Propmodo Daily

By Franco Faraudo · Apr. 29, 2024

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HomeServices of America, a real estate giant owned by Warren Buffett, recently settled its role in commission lawsuits rocking the residential real estate industry. But, its parent company, Berkshire Hathaway, still faces legal challenges that could tarnish its reputation. In today's email, we'll explore the ongoing fallout and examine the advantages and disadvantages of being part of a major conglomerate for both the parent company and its subsidiary.

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Now, let's dig in!

Berkshire Hathaway Still Faces Fallout From HomeServices’ Lawsuits

It is pretty hard not to know that the residential brokerage HomeServices of America is owned by the famous investor Warren Buffet’s holding company Berkshire Hathaway. Like most Berkshire assets, HomeServices has “a Berkshire Hathaway affiliate” listed right after its name on every logo file. Berkshire Hathaway Energy has a majority interest in HomeServices since 1998. HomeServices has been a good business for Berkshire; it has become the fourth largest brokerage by volume and makes over $2 billion dollars selling its brokerage and mortgage services in all 50 states.

Being part of one of the largest conglomerates in the world has been good for HomeServices, too. Much like every other brokerage, HomeServices has struggled in the past few years. According to Berkshire’s 2023 year-end earnings call: “Operating revenue decreased $946 million for 2023 compared to 2022, primarily due to lower brokerage and settlement services revenue of $873 million and lower mortgage revenue of $68 million.” This follows a 2022 decline of revenue of $97 million.

Most companies would struggle with these kinds of losses, but Berkshire Hathaway, with its almost $900 million market cap, has had no problem keeping the door open. They have even taken advantage of the troubled real estate market with an investment in one of the largest title insurance companies in the country, Title Resource Group.

But as nice as it is to have a parent company with deep pockets, there are downsides as well. HomeServices was one of the many brokerages named in the commission splitting lawsuits that have engulfed the industry. As other defendants started settling these lawsuits to get free of the litigation risk, HomeServices was the last holdout. That is until the prosecution turned all of their energy towards the company, asking the court for a judgment of a whopping $4.7 billion dollars to be awarded against the company.

Now, HomeServices has changed their tune. On Friday, they announced that they agreed to a $250 million settlement and hoped to “The decision to settle was driven by a desire to eliminate the uncertainty brought by the protracted appellate and litigation process. HomeServices hopes that this money will allow them “to protect our nearly 70,000 agents, 51 brands and over 300 franchisees and licensees from related lawsuits” according to executive vice president Chris Kelly.

While it may appear that HomeServices has resolved its legal issues with the recent settlement, Berkshire Hathaway's troubles may just be starting. Michael Ketchmark, the attorney leading the Missouri case settlement negotiations, stated, "This settlement allows us to continue our nationwide case against Berkshire Hathaway Energy and several major corporate brokers."

Mr. Kelly also hinted at ongoing challenges, noting, "The financial terms of the settlement are solely the responsibility of HomeServices, without involvement from any parent companies, marking our exit from the antitrust litigation."

Although the settlement clears HomeServices of liability, Berkshire Hathaway could still face legal consequences. This precedent could lead to additional lawsuits against Berkshire, seeking similar settlements. Despite Berkshire Hathaway's ample resources to defend against these lawsuits, the potential damage to its reputation remains a major concern. These ongoing lawsuits highlight the double-edged sword of having a wealthy parent company – offering support but also potentially sharing the burden of negative publicity.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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