Not only has Buffett stopped buying stocks, but he also "rarely" wants to sell a subsidiary. Is he giving up on "one of the largest real estate agencies in the U.S."?

While Buffett has net sold stocks for nine consecutive quarters and cash reserves have reached an all-time high, he has also rarely sold subsidiaries. What are his plans?

According to The Wall Street Journal, real estate brokerage Compass is in deep negotiations to acquire Berkshire's business—Home Services of America, which is one of the largest real estate brokerages in the United States. The report did not mention a price, but Berkshire may sell the division for several billion dollars.

Buffett has repeatedly stated that he would not easily sell any subsidiary unless the company faced insurmountable problems. He wrote in the 2024 shareholder letter:

Berkshire almost never sells its controlled subsidiaries unless we believe their problems will persist endlessly.

Therefore, the news that Berkshire's real estate brokerage business may be acquired marks a significant change in its corporate structure. If this deal goes through, it could mean that Berkshire is willing to sell more smaller, non-core business units, thereby streamlining the company and potentially making it easier for Buffett's potential successor, Berkshire executive Greg Abel, to manage.

It is worth noting that the valuation of Home Services of America is not easy to determine, as its operations are close to breakeven. Barron's estimates that the company's valuation is lower than that of the larger Compass. However, even so, the amount of this transaction is just a drop in the bucket compared to Berkshire's $1.1 trillion market value. Due to the large scale of both companies, this transaction may face antitrust scrutiny.

Last year's housing shortage & high prices impact the real estate industry

Like the entire real estate brokerage industry, Home Services of America is affected by the housing shortage and high prices in 2024.

In 2024, the company reported an operating loss of $107 million, compared to a net profit of $13 million in 2023 and a profit of $100 million in 2022. Part of the loss in 2024 comes from a settlement agreement the company reached, which requires it to pay $250 million in real estate brokerage commission settlement over four years.

Compass also did not achieve profitability last year on a GAAP basis, but the company stated in its fourth-quarter financial report that it generated $150 million in cash flow before deducting the industry-wide lawsuit settlement.

According to Berkshire's 10-K annual report, Home Services of America has 48 brands and approximately 37,700 real estate agents across nearly 820 brokerage offices. Additionally, the company operates about 270 franchisees through two major brands, managing over 1,400 brokerage offices and employing approximately 44,700 third-party real estate agentsChris Bloomstran, head of the investment firm Semper Augustus Investments Group, closely monitoring Berkshire, estimates that the annual sales of this brokerage business are approximately $125 billion, which is part of Berkshire's large utility sector—Berkshire Hathaway Energy.

Another reason to pay attention to this potential sale is that the American home services company is an industry-leading brokerage firm and is expected to benefit from a rebound in real estate sales.

So far, neither Berkshire nor Compass has made any public comments on the matter. As a result of this news, Berkshire Hathaway rose 1.6% overnight.

In the past year, Compass's stock price has increased by 144%, and its current market value has reached $4.7 billion.