Keller Williams, one of the largest and most successful real estate brokerage franchises in the United States, recently went through a corporate restructuring that may be a prelude to an initial public offering on the stock market, according to some industry watchers.
Gary Keller, the company's irascible co-founder, has stepped down as the chief executive officer amid a corporate restructuring that includes the creation of a new holding company, KWx. That holding company includes all of Keller Williams' affiliates and subsidiaries, including Keller Williams Realty, Keller Williams Worldwide, Keller Mortgage, Keller Covered, and Keller Offers, the Keller Williams iBuying program.
Keller Williams President Josh Team is taking over Gary Keller's duties, but Carl Liebert will be the CEO of KWx. Liebert has 30 years of experience in retail including 24 Hour Fitness, The Home Depot (NYSE: HD), USAA, and General Electric (NYSE: GE) but made headlines last year when he was CEO of AutoNation (NYSE: AN) for just four months, receiving $3.75 million in severance pay.
Keller himself will become the executive chairman of KWx. About the transition, Keller said in a statement, "The formation of KWx is central to the next phase, focused on scaling that vision and empowering our agents to deliver the highest level of value to their clients."
Keller Williams, a privately held company, reports some quarterly numbers publicly. It closed 272,103 deals during the second quarter for a sales volume of $85.3 billion, down 15% from the prior year. New listings were down 22.7% year over year. These numbers are in line with second-quarter results from large publicly traded brokerage firms such as Realogy (NYSE: RLGY) and RE/MAX (NYSE: RMAX).
As of the second quarter of 2020, Keller Williams had 157,650 agents in the United States and Canada and 10,760 agents operating outside of the United States and Canada. In the second quarter, 122 million home searches were conducted across the Keller Williams app and websites, more than double the home searches reported in the first quarter.
Is Keller Williams the old guard or a disruptor?
You could argue that Keller Williams is the old guard of real estate. It's been around since 1983 and has a traditional brokerage franchise model. However, Keller Williams has also spent a lot of time and money on technology with some impressive results. It built Command, a suite of apps inside its Keller Cloud that many agents use. As of the second quarter of 2020, agents had 55 million contacts in the system. Perhaps even more importantly, during the second quarter, agents sent each other over 16,000 referrals resulting in $4.4 billion in sales volume.
Command also includes a smart ad campaign creation and syndication tool and Designs, a real estate-centric graphic design app. Both of these tools make it easy for agents to generate marketing plans and advertisements. These types of apps also help increase agent retention because they aren't available at other brokerages.
If you can invest, should you?
Last year, Inman News Publisher Brad Inman speculated that Keller Williams' valuation could be in the $1.5 to $2 billion range while noting that if Keller Williams is able to deliver on technology, it could be worth more. At that time, Keller himself owned 73% of the company. It's unclear how much he owns in the new corporate structure.
At this point, Keller Williams hasn't filed any paperwork with the Securities and Exchange Commission, so this is all speculative, but evaluating Keller Williams as an investable company may come down to whether you see it as being more similar to the upstarts turned giants like Redfin (NASDAQ: RDFN) and Zillow (NASDAQ: Z) (NASDAQ: ZG) or more like Realogy, RE/MAX, and other franchise brokerages.
While Redfin and Zillow shares have made some solid gains during the real estate market's renaissance over the summer and early fall, the market has been less enthusiastic about the future of traditional brokerages. If Keller Williams becomes publicly traded, much of its job will be convincing investors that it belongs with the disruptors rather than the old guard.