No. of Recommendations: 3
From my brokerage newsletter.
DJ Buffett Hates Selling Anything. The Sale of Berkshire's Real Estate Unit Would Be Unusual. -- Barrons.com
Andrew Bary
Berkshire Hathaway CEO Warren Buffett has been loath to sell any company subsidiaries, so a report that Compass is in talks to buy Berkshire's real estate brokerage would mark a notable change.
The sale, if it occurs, could mean Berkshire is willing to sell more of its smaller non-core units -- potentially streamlining the company and making it more manageable for Buffett's likely successor, Berkshire executive Greg Abel.
The Wall Street Journal reported late Thursday that Compass, a top real estate broker, is in advanced talks to buy the Berkshire business, Home Services of America, one of the largest real estate brokerage firms in the country.
No price was mentioned in the article but it is possible that Berkshire could get a few billion dollars for the unit.
It isn't easy to value Home Services of America because it's operating close to break-even. Barron's is assuming a value of less than the larger Compass. That price would be a rounding error relative to Berkshire's $1.1 trillion market capitalization. Given the size of the two companies, there could be antitrust scrutiny.
Home Services is smaller than Compass with $4.4 billion in sales last year.
That compares with $5.6 billion for Compass, whose shares finished Friday at $8.73, down 0.8%. The stock was little changed in after-hours trading. Compass stock is up 144% over the past year and now has a market value of $4.7 billion.
Like much of the rest of the real estate brokerage industry, Home Services was hurt by a dearth of homes for sale in 2024 and high home prices.
Home Services lost $107 million from operations in 2024 after netting $13 million in 2023 and $100 million in 2022. Part of the 2024 loss stemmed from a $250 million settlement payable over four years that the company reached for a lawsuit involving real estate brokerage commissions.
Compass also was unprofitable last year on a GAAP basis but generated $150 million of cash flow before payments for the industry class-action settlement, the company said in its fourth-quarter earning release.
Home Services operates under 48 brand names with approximately 37,700 real estate agents in nearly 820 brokerage offices, according to the Berkshire 10-K report. It has a network that includes about 270 franchisees and over 1,400 brokerage offices with about 44,700 third-party real estate agents under two brand names.
Chris Bloomstran, who follows Berkshire closely as head of Semper Augustus Investments Group, an investment firm, has pegged the brokerage unit's annual sales volume at about $125 billion. The business is housed inside Berkshire Hathaway Energy, the company's big utility operation.
Buffett, 94, has repeatedly stated Berkshire doesn't like to part with any subsidiary unless it is hopelessly unprofitable.
"Berkshire almost never sells controlled businesses unless we face what we believe to be unending problems," Buffett wrote in his recently released 2024 annual shareholder letter.
The potential sale of the business is also notable because Home Services of America is a market leader and stands to benefit from an upturn in real estate sales.
There was no immediate comment from Berkshire or Compass.
Berkshire stock was up 1.5% Thursday to $756,910 and has risen 11% so far this year, outpacing the S&P 500 index, which is down 6%.
Write to Andrew Bary at andrew.bary@barrons.com
