
years ago for sale by owner. You just had an
41:23
AI assistant working with you. Most consumers,
41:26
they still want to offload it to somebody who's
41:28
a professional is going to come in and help them
41:29
through the process. Love it. Chris Kelly, president
41:32
and CEO of HomeServices of America and the adult
41:35
in the residential real estate room. Thank you
41:38
so much. My wife might disagree with that, but
41:40
yes. Appreciate your time, man. Thank you. Thanks,
41:44
Tom. Thanks for listening to Noise vs. Signal.
41:46
Follow us on Instagram @ Inman News for more conversations
41:51
and industry insights. And be sure to subscribe
41:53
wherever you get your podcasts so you never miss
41:57
an episode. I'll see you next time.