The brokerage blueprint is changing. Keller Williams just proved it with the JMG acquisition

Keller Williams made waves on Monday when it announced its acquisition agreement with the Jason Mitchell Group (JMG). And while this is big news for the real estate brokerage franchisor, Steve Murray, the co-founder of RealTrends Consulting sees this as an even bigger deal for real estate companies like JMG, such as Mark Spain Real Estate, PLACE or Robert Slack Group. 

“We have been telling these large team owners for years that they have something of equity value,” Murray said. “This validates the fact that the team model can grow and scale up into a brokerage like JMG did, but also into something that has significant equity value to other people in the real estate industry.” 

Two businesses, one umbrella 

For Keller Williams, Murray sees the acquisition as a great opportunity to welcome a completely different business model into its ecosystem. 

“It is the same industry, but two completely different businesses. One focuses on recruiting and developing agents and the other generates and manages leads,” Murray said. 

In many ways this feels like a spin off of similar moves other real estate firms have made this year, namely Compass’s acquisition of Anywhere Real Estate, The Real Brokerage’s proposed acquisition of REMAX and eXp’s acquisition of real estate franchisor NextHome. 

“Compass has set the tone, and the tone is that we are going to redefine the profile of a publicly traded brokerage company,” Craig McClelland, a partner in McClelland & Hahn Consulting, said. “Now that profile is that we have a franchise arm, broker-owned stores, a lead network for the broker-owned stores, in-house technology, and I think the fifth arm may be a national portal, but I think we are going to see all the big players looking to play the game follow this profile.” 

In his mind, this acquisition is Keller Williams’ way of obtaining at least some of these business arms. 

“JMG has several of these components. It is broker-owned and has a lead network with a lot of power, along with great infrastructure for aggregating and partnering with lead sources and then distributing the leads and holding agents accountable for getting conversions out of them. It makes a lot of sense, and I think you are going to see a lot of companies with this sort of profile advance,” McClelland said. 

Ancillary services are out

McClelland noted that for decades brokerages have focused on ancillary services as the “must have” side business, but that they struggled with capture rates, which he feels has helped lead the industry to where it is now. 

“We went through decades of people saying you have to monetize mortgage, title and insurance or you’re not in the game, so everybody was working hard to figure out their definition of the way that it at least made it look like they were monetizing these things and now the new narrative is that if you are going to create an ecosystem as a brokerage company you have to meet this profile that Compass is defining with all of these components,” he said. 

Murray added that as opposed to other firms that now operate both owned brokerage and franchise models, the owned-brokerage segment Keller Williams now possesses through JMG is more profitable than the typical brokerage operation. 

“The Keller Williams franchise business, if they have their core operating costs under control, is a highly profitable business. Then you add in the training and other things they do, and the profit margin can be quite high. Now they have two different businesses under the same umbrella that are both high profitable models — that’s big.” 

Eyes on the future

As for JMG, Murray believes this acquisition will provide it with both the means and opportunity to grow at an even faster pace. 

“They will certainly be able to enter markets faster and if they can offer services to their lead sources in more geographies, then they can scale the business pretty quickly,” Murray said. “Do I think this could become a business unit for Keller Williams that closes 40,000 to 50,000 transactions a year? Absolutely.” 

Looking ahead, both McClelland and Murray believe this move by Keller Williams is a signal that the firm is seriously considering an initial public offering sometime in the future. 

“I think it is inevitable,” McClelland said. “It is hard to know what the timeline is, but you obviously [must] have your ducks in a row before you do an IPO because so much information is exposed. I think this is them starting to get things in line.”