EDGAR 10-K Filing

Company CIK: 1355001
Filing Year: 2022
Filename: 1355001_10-K_2022_0001398987-22-000022.json

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ITEM 1. BUSINESS
Item 1. Business.
Our Company
As the leading and most integrated provider of U.S. residential real estate services encompassing franchise, brokerage, relocation, and title and settlement businesses as well as a mortgage joint venture, Realogy supported approximately 1.5 million home transactions in 2021. The Company’s diverse brand portfolio includes some of the most recognized names in real estate: Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA®, and Sotheby’s International Realty®.  Using innovative technology, data and marketing products, high-quality lead generation programs, and best-in-class learning and support services, Realogy fuels the productivity of its approximately 196,700 independent sales agents in the U.S. and approximately 136,700 independent sales agents in 118 other countries and territories, helping them build stronger businesses and best serve today’s consumers.
Segment Overview
We report our operations in three segments, each of which receives fees based upon services performed for our customers:
•Realogy Franchise Group. Franchises a portfolio of well-known, industry-leading franchise brokerage brands, including Century 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA®, Sotheby's International Realty® and Better Homes and Gardens® Real Estate. This segment also includes our lead generation activities via Realogy Leads Group and global relocation services operation via Cartus Relocation Services.
•Realogy Brokerage Group. Operates a full-service real estate brokerage business principally under the Coldwell Banker®, Corcoran® and Sotheby's International Realty® brand names in many of the largest metropolitan areas in the U.S. This segment also includes our share of equity earnings or losses from our RealSure and Real Estate Auction minority-owned joint ventures.
•Realogy Title Group. Provides full-service title, escrow and settlement services to consumers, real estate companies, corporations and financial institutions primarily in support of residential real estate transactions. Our title insurance underwriter, Title Resources Guaranty Company, provides title underwriting services relating to the closing of home purchases and refinancing of home loans, working with affiliated and unaffiliated agents. In the fourth quarter of 2021, the Company entered into a transaction pursuant to which it plans to sell the title insurance underwriter in exchange for cash and a 30% stake in the form of common units in a title insurance underwriter joint venture (which will indirectly own Title Resources Guaranty Company). The Company currently expects that this transaction will close in the first quarter of 2022, subject to the receipt of certain regulatory approvals as well as the satisfaction or waiver of other customary closing conditions. Following the closing of this transaction, the Company’s share of equity earnings and losses for its minority interest in the joint venture will be reported in Realogy Title Group. This segment also includes our share of equity earnings or losses for Guaranteed Rate Affinity, our minority-owned mortgage origination joint venture.
Housing Market and Market Share
U.S. Gross Commission Income. Residential real estate brokerage companies typically realize revenues in the form of a sales commission earned from closed homesale sides (either the "buy" side and/or the "sell" side of a real estate transaction), which we refer to as gross commission income. We believe that the level of gross commission income generated in the U.S., which is generally estimated around $100 billion, represents a substantial addressable market. Our company owned brokerages and franchisees earned approximately $18 billion in gross commission income in 2021, as compared to $14 billion in gross commission income in 2020.
Market Share. As measured in a comparison to the volume of all existing homesale transactions in the U.S. as reported by NAR (regardless of whether an agent or broker was involved in the transaction), we estimate that our market share in 2021 increased to approximately 16.4% as compared to approximately 15.3% in 2020.
Our estimated share of all U.S. existing homesale unit transactions in 2021 decreased slightly to approximately 12.5% as compared to 12.6% in 2020.
Basis of Market Share Calculation. We measure our market share transaction volume by the ratio of (a) homesale transaction volume (sides times average price) in which we and our franchisees participate to (b) NAR's existing homesale transaction volume (regardless of whether an agent or broker was involved in the transaction)-calculated by doubling the number of existing homesale transactions reported by NAR to account for both the buy and sell sides of a transaction multiplied by NAR's average sales price. Homesale unit transaction market share is calculated similarly but without including average sales price in either the numerator or denominator.
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Our headquarters is located at 175 Park Avenue, Madison, New Jersey 07940. Our general telephone number is (973) 407-2000. The Company files electronically with the Securities and Exchange Commission (the "SEC") required reports on Form 8-K, Form 10-Q and Form 10-K; proxy materials; registration statements and other forms or reports as required. Certain of the Company's officers and directors also file ownership reports for insiders as required by Section 16 of the Securities Exchange Act of 1934. Such materials may be accessed electronically on the SEC's Internet site (www.sec.gov). We maintain an Internet website at http://www.realogy.com and make available free of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports and any amendments to these reports in the Investor Relations section of our website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Our website address is provided as an inactive textual reference. The contents of our website are not incorporated by reference herein or otherwise a part of this Annual Report.
Industry Trends
Industry definition. We primarily operate in the U.S. residential real estate industry, which is approximately a $2.6 trillion industry based on 2021 transaction volume (i.e., average homesale price times number of new and existing homesale transactions) and derive substantially all of our revenues from serving the needs of buyers and sellers of existing homes rather than new homes manufactured and sold by homebuilders. Residential real estate brokerage companies typically realize revenues in the form of a commission that is based on a percentage of the price of each home sold. As a result, the real estate industry generally benefits from rising home prices and increasing homesale transactions (and conversely is adversely impacted by falling prices and lower homesale transactions). We believe that existing homesale transactions and the services associated with these transactions, such as mortgage origination, title services and relocation services, represent one of the most attractive segments of the residential real estate industry for the following reasons:
•the existing homesales segment represents a significantly larger addressable market than new homesales. Of the approximately 6.9 million homesales in the U.S. in 2021, NAR estimates that approximately 6.1 million were existing homesales, representing approximately 89% of the overall sales as measured in units;
•existing homesales afford us the opportunity to represent either the buyer or the seller and in some cases both the buyer and the seller; and
•we are able to generate revenues from ancillary services provided to our customers.
Our business model relies heavily on affiliated independent sales agents, who play a critical consumer-facing role in the home buying and selling experience for both our company owned and franchise brokerages. While substantially all homebuyers start their search for a home using the Internet, according to NAR, approximately 87% of home buyers and 90% of home sellers used an agent or broker in 2021. We believe that agents or brokers will continue to be directly involved in most home purchases and sales, primarily because real estate transactions have certain characteristics that benefit from the service and value offered by an agent or broker, including the following:
•the average homesale transaction value is very high and generally is the largest transaction one does in a lifetime;
•homesale transactions occur infrequently;
•there is a compelling need for personal service as home preferences are unique to each buyer;
•a high level of support is required given the complexity associated with the process, including specific marketing and technology services;
•the consumer preference to visit properties for sale in person, notwithstanding the availability of online images and property tours; and
•there is a high variance in price, depending on neighborhood, floor plan, architecture, fixtures, and outdoor space.
Cyclical nature of industry. The U.S. residential real estate industry is cyclical but has historically shown strong growth over time. According to NAR, the existing homesale transaction volume (median homesale price times existing homesale transactions) grew at a CAGR of 6.5% over the past 30 years.
The U.S. residential real estate industry was in a significant and lengthy downturn from the second half of 2005 through 2011. Based upon data published by NAR from 2005 to 2011, the number of annual U.S. existing homesale transactions declined by 40% and the median existing homesale price declined by 24%. Beginning in 2012, the U.S. residential real estate industry began a recovery. Based upon data published by NAR from 2011 to 2021, the number of annual U.S. existing homesale units and the median existing homesale price improved by 44% and 109%, respectively.
In 2020, in connection with the COVID-19 pandemic, the U.S. residential real estate industry experienced significant volatility with a 16% decline in closed homesale transaction volume (existing homesale average price times existing homesale transactions) in the second quarter of 2020 followed by a 29% increase in closed homesale transaction volume in the second half of 2020, in each instance as compared to the prior year according to NAR. While the industry improved markedly from the COVID-19 related low seen in the second quarter of 2020, we cannot predict the duration or continued strength of housing demand.
Long-term demographics. We believe that long-term demand for housing and the growth of our industry is primarily driven by the affordability of housing, the economic health of the U.S. economy, demographic trends such as generational transitions, increases in U.S. household formation, mortgage rate levels and mortgage availability, certain tax benefits, job growth, increases in renters that qualify as homebuyers, the inherent attributes of homeownership versus renting and the availability of inventory in the consumer's desired location and within the consumer's price range. We believe that the residential real estate market will benefit over the long-term from expected positive fundamentals, including expected growth in the number of U.S. households over the next decade, in particular among the millennial generation. A continuation of beneficial consumer and business trends that gained momentum during the COVID-19 crisis (such as preferences for certain geographies, demand in the high-end market and the increasing ease and acceptance of remote work) may also have a positive impact on homesale transactions.
Participation in Multiple Aspects of Residential Real Estate
We participate in services associated with many aspects of the residential real estate market. Our complementary businesses and minority-held joint ventures, including our mortgage origination joint venture, work together, allowing us to generate revenue at various points in a residential real estate transaction, including the purchase or sale of homes, corporate relocation and lead generation services, settlement and title services, and franchising of our brands. The businesses each benefit from our deep understanding of the industry, strong relationships with real estate brokers, sales agents and other real estate professionals and expertise across the transactional process. Unlike other industry participants who offer only one or two services, we can offer homeowners, our franchisees and our corporate and real estate benefit program clients ready access to numerous associated services that facilitate and simplify the home purchase and sale process. These services provide further revenue opportunities for our owned businesses and those of our franchisees. All of our businesses and our minority-owned joint ventures can derive revenue from the same real estate transaction.
Our Brands
Our brands are among the most well-known and established real estate brokerage brands in the real estate industry.
Together with our strategic joint ventures, our brands allow us to leverage our strengths, while participating in multiple markets within the real estate industry. Specifically, while all of our brands compete to varying extents in the high-end markets, our Sotheby’s International Realty® and Corcoran® brands are particularly well-positioned to benefit from growth in the high-end. Likewise, while all of our brands utilize offerings through Realogy Title Group, our company owned Coldwell Banker® brand shares deep synergies with our title business and mortgage joint venture that allow us to progress against our goal to integrate the residential real estate transaction. In addition, our global franchise brands including, Better Homes and Gardens® Real Estate, CENTURY 21®, ERA®, and Sotheby’s International Realty® as well as franchised Coldwell Banker® brokerages, provide us with attractive scale and afford us the ability to offer versatility of choice to franchisees and consumers.
Our real estate brands are listed in the following chart, which includes information as of December 31, 2021 for both our franchised and company owned offices:
Brands (1)
Worldwide Offices (2)
14,200 2,800 1,000 2,400 400 200
Worldwide Brokers and
Sales Agents (2)
147,800 101,900 25,300 40,300 12,600 5,500
U.S. Annual Sides
377,898 753,355 173,108 113,862 88,980 26,969
# of Countries with Owned or Franchised Operations
85 41 79 33 5 4
Characteristics
A 50+ year leader in brand awareness and a top recognized and respected name in real estate
Significant international office footprint
The only real estate brand that has been guiding people home for 116 years Synonymous with luxury
Strong ties to auction house established in 1744
Powerful global presence Driving performance through innovation, collaboration, diversity and growth
Unique opportunity for flexible branding Unique access to consumers, marketing channels and content through its brand licensing relationship with a leading media company Leading residential real estate brand for nearly 50 years
Commitment to white-glove service, customer-centric brand, and "Live Who You Are" philosophy
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(1)Information presented for Coldwell Banker® includes Coldwell Banker Commercial®.
(2)Includes information reported to us by independently owned franchisees (including approximately 15,200 offices and approximately 136,700 related brokers and independent sales agents of non-U.S. franchisees and franchisors).
Realogy Franchise Group
Overview-Franchise Business
Realogy Franchise Group is comprised of our franchise business as well as our leads generation and relocation services operation.
As of December 31, 2021, our real estate franchise systems and proprietary brands had approximately 333,400 independent sales agents worldwide, including approximately 196,700 independent sales agents operating in the U.S. (which included approximately 56,300 company owned brokerage independent sales agents). As of December 31, 2021, our real estate franchise systems and proprietary brands had approximately 21,000 offices worldwide in 119 countries and territories in North and South America, Europe, Asia, Africa, the Middle East and Australia, including approximately 5,800 brokerage offices in the U.S. (which included approximately 680 company owned brokerage offices).
As shown in the table above, as of December 31, 2021, independent sales agents affiliated with our company owned brokerages grew by 6% (based on the Company’s internal data) and independent sales agents affiliated with our franchised brokerages grew by 2% (based on information provided by our affiliated franchisees), in each case as compared to December 31, 2020.
The average tenure among our U.S. franchisees is approximately 23 years as of December 31, 2021. Our franchisees pay us fees for the right to operate under one of our trademarks and to enjoy the benefits of the systems and business enhancing tools provided by our real estate franchise operations. In addition to highly competitive brands that provide unique offerings to our franchisees, we support our franchisees with dedicated national marketing and servicing programs, technology, training, education, learning and development to facilitate our franchisees in growing their business and increasing their revenue and profitability.
Our primary objectives as a franchisor of residential real estate brokerages are to retain and expand existing franchises, sell new franchises, and most importantly, provide branding and support (including via proprietary and third-party products and services) to our franchisees and their independent sales agents.
Operations-Franchising
We derive substantially all of our real estate franchising revenues from royalties and marketing fees received under long-term franchise agreements with our domestic franchisees and Realogy Brokerage Group for the right to operate under one of our trademarks and to utilize the benefits of the franchise systems. Royalties are based on a percentage of the franchisees’ sales commission earned from closed homesale sides, which we refer to as gross commission income.
Realogy Franchise Group's domestic annual net royalty revenues from franchisees (other than our company owned brokerages at Realogy Brokerage Group) can be represented by multiplying (1) that year's total number of closed homesale
sides (either the "buy" side and/or the "sell" side of a real estate transaction) in which those franchisees participated by (2) the average sale price of those homesales by (3) the average brokerage commission rate charged by these franchisees by (4) Realogy Franchise Group's net contractual royalty rate. Realogy Franchise Group's net contractual royalty rate represents the average percentage of our franchisees' commission revenues paid to us as a royalty, net of volume incentives achieved (or, for certain franchisees, flat fee or capped royalties) and net of other incentives granted to franchisees.
In addition to domestic royalty revenue, Realogy Franchise Group earns revenue from marketing fees, the strategic alliance program, international affiliates and upfront international fees.
During 2021, none of our franchisees (other than Realogy Brokerage Group) generated more than 2% of the total revenue of our real estate franchise business.
Our franchisees (other than our company owned brokerages at Realogy Brokerage Group) are independent business operators and we do not exercise control over their day-to-day operations.
Domestic Franchisees. Franchise agreements set forth guidelines on the business and operations of the franchisees and require them to comply with the mandatory identity standards set forth in each brand's policy and procedures manuals. A franchisee's failure to comply with these restrictions and standards could result in a termination of the franchise agreement. The franchisees generally are not permitted to terminate the franchise agreements prior to their expiration, and in those cases where termination rights do exist, they are limited (e.g., if the franchisee retires, becomes disabled or dies). Generally, new domestic franchise agreements have a term of ten years, although we may negotiate shorter extension agreements with existing franchisees.
These franchisee agreements generally require the franchisee to pay us an initial franchise fee for the franchisee's principal office plus a royalty fee that is a percentage of gross commission income, if any, earned by the franchisee. Franchisee fees can be structured in numerous ways and we have and may continue, from time to time, to introduce pilot programs or restructure or revise the model used at one or more franchised brands, including with respect to fee structures, minimum production requirements or other terms.
Certain of our brands utilize a volume-based incentive model with a royalty fee rate that is initially equal to 6% of the franchisee's gross commission income, but subject to reduction based upon volume incentives. Under this model, the franchisee is eligible to receive a refund of a portion of the royalties paid upon the satisfaction of certain conditions. The volume incentive is calculated for each eligible franchisee as a progressive percentage of each franchisee's annual gross revenue (paid timely) for each calendar year. The volume incentive varies for each franchise system, and generally results in a net or effective royalty rate of 6% to 3% for each individual franchisee (prior to taking into account other incentives that may be applicable to the franchisee). We provide a detailed table to each eligible franchisee that describes the gross revenue thresholds required to achieve a volume incentive and the corresponding incentive amounts. We reserve the right to increase or decrease the percentage and/or dollar amounts in the table on an annual basis, subject to certain limitations.
Certain franchisees (including some of our largest franchisees) have a flat percentage royalty fee model. Under this model, franchisees pay a fixed percentage (generally less than 6%) of their commission income to us and the percentage does not change during the year or over the term of their franchise agreement. Franchisees on this model are generally not eligible for volume incentives.
Our Better Homes and Gardens® Real Estate franchise business utilizes a capped fee model, which has applied to any new franchisee since 2019 as well as preexisting franchisees who elect to switch from their current royalty fee structure to the capped fee model. Under this model, franchisees pay a royalty fee (generally equal to 5% of their commission income) capped at a set amount per independent sales agent per year, subject to our right to annually modify or increase the independent sales agent cap. Franchisees on this model are generally not eligible for volume incentives.
Our Corcoran franchise business utilizes a tiered royalty fee model under which franchisees pay us a percentage of their gross commission income as a royalty fee. The royalty fee percentage is generally set at an initial rate of 6% and decreases in steps during each calendar year as the franchisee’s gross commission income reaches certain levels to a minimum of 4%. Similarly, our Coldwell Banker residential franchise business began offering a tiered royalty fee model in 2021, under which the royalty fee percentage is generally set at an initial rate of 5.5% and decreases in steps during the calendar year as the franchisee’s gross commission income reaches certain levels to a minimum of 3%. Under this model, we reserve the right to annually modify or increase the gross commission income levels, subject to certain limitations. Franchisees on the tiered royalty fee model are generally not eligible for volume incentives.
Other incentives may be used as consideration to attract new franchisees, grow franchisees (including through independent sales agent recruitment) or extend existing franchise agreements. Under certain circumstances, we extend conversion notes to eligible franchisees for the purpose of providing an incentive to join the brand, to renew their franchise agreements, or to facilitate their growth opportunities. Growth opportunities include the expansion of franchisees' existing businesses by opening additional offices, through the consolidation of operations of other franchisees, as well as through the acquisition of independent sales agents and offices operated by independent brokerages. Franchisees may also use the proceeds from the conversion notes to update marketing materials or upgrade technology and websites. The notes are not funded until appropriate credit checks and other due diligence matters are completed, and the business is opened and operating under one of our brands. Upon satisfaction of certain revenue performance-based thresholds, the notes are forgiven ratably over the term of the franchise agreement. If the revenue performance thresholds are not met, franchisees may be required to repay a portion of the outstanding notes.
Each of our current franchise systems require franchisees and company owned brokerages to make monthly contributions to marketing funds maintained by each brand, which may decrease as certain financial thresholds are achieved in accordance with the applicable franchise agreement (other than with respect to company owned brokerages). These contributions are used primarily for the development, implementation, production, placement and payment of national and regional advertising, marketing, promotions, public relations and/or other marketing-related activities, such as lead generation, all to promote and further the recognition of each brand and its independent franchisees and their affiliated independent sales agents. In addition to the contributions from franchisees and company owned offices, in certain instances, Realogy Franchise Group may be required to make contributions to certain marketing funds and may make discretionary contributions (at its option) to any of the marketing funds.
In addition to offices owned and operated by our third-party franchisees, as of December 31, 2021, we, through Realogy Brokerage Group, own and operate approximately 680 offices under the Coldwell Banker®, Coldwell Banker Commercial®, Sotheby's International Realty® and Corcoran® brand names. The domestic royalty revenue from Realogy Brokerage Group is calculated by multiplying homesale sides by average sale price by average brokerage commission rate by their contractual royalty rate. Realogy Brokerage Group pays intercompany royalty fees of approximately 6% and marketing fees to Realogy Franchise Group in connection with its operation of these offices. These fees are recognized as income or expense by the applicable segment level and eliminated in the consolidation of our businesses. Realogy Brokerage Group does not participate in volume incentive or other incentive programs.
International Third-Party Franchisees. In the U.S., we employ a direct franchising model whereby we contract with and provide services directly to independent owner-operators. We also utilize a direct franchising model outside of the U.S. for Sotheby's International Realty® and Corcoran® and, in some cases, Better Homes and Gardens® Real Estate. For all other brands, we generally employ a master franchise model outside of the U.S., whereby we contract with a qualified third party to build a franchise network in the country or region in which franchising rights have been granted. Under both the direct and master franchise models outside of the U.S., we typically enter into long-term franchise agreements (often 25 years in duration) and receive an initial area development fee and ongoing royalties. Under the master franchise model, the ongoing royalties we receive are generally a percentage of the royalties received by the master franchisor from its franchisees with which it contracts. Under the direct franchise model, a royalty fee is paid to us on transactions conducted by our franchisees in the applicable country or region.
Intellectual Property
We own the trademarks Century 21®, Coldwell Banker®, Coldwell Banker Commercial®, Corcoran®, ERA® and related trademarks and logos, and such trademarks and logos are material to the businesses that are part of our real estate franchise segment. Our franchisees and our subsidiaries actively use these trademarks, and all of the material trademarks are registered (or have applications pending) with the United States Patent and Trademark Office as well as with corresponding trademark offices in major countries worldwide where these businesses have significant franchised operations.
We have an exclusive license to own, operate and franchise the Sotheby's International Realty® brand to qualified residential real estate brokerage offices and individuals operating in eligible markets pursuant to a license agreement with SPTC Delaware LLC, a subsidiary of Sotheby's ("Sotheby's"). Such license agreement has a 100-year term, which consists of an initial 50-year term ending February 16, 2054 and a 50-year renewal option. We pay a licensing fee to Sotheby's for the use of the Sotheby's International Realty® name equal to 9.5% of the net royalties earned by Realogy Franchise Group attributable to franchisees affiliated with the Sotheby's International Realty® brand, including our company owned offices. Our license agreement is terminable by Sotheby's prior to the end of the license term if certain conditions occur, including but not limited to the following: (1) we attempt to assign any of our rights under the license agreement in any manner not
permitted under the license agreement, (2) we become bankrupt or insolvent, (3) a court issues a non-appealable, final judgment that we have committed certain breaches of the license agreement and we fail to cure such breaches within 60 days of the issuance of such judgment, or (4) we discontinue the use of all of the trademarks licensed under the license agreement for a period of twelve consecutive months.
In October 2007, we entered into a long-term license agreement to own, operate and franchise the Better Homes and Gardens® Real Estate brand from Meredith Operations Corporation, successor in interest to Meredith Corporation ("Meredith Ops"). The license agreement between Realogy and Meredith Ops is for a 50-year term, with a renewal option for another 50 years at our option. We pay a licensing fee to Meredith Ops for the use of the Better Homes and Gardens® Real Estate brand name equal to 9.0% of the net royalties earned by Realogy Franchise Group attributable to franchisees affiliated with the Better Homes and Gardens® Real Estate brand, subject to a minimum annual licensing fee. Our license agreement is terminable by Meredith Ops prior to the end of the license term if certain conditions occur, including but not limited to the following: (1) we attempt to assign any of our rights under the license agreement in any manner not permitted under the license agreement, (2) we become bankrupt or insolvent, or (3) a trial court issues a final judgment that we are in material breach of the license agreement or any representation or warranty we made was false or materially misleading when made.
Operations-Other
Lead Generation Programs. Through Realogy Leads Group, a part of Realogy Franchise Group, we seek to provide high-quality leads to affiliated agents, including through real estate benefit programs that provide home-buying and selling assistance to customers of lenders, members of organizations such as credit unions and interest groups that have established members who are buying or selling a home as well as to consumers and corporations who have expressed interest in a certain brand, product or service (such as relocation services), including those offered by Realogy. Where permitted by law, consumers participating in certain real estate benefit programs can receive a financial benefit for using these services (such as cash or a gift card, or real estate brokerage commission credit based on the home purchase/sale price pursuant to the applicable program). Realogy Leads Group also operates our broker-to-broker business, pursuant to which brokers affiliated with one of our customized agent and brokerage networks refer business to other in-network brokers.
Our real estate benefit program revenues are highly concentrated, with one client-directed real estate benefit program contributing a substantial majority of the high-quality leads generated through our lead generation programs, and our client-directed programs are non-exclusive and terminable at any time at the option of the client. We also maintain Realogy-driven real estate benefit programs, including: Realogy Military Rewards, a program for U.S. military personnel, veterans and their families and AARP® Real Estate Benefits, the first-ever real estate benefits program designed for the nearly 38 million AARP members, which was launched in 2020. We expect that significant time and effort and meaningful investment will be required to increase awareness of and consumer participation in new real estate benefit programs.
To service the needs of consumers and clients participating in one of our real estate benefit programs (including our relocation program with Cartus Relocation Services) or engaged through a broker-to-broker lead, we manage customized agent and brokerage networks. Our networks consist of real estate brokers, including our company owned brokerage operations, as well as franchisees and independent real estate brokers who have been approved to become members of one or more networks. Member brokers of our networks receive leads from our real estate benefit programs (including via our relocation program with Cartus Relocation Services) and each other in exchange for a commission split paid to Realogy Leads Group.
Cartus Relocation Services. Cartus Relocation Services, a provider of global relocation services, offers a broad range of world-class employee relocation services designed to manage all aspects of an employee's move to facilitate a smooth transition in what otherwise may be a complex and difficult process for employee and employer. The wide range of services we offer allow our clients to outsource their entire relocation programs to us. Our broad array of services include, but are not limited to homesale assistance, relocation policy counseling and group move management services, expense processing and relocation-related accounting, and visa and immigration support. We also arrange household goods moving services and provide support for all aspects of moving a transferee's household goods.
We primarily offer corporate clients employee relocation services, including 42% of the Fortune 50 companies in 2021. As of December 31, 2021, the top 25 relocation clients had an average tenure of approximately 23 years with us. Substantially all of our contracts with our relocation clients are terminable at any time at the option of the client and are non-exclusive. If a client ceases or reduces volume under its contract, we will be compensated for all services performed up to the time that volume ceases and reimbursed for all expenses incurred.
There are a number of different revenue streams associated with relocation services. We earn a commission split from real estate brokers and household goods moving companies that provide services to the transferee. Clients may also pay transactional fees for the services performed. Furthermore, Cartus Relocation Services continues to provide value through the generation of leads to real estate agent and brokerage participants in the networks maintained by Realogy Leads Group, which drives downstream revenue for our businesses.
Strategic Alliance Program. We offer third-party service providers an opportunity to market their products to our franchisees and their independent sales agents and customers through our strategic alliance program. To participate in this program, service providers generally agree to provide preferred pricing to our franchisees and/or their customers or independent sales agents and to pay us a combination of an initial licensing or access fee, subsequent marketing fees and/or commissions based upon our franchisees' or independent sales agents' usage of the strategic alliance vendors.
Realogy Brokerage Group
Overview
Through Realogy Brokerage Group we own and operate a full-service real estate brokerage business in many of the largest metropolitan areas in the U.S. Our brokerage offices are geographically diverse with a strong presence in the east and west coast areas, primarily around large metropolitan areas in the U.S., where home prices are generally higher. Our company owned real estate brokerage business operates under the Coldwell Banker®, Sotheby's International Realty® and Corcoran® franchised brands. This segment also includes our share of equity earnings or losses from our RealSure and Real Estate Auction joint ventures.
As of December 31, 2021, we had approximately 680 company owned brokerage offices and approximately 56,300 independent sales agents working with these company owned offices. Of those offices, we operated approximately 90% of our offices under the Coldwell Banker® brand name, approximately 6% of our offices under the Sotheby's International Realty® brand name and 4% of our offices under the Corcoran® brand name.
We intend to grow our business both organically and through strategic acquisitions. To grow organically, we focus on working with office managers to attract and retain independent sales agents who can successfully engage and promote transactions from new and existing clients. Following the completion of an acquisition, we tend to consolidate the newly acquired operations with our existing operations to reduce or eliminate duplicative costs and to leverage our existing infrastructure to support newly affiliated independent sales agents.
Operations-Brokerage
Our company owned real estate brokerage business derives revenue primarily from gross commission income received serving as the broker at the closing of real estate transactions. For the year ended December 31, 2021, our average homesale broker commission rate was 2.42% which represents the average commission rate earned on either the "buy" side or the "sell" side of a homesale transaction. Gross commission income is also earned on non-sale transactions such as home rentals. Realogy Brokerage Group, as a franchisee of Realogy Franchise Group, pays marketing fees and a royalty fee of approximately 6% of the gross commission income earned per real estate transaction to Realogy Franchise Group; however such amounts are eliminated in consolidation. Realogy Brokerage Group paid marketing fees and royalties to Realogy Franchise Group of $407 million and $316 million for the years ended December 31, 2021 and 2020, respectively.
The remainder of gross commission income is split between the broker (Realogy Brokerage Group) and the independent sales agent in accordance with their applicable independent contractor agreement (which specifies the portion of the broker commission to be paid to the agent), which varies by agent.
In addition, as a full-service real estate brokerage company, we promote the complementary services offered through our other segments, including title, escrow and settlement, mortgage origination and relocation services. We believe we provide integrated services that enhance the customer experience.
When we assist the seller in a real estate transaction, independent sales agents generally provide the seller with a full-service marketing program, which may include developing a direct marketing plan for the property, assisting the seller in pricing the property and preparing it for sale, listing it on multiple listing services, advertising the property (including on websites), showing the property to prospective buyers, assisting the seller in sale negotiations, and assisting the seller in preparing for closing the transaction. When we assist the buyer in a real estate transaction, independent sales agents generally help the buyer in locating specific properties that meet the buyer's personal and financial specifications, show
properties to the buyer, assist the buyer in negotiating (where permissible) and preparing for closing the transaction. In addition, Realogy Brokerage Group has relationships with developers, primarily in major cities, to provide marketing and brokerage services in new developments.
Operations-Other
RealSure Joint Venture. RealSure products and services are offered through RealSure LLC, or RealSure, our joint venture with Home Partners of America. RealSure was formed in 2020 following a pilot launch of similar products in 2018 by Realogy and Home Partners of America.
Under the Operating Agreement (the "RealSure Agreement") between Realogy Brokerage Group and an indirect wholly-owned subsidiary of Home Partners of America (the "HPA Member"), we own 49% of the joint venture and Home Partners of America indirectly owns the remaining 51%. While we have certain governance rights, we do not have a controlling financial or operating interest in the joint venture. Our share of equity earnings or losses are included in Realogy Brokerage Group.
RealSure offers RealSure® Sell in 24 U.S. cities as of December 31, 2021 and, in the fourth quarter of 2021, launched a pilot program for a new offering called RealSure® Buy in three U.S. cities, with plans to expand the offering in certain states in 2022. These offerings are designed to offer home buyers and sellers options that give them a competitive edge when buying or selling a home, while also keeping the expertise of an independent sales agent at the center of the transaction. RealSure highlights our continued investment in innovating and improving the experience of buying and selling homes and aims to provide affiliated agents and franchise owners the opportunity to win more listings and drive incremental business. RealSure expects to introduce additional products over time aimed at reducing stress and removing barriers to buying and selling. The Company expects to continue to invest in the RealSure joint venture as a strategic growth priority and competitive advantage.
Subject to certain exceptions, until the later of December 31, 2022 or 90 days after the date on which the applicable member no longer owns any membership interests, none of Realogy Brokerage Group, the HPA Member or any of their respective affiliates (other than RealSure) are permitted to offer products or services in the United States that are substantially similar to the RealSure programs. Similar exclusivity provisions applicable to RealSure expire on June 5, 2022.
Either Realogy Brokerage Group or the HPA Member can dissolve RealSure upon the occurrence of certain events, including upon bankruptcy, certain change in control events, or the material breach of the RealSure Agreement or certain related agreements between the parties. In addition, the joint venture would be dissolved upon agreement of the parties or in the event that the parties were unable, following good faith negotiations, to break a voting deadlock related to certain matters, and neither party elected to initiate buy/sell procedures. Such matters include without limitation the parties’ inability to approve an annual business plan.
Real Estate Auction Joint Venture. This segment also includes our 50% share of equity earnings or losses from our unconsolidated joint venture with Sotheby’s. The joint venture, formed in 2021, holds an 80% ownership stake in Concierge Auctions, a global luxury real estate auction marketplace that partners with real estate agents to host luxury online auctions for clients. This joint venture supports our strategic growth initiatives in the high-end real estate markets and serves as an additional tool for agents to market and sell unique luxury properties around the world. While we have certain governance rights, we do not have a controlling financial or operating interest in the joint venture.
Realogy Title Group
Overview
In 2021, Realogy Title Group consisted of three primary businesses: a title agency business that conducts title, escrow and settlement services, a title underwriting business and the Company's share of equity earnings and losses from its minority interest in a non-exclusive mortgage origination joint venture. In the fourth quarter of 2021, we entered into a transaction pursuant to which we plan to sell our title underwriting business, Title Resources Guaranty Company ("Title Resources"), in exchange for cash and a 30% equity interest in a title insurance underwriter joint venture (see "Title Underwriting" below for additional information).
Our title agency business provides title search, examination, clearance and policy issuance services and oversees the closing process and funds disbursement for lenders, real estate agents, attorneys and homebuilders on purchase transactions and lenders on refinance transactions.
We intend to grow our title, escrow and settlement services business by attracting title and escrow sales personnel in existing markets. We will also continue to seek to increase our capture rate of title business from Realogy Brokerage Group homesale sides.
Operations
Title Agency, or Title, Escrow and Settlement Services. We are licensed as a title agent in 44 states and Washington, D.C., and have physical locations in 24 states and Washington, D.C. We operate mostly in major metropolitan areas. As of December 31, 2021, we had approximately 392 offices, approximately 166 of which are co-located within one of our company owned brokerage offices. In addition to our own title, escrow and settlement services, we also coordinate a nationwide network of attorneys, title agents and notaries to service financial institution clients on a national basis.
Our title, escrow and settlement services business provides full-service title, escrow and settlement (i.e., closing and escrow) services to consumers, real estate companies, corporations and financial institutions with many of these services provided in connection with the Company's real estate brokerage and relocation services businesses. We provide closing and escrow services relating to the closing of home purchases and refinancing of home loans. For refinance transactions, we generate title and escrow revenues from financial institutions throughout the mortgage lending industry.
Our company owned brokerage operations are the principal source of our title, escrow and settlement services business for homesale transactions. Many of our offices have subleased space from and are co-located within our company owned brokerage offices. In 2021, our title, escrow and settlement business was involved in approximately 220,000 transactions of which approximately 59,000 related to Realogy Brokerage Group. The capture rate of our title, escrow and settlement services business from buyers or sellers represented by our company owned brokerages was approximately 32% in 2021. Other sources of our title, escrow and settlement services homesale business include Realogy Franchise Group, Realogy Leads Group, home builders and unaffiliated brokerage operations.
We provide our title, escrow and settlement services through a national network of escrow and closing agents (some of whom are our agencies, while others are attorneys in private practice and independent title companies) to provide full-service title, escrow and settlement services to a broad-based group that includes lenders, home buyers and sellers, developers and independent real estate sales agents. Our role is generally that of an intermediary managing the completion of all the necessary documentation and services required to complete a real estate transaction.
Virtually all lenders require their borrowers to obtain title insurance policies at the time mortgage loans are made on real property. The terms and conditions upon which the real property will be insured are determined in accordance with the standard policies and procedures of the title underwriter. When our title agencies sell title insurance, the title search and examination function is performed by the agent. The title agent and underwriter split the premium. The amount of such premium "split" is generally determined by agreement between the agency and underwriter and, in some states, is promulgated by state law. We derive revenue through fees charged in real estate transactions for rendering the services described above, fees charged for escrow and closing services, and a percentage of the title premium on each title insurance policy sold.
We have entered into underwriting agreements with various underwriters, including Title Resources, which state the conditions under which we may issue a title insurance policy on their behalf. For policies issued through our agency operations, assuming no negligence on our part, we are not typically liable for losses under those policies; rather the title insurer is typically liable for such losses.
Title Insurance Underwriter. Title Resources is a title insurance underwriter licensed in 37 states and Washington, D.C. In 2021, Title Resources worked with both unaffiliated and affiliated title agencies to provide title underwriting services relating to the closing of home purchases and refinancing of home loans.
In the fourth quarter of 2021, we entered into a strategic transaction with Centerbridge Partners, L.P. ("Centerbridge") pursuant to which we plan to sell Title Resources in exchange for cash and a 30% equity stake in the form of common units in a title insurance underwriter joint venture (which will indirectly own Title Resources). Our joint venture partners will hold the remaining 70% equity stake in the joint venture in the form of preferred units that carry liquidation preference rights. Following close of the sale transaction, we will have certain governance rights, but we will not have a controlling
financial or operating interest in the joint venture. Our share of equity earnings and losses for our minority interest in the joint venture will be reported in Realogy Title Group. We currently expect that this transaction will close in the first quarter of 2022, subject to the receipt of certain regulatory approvals as well as the satisfaction or waiver of other customary closing conditions.
Other Revenue. Other revenue generated by our title agency business includes closing protection letters, title searches, survey business, tax search, wire fees, and other fees ancillary to their services.
Mortgage Origination Joint Venture. Guaranteed Rate Affinity, our non-exclusive mortgage origination joint venture with Guaranteed Rate, Inc. ("Guaranteed Rate") began doing business in August 2017. Guaranteed Rate Affinity originates mortgage loans, including both purchase and refinancing transactions, to be sold in the secondary market to mortgage companies and the government-sponsored enterprises. Guaranteed Rate Affinity originates and markets its mortgage lending services to real estate agents across the country (including to independent sales agents affiliated with our company owned and franchised brokerages) and relocation companies (including our relocation operations) as well as a broad consumer audience. Our equity earnings or losses related to Guaranteed Rate Affinity are included in the financial results of Realogy Title Group, but are not reported as revenue to Realogy Title Group.
Many of Guaranteed Rate Affinity’s offices have subleased space from and are co-located within our company owned brokerage offices. Our company owned brokerage operations represented approximately half of purchase transactions and approximately one-third of Guaranteed Rate Affinity’s mortgage origination business for the year-ended December 31, 2021.
Under the Operating Agreement (the "GRA Agreement") between a subsidiary of Realogy Title Group and a subsidiary of Guaranteed Rate (the "GRA Member"), we own 49.9% of the home mortgage joint venture and Guaranteed Rate indirectly owns the remaining 50.1%. Under the GRA Agreement, Guaranteed Rate Affinity is to distribute to each of the Company and Guaranteed Rate the distributable net income based on each member's ownership interest percentage following the close of each quarter. While we have certain governance rights, we do not have a controlling financial or operating interest in the joint venture. Guaranteed Rate Affinity is licensed to conduct mortgage operations in 49 states and Washington, D.C.
The GRA Agreement is for an initial 10-year term (ending August 2027) and automatically renews for additional 5 year terms, unless either party provides advance notice to terminate, provided that if certain performance metrics are achieved after the fifth year of the agreement, the first 5-year extension is not subject to termination upon advance notice. Either party can terminate the GRA Agreement upon the occurrence of certain events including, but not limited to, a change in control of the other member, subject to certain exceptions, or upon material breach by the other member not remediated within the cure period. We have certain additional performance-based termination rights.
The GRA Agreement does not prohibit Guaranteed Rate, directly or indirectly through joint ventures, from operating its separate mortgage origination business in locations where Guaranteed Rate Affinity and its subsidiaries will have offices and does not limit the Company, Guaranteed Rate, or either of their subsidiaries from operating non-mortgage origination lines of business in locations where Guaranteed Rate Affinity operates. In addition, the Company is permitted to have ventures with other mortgage loan originators, but Guaranteed Rate has a 30-day right-of-first-refusal to acquire any mortgage origination business that we intend to acquire.
Products, Technology and Marketing
Our ability to provide independent sales agents at company owned and franchised brokerages with compelling data and technology-powered products and services to make them more productive and their businesses more profitable is core to our integrated business strategy.
The marketing and technology services and support provided by independent sales agents to their customers are an important element of the value offered by an agent in the home purchase and sale process. Our commitment to continuously develop and improve our marketing and technology-powered products and services is part of our value proposition to company owned and franchised real estate brokerages, affiliated independent sales agents and their customers as well as to our other businesses. Increasingly, these products and services are desired as an integrated set of tools, rather than stand-alone products and services.
Products and Technology
We continue to develop product and marketing capabilities against the backbone of an open ecosystem architecture approach, which is designed to support the continuous creation and delivery of both our proprietary tools and third-party products to affiliated independent sales agents in order to deliver a more comprehensive platform experience. Through this strategy, we are able to selectively enable qualified third-party vendors and products to access and interface with our products and services so that affiliated independent sales agents will be able to build their own configurable technology platform to drive their performance and productivity.
Our open ecosystem is designed to offer affiliated independent sales agents and brokers seamless access to third-party products, enabling choice among such agents and brokers to leverage the mix of tools that best serve their needs. In 2021 we began rolling out the MoxiWorks® product suite to company owned and franchised brokerages and their affiliated independent sales agents. The MoxiWorks® product suite includes solutions for marketing, recruiting and website creation and leverages our open technology ecosystem to provide an integrated experience including with our proprietary leads engine that enables lead routing to affiliated independent sales agents.
We have invested, and expect to continue to invest, substantial time, capital, and other resources to identify the needs of company owned brokerages, franchisees, independent sales agents and their customers and to develop or procure marketing, technology and service offerings to meet the needs of affiliated independent sales agents. Examples of technology-driven products available to affiliated independent sales agents and designed to improve productivity and enhance the customer experience for home buyers and sellers include:
•RealSure® Sell is designed to provide consumers with a competitive cash offer for their home alongside the option to list their home with a trusted sales agent. Home sellers that accept the cash offer from RealSure have the flexibility to stay in their home for a limited period after closing. RealSure Sell is available in 24 U.S. cities as of December 31, 2021. In the fourth quarter of 2021, RealSure® Buy was launched in three pilot cities in the U.S. RealSure Buy is designed to provide home buyers a competitive edge and home sellers more certainty by providing qualified buyers the opportunity to work with a loan officer to remove the risk of mortgage-related financing and appraisal contingencies to make their offers equivalent to a cash offer.
•RealVitalize® enables home sellers to make their property ready for sale by providing resources to fund staging and home improvements with no up-front cost via a proprietary consumer program offered in partnership with Angi. RealVitalize is available nationally through participating Realogy company-owned and franchise brokerages, with the exception of Rhode Island, Delaware, Louisiana, North Dakota and South Dakota as of December 31, 2021.
•Listing ConciergeSM, a proprietary property marketing product, allows agents affiliated with Coldwell Banker company owned brokerages and certain franchisees to access a simple-to-use platform that delivers creative, consistent property marketing.
•Design ConciergeSM, a proprietary agent branding and custom design product, allows agents affiliated with Coldwell Banker to work with the Design Concierge team to create their own complementary personal brand.
Our Realogy-provided platform is designed to increase the value proposition to our independent sales agents, franchisees (and their independent sales agents) and consumers by:
•aiding in lead generation and obtaining additional homesale transactions;
•connecting affiliated agents and brokers to a CRM tool that allows for the cultivation of productive relationships with consumers at all stages of the transaction;
•enhancing access to listing distributions through mobile applications and websites;
•informing affiliated agents of valuable client insight to help those agents increase their productivity;
•providing consumers with a streamlined yet comprehensive user experience to facilitate the necessary steps for researching homes, communities and independent sales agents;
•providing key back office processes, including listing and transaction management, reporting, marketing, and agent profiles; and
•delivering business planning tools that enable our franchisees to track their progress against key business objectives in real time.
The COVID-19 crisis has accelerated the need for, and adoption of, digital and virtual products and services that facilitate a remote home buying and selling experience. Our brands and businesses have access to a range of tools to assist consumers with virtual staging, virtual open houses, and remote online notarization for title, escrow and settlement closings.
Marketing
Each of our brands manages a comprehensive system of marketing tools and sales information and data that can be accessed through freestanding brand intranet sites to assist independent sales agents in becoming the best marketer of their listings. Advertising is primarily used by the brands to drive leads to affiliated agents, increase brand awareness and perception, promote our network and offerings to the real estate industry and engage our customer base.
Each of our franchise brands operates a marketing fund that is funded principally by our franchisees (including company owned offices), although we may make discretionary contributions to any of the marketing funds and in certain instances are required to make contributions to certain marketing funds.
Likewise, our company owned brokerages sponsor a wide array of marketing programs, materials and opportunities to complement the sales work of our affiliated independent sales agents and increase brand awareness. The effectiveness and quality of marketing programs play a significant role in attracting and retaining independent sales agents.
Our marketing programs and initiatives primarily focus on attracting potential new home buyers and sellers to affiliated independent sales agents by:
•showcasing the inventory of our real estate listings and the affiliated independent sales agents who are the listing agents of these properties;
•building and maintaining brand awareness and preference for the brand; and
•increasing the local recognition of affiliated agents and brokerages.
Marketing programs are executed using a variety of media including, but not limited to social media, advertising, direct marketing and internet advertising. We also offer the independent sales agents broad-based advertising, mailings and other campaigns to generate leads, interest and recognition.
Listings and Websites
The internet is the primary advertising channel in our industry and we have sought to become a leader among full-service residential real estate brokerage firms in the use and application of marketing technology. We transmit listings to various platforms and services, place our property listings on hundreds of real estate websites, and operate a variety of our own websites. We place significant emphasis on distributing our real estate listings with third-party websites to expand a homebuyer's access to such listings, at times enhancing the presentation of the listings on third-party websites to make the listings more attractive to consumers.
Our brand websites contain listing information on a regional and national market basis, independent sales agent information, community profiles, home buying and selling advice, relocation tips and mortgage financing information and unique property and neighborhood insights from local agents. Additionally, each brand website allows independent sales agents to market themselves to consumers.
Education
Each real estate brand provides learning and development materials and access to continuing education to its franchisees to assist them in building their real estate sales businesses. Each brand's engagement program contains different materials and delivery methods. The marketing materials include a detailed description of the services offered by our franchise systems (which will be available to the independent sales agent). Engagement modules may be delivered at conventions and orientation seminars, including virtual conventions and seminars, or through virtual classrooms. Most of the programs and materials made available in electronic form to franchisees over the respective system's private intranet site. Many of the materials are customizable to allow franchisees to achieve a personalized look and feel and make modifications to certain content as appropriate for their business and marketplace.
Human Capital Resources
Employees. Our employees are critical to the success of our business strategy. Our team includes a broad range of professionals, given the breadth of services offered by our three business segments and Corporate. The wide array of skills, experience and industry knowledge of our key employees significantly benefits our operations and performance.
At December 31, 2021, we had approximately 9,665 full-time employees and 165 part-time employees. At December 31, 2021, approximately 585 of our employees were located outside of the U.S., almost all of whom were employed by Cartus Relocation Services (a part of Realogy Franchise Group).
None of our employees are represented by a union. Employment relationships in Brazil (where we had less than 10 employees at December 31, 2021) are governed by rules set forth under collective bargaining agreements.
Engagement. To assess and improve employee retention and engagement, we annually survey employees with the assistance of third-party consultants and implement actions to address areas of employee feedback. In 2021, we achieved a 91% engagement score and an 89% response rate.
Training. All employees are required to participate in annual training programs designed to address subjects of key importance to our business, including the Company’s Code of Ethics. 100% of active employees in each of the past three years have completed our annual Code of Ethics training. Code of Ethics training in 2021 covered topics such as respect in the workplace, integrity and honesty, and compliance with RESPA and anti-corruption laws. Other mandatory training in 2021 included Global Information Security and Information Management, given the critical nature of these topics to our business. Biennially, employees are also required to complete a training module focused on the U.S. Fair Housing Act and annually, a training module on unconscious bias is required for all people managers. In 2021, all employees were required to complete unconscious bias training. The U.S. Fair Housing Act online module, as well as in-person training sessions related to local fair housing laws, are also made available to independent sales agents affiliated with our company owned and franchise brokerages. In 2021, we made our Fair Housing training available on a customized basis to diversity industry partners, including the National Association of Hispanic Real Estate Professionals, Asian Real Estate Association of America, National Association of Minority Mortgage Professionals, and LGBTQ+ Real Estate Alliance. Additional mandatory training (such as sexual harassment training) is delivered based upon the employee position or local requirements. RealU, our learning and development platform, offers employees additional resources to continue to grow professionally, including access to on-demand training through LinkedIn learning and tools for career management.
Health & Safety. The protection of the health and safety of our employees is a Company priority. Throughout the COVID-19 crisis we have worked to comply with state and local regulators to ensure safe working conditions for our employees. In 2020, we began planning the transformation of our corporate headquarters to an open-plan innovation hub, which is slated for completion in 2022. We have streamlined our headquarters footprint to one floor that is designed to welcome approximately 200 transitional employees each day, instead of the approximately 1,000 employees designated to static spaces in the traditional office. At December 31, 2021, approximately half of our employees worked remotely on a full-time basis, other employees, in particular consumer-facing employees at our company owned brokerages, were operating in an office-based environment, while other employees remained on a hybrid model. We continue to monitor the COVID-19 crisis and are prepared to pivot as needed for the health and safety of our employees.
Diversity, Equity and Inclusion. Since our inception, Realogy has had a focus on diversity to improve representation and foster inclusion through employee and business resource groups across the enterprise. Employee Resources Groups (“ERGs”) promote an inclusive culture throughout the organization. At December 31, 2021, we had eight active ERGs-Asian and Pacific Islander Alliance, ACE (African-American and Caribbean), ONEVOZ (Hispanic & Latino), NextGen, REALDisabilities, RealPride, SERVICE (Veterans) and Women's-across the Company. Improving ethnic and racial representation remains a priority and a key performance objective for senior leadership.
Independent Sales Agents. As noted elsewhere in this Annual Report, the successful recruitment and retention of independent sales agents and independent sales agent teams are critical to the business and financial results of our company owned brokerage operations. Additional information about the base of independent sales agents affiliated with company owned brokerages as well as franchisees is located in this Item 1. under "Realogy Franchise Group-Overview."
Seasonality
The residential housing market is seasonal, with a higher level of homesale transactions typically occurring in the second and third quarter of each year. As a result, historically, operating results and revenues for all of our businesses have been strongest in the second and third quarters of the calendar year. Although industry seasonality experienced volatility in 2020 and 2021, we believe that the industry will begin to realign with historical seasonality patterns in 2022.
Competition
Real Estate Brokerage Industry. The ability of our real estate brokerage franchisees and our company owned brokerage businesses to successfully compete is important to our prospects for growth. Their ability to compete may be affected by the recruitment, retention and performance of independent sales agents, the economic relationship between the broker and the agent (including the share of commission income retained by the agent and fees charged to or paid by the agent for services provided by the broker), consumer preferences, the location of offices and target markets, the services provided to independent sales agents, affiliation with a recognized brand name, community reputation, technology and other factors, including macro-economic factors such as national, regional and local economic conditions. In addition, the legal and regulatory environment as well as the rules of NAR, industry associations and MLSs can impact competition. See "Government and Other Regulations" below.
We and affiliated franchisees compete for consumer business as well as for independent sales agents with national and regional independent real estate brokerages and franchisors, discount and limited service brokerages, non-traditional market participants, and with franchisees of our brands. Our largest national competitors in this industry include, but are not limited to, HomeServices of America (a Berkshire Hathaway affiliate), Howard Hanna Holdings, EXP Realty (a subsidiary of eXp World Holdings, Inc.), Compass, Inc., Redfin Corporation and Weichert, Realtors and several large franchisors: RE/MAX International, Inc., Keller Williams Realty, Inc., HSF Affiliates LLC (operates Berkshire Hathaway HomeServices and Real Living Real Estate) and @properties. We and affiliated franchisees also compete with leading listing aggregators, such as Zillow, Inc. and Realtor.com® (a listing aggregator held by News Corporation). In addition, we and affiliated franchisees compete for consumer business with newer industry participants, including iBuying models such as Opendoor and Offerpad.
Competition for Independent Sales Agents. The successful recruitment and retention of independent sales agents and independent sales agent teams is critical to the business and financial results of traditional brokerages-whether or not they are affiliated with a franchisor. Competition for productive independent sales agents in our industry is high.
Most of a brokerage's real estate listings are sourced through the sphere of influence of its independent sales agents, notwithstanding the growing influence of internet-generated and other company-generated leads. Many factors impact recruitment and retention efforts, including remuneration (such as sales commission percentage and other financial incentives paid to independent sales agents), other expenses borne by independent sales agents, leads or business opportunities generated for independent sales agents from the brokerage, independent sales agents' perception of the value of the broker's brand affiliation, technology and data offerings as well as marketing and advertising efforts by the brokerage or franchisor, the quality of the office manager, staff and fellow independent sales agents with whom they collaborate daily, the location and quality of office space, as well as continuing professional education, and other services provided by the brokerage or franchisor.
We believe that a variety of factors in recent years have negatively impacted the recruitment and retention of independent sales agents in the industry generally and have increasingly impacted our recruitment and retention of top producing agents and put upward pressure on the average share of commissions earned by affiliated independent sales agents. Such factors include increasing competition, increasing levels of commissions paid to agents (including up-front payments and equity), changes in the spending patterns of independent sales agents (as more agents purchase services from third parties outside of their affiliated broker), a heightening focus on leads or business opportunities generated for the independent sales agent from the brokerage, differentiation in the bundling of agent services or industry offerings (including virtual brokerages or other brokerages that offer the sales agent fewer services, but a higher percentage of commission income, or other compensation, such as sign-on or equity awards), and the growth in independent sales agent teams. Competition comes from newer models as well, including brokerages that provide certain services to agents and agent teams, but with branding focused on the name of the agent or agent team, rather than the brokerage brand.
Commission Plan Competition Among Real Estate Brokerages. Some of the firms competing for sales agents use different commission plans, which may be appealing to certain sales agents. There are several different commission plan variations that have been historically utilized by real estate brokerages to compensate their independent sales agents. One of the most common variations has been the traditional graduated commission model where the independent sales agent
receives a percentage of the brokerage commission that increases as the independent sales agent increases his or her volume of homesale transactions, and the brokerage frequently provides independent sales agents with a broad set of support offerings and promotion of properties. Other common plans include a desk rental (sometimes referred to as a 100% commission plan), a fixed transaction fee commission plan, and a capped commission plan. A capped commission plan generally blends aspects of the traditional graduated commission model with the 100% commission plan. Although less common, some real estate brokerages employ their sales agents and in such instances, employee agents may earn smaller brokerage commissions in exchange for other employee benefits or bonuses. Most brokerages focus primarily on one type of commission plan, though some may offer one or more of commission plan variations to their sales agents.
In many of their markets, Realogy Brokerage Group offers a traditional graduated commission model, which emphasizes our value proposition. The traditional graduated commission model has experienced declines in market share over the past several years. Increasingly, independent sales agents have affiliated with brokerages that offer a different mix of services to the agent, allowing the independent sales agent to select the services that they believe allow them to retain a greater percentage of the commission and purchase services from other vendors as needed.
Low Barriers to Entry. The real estate brokerage industry has minimal barriers to entry for new participants, including participants utilizing historical real estate brokerage models and those pursuing alternative variations of those models (including virtual brokerages and brokerages that offer the sales agent fewer services, but a higher percentage of commission income) as well as non-traditional methods of marketing real estate (such as iBuyers). There are also market participants who differentiate themselves by offering consumers flat fees, rebates or lower commission rates on transactions (often coupled with fewer services). The significant size of the U.S. real estate market has continued to attract outside capital investment in disruptive and traditional competitors that seek to access a portion of this market. These competitors and their investors may pursue increases in market share over profitability, further complicating the competitive landscape.
Non-Traditional Competition and Industry Disruption. While real estate brokers using historical real estate brokerage models typically compete for business primarily on the basis of services offered, brokerage commission, reputation, utilization of technology and personal contacts, participants pursuing non-traditional methods of marketing real estate may compete in other ways, including companies that employ technologies intended to disrupt historical real estate brokerage models or minimize or eliminate the role brokers and sales agents perform in the homesale transaction process and/or shift the nature of the residential real estate transaction from the historic consumer-to-consumer model to a corporate-to-consumer model.
A growing number of companies are competing in non-traditional ways for a portion of the gross commission income generated by homesale transactions. For example, virtual brokerage models directly compete with traditional brokerage models and may dilute the relationship between the brokerage and the agent. In addition, we believe certain alternative transaction models, such as iBuying and home swap models (and related models that help buyers compete as cash buyers), are less reliant on brokerages and sales agents, which could have a negative impact on such brokerages and agents as well as on the average homesale broker commission rate. These models also look to capture ancillary real estate services such as title and mortgage services and referral fees. RealSure offers consumers alternatives to such models through products and services designed to offer home buyers and sellers options that give them a competitive edge when buying or selling a home, while also keeping the expertise of an independent sales agent at the center of the transaction. Changes to industry rules and/or the introduction of disruptive products and services may also result in an increase in the number of transactions that do not utilize the services of independent sales agents, including for sale by owner transactions.
In addition, the concentration and market power of the top listing aggregators allow them to monetize their platforms by a variety of actions including, but not limited to, setting up competing brokerages and/or expanding their offerings to include products (such as agent tools) and services ancillary to the real estate transaction, such as title, escrow and mortgage origination services, that compete with services offered by us, charging significant referral, listing and display fees, diluting the relationship between agents and brokers and between agents and the consumer, tying referrals to use of their products, consolidating and leveraging data, and engaging in preferential or exclusionary practices to favor or disfavor other industry participants. These actions divert and reduce the earnings of other industry participants, including our company owned and franchised brokerages. Aggregators could intensify their current business tactics or introduce new programs that could be materially disadvantageous to our business and other brokerage participants in the industry and such tactics could further increase pressures on the profitability of our company owned and franchised brokerages and affiliated independent sales agents, reduce our franchisor service revenue and dilute our relationships with affiliated franchisees and such franchisees' relationships with affiliated independent sales agents and buyers and sellers of homes.
Franchise Competition. According to NAR, approximately 42% of individual brokers and independent sales agents are affiliated with a franchisor. Competition among the national real estate brokerage brand franchisors to grow their franchise systems is intense. We believe that competition for the sale of franchises in the real estate brokerage industry is based principally upon the perceived value that the franchisor provides to enhance the franchisee's ability to grow its business and improve the recruitment, retention and productivity of its independent sales agents. The value provided by a franchisor encompasses many different aspects including the quality of the brand, tools, technology, marketing and other services, the availability of financing provided to the franchisees, and the fees the franchisees must pay. Franchisee fees can be structured in numerous ways and can include volume and other incentives, flat royalty and marketing fees, capped royalty fees, and discounted royalty and marketing fees. In order to remain competitive, we may need to modify the traditional volume-based franchise model utilized by many of our brands. We launched a capped fee model at one of our brands in 2019 as we have faced increasing competition from franchisors utilizing alternative models. Taking into account competitive factors, we have and may continue, from time to time, to introduce pilot programs or restructure or revise the model used at one or more franchised brands, including with respect to fee structures, minimum production requirements or other terms.
Leads Generation Business. The ability of a brokerage, whether company owned or franchised, to provide its independent sales agents with high-quality leads is increasingly important to the recruitment and retention of independent sales agents and sale agent teams and the attraction and retention of franchisees. Numerous companies that market and sell residential real estate leads to independent sales agents, including listing aggregators, compete with our real estate benefit programs and other lead generation programs.
Relocation Operations. Competition in our corporate relocation operations is based on capabilities, price and quality. We compete primarily with global outsourced and regional relocation services providers in the corporate relocation operations. The larger outsourced relocation services providers that we compete with include SIRVA, Inc., BGRS, Weichert Relocation Resources, Inc., Aires and Graebel Companies, Inc. Competition is expected to continue to intensify as an increasingly higher percentage of relocation clients reduce their global relocation benefits and related spend.
Title Agency Business. The title, escrow and settlement services business is highly competitive and fragmented. The number and size of competing companies vary in the different areas in which we conduct business. In certain parts of the country our title agency business competes with small title agents and attorneys while in other parts of the country our competition is the larger title underwriters and national vendor management companies.
Integrated Services and Ancillary Services. Increasingly residential real estate market participants have sought to establish more integrated business models that include the provision of ancillary services to the consumer, such as title agency, mortgage origination and underwriting. Similarly, certain mortgage origination providers seek to broaden their access to the profit pools surrounding the residential real estate transaction, including real estate brokerage commissions. Some mortgage companies have created their own agent networks and may expand further into real estate. These factors have resulted in additional competitive pressure to our individual business units as well as the Company as a whole.
For additional information on the competitive risks facing our businesses, see "Item 1A.-Risk Factors-Strategic & Operational Risks", in particular under the caption "The businesses in which we, our joint ventures, and our franchisees operate are intensely competitive."
Government and Other Regulations
For a summary of certain legal proceedings in which Realogy is a named defendant see Note 14, "Commitments and Contingencies", in this Annual Report. For additional information with respect to related risks facing our business, see "Item 1A. Risk Factors," in particular under the heading "Regulatory and Legal Risks", in this Annual Report.
Legal and Regulatory Environment. All of our businesses, as well as the businesses of our joint ventures (such as mortgage origination, RealSure and real estate auction) and the businesses of our franchisees are highly regulated and subject to shifts in public policy, statutory interpretation and enforcement priorities of regulators and other government authorities as well as amendments to existing regulations and regulatory guidance. Likewise, litigation, investigations, claims and regulatory proceedings against other participants in the residential real estate industry or relocation industry-or against companies in other industries-may impact the Company and its affiliated franchisees when the rulings or settlements in those cases cover practices common to the broader industry or business community and may generate litigation or investigations for the Company. In addition, through our subsidiaries, employees and/or affiliated agents, we are a participant in many multiple listing services ("MLSs"), a member-owner of certain MLSs, and a member of the National Association of Realtors ("NAR") and respective state realtor associations. The rules and policies for these organizations are also subject to change due to shifts in internal policy, regulatory developments, litigation or other legal
action. Changes in the rules and policies of NAR and/or any MLSs can also be driven by changes in membership, including the entry of new industry participants, and other industry forces.
From time to time, certain industry practices have come under federal or state scrutiny or have been the subject of litigation. The industry is currently experiencing increased scrutiny by regulators and other government offices, both on a federal and state level. Three of the more active areas of in our industry have been antitrust and competition, compliance with RESPA (and similar state statutes) and worker classification. Other examples include, but are not limited to, consumer protection, mortgage lending and debt collection laws, federal and state fair housing laws, various broker fiduciary duties, false or fraudulent claims laws, and state laws limiting or prohibiting inducements, cash rebates and gifts to consumers.
Antitrust, Competition and Bribery Laws. Our business is subject to antitrust and competition laws in the various jurisdictions where we operate, including the Sherman Antitrust Act, the Federal Trade Commission Act and the Clayton Act and related federal and state antitrust and competition laws in the U.S. The penalties for violating antitrust and competition laws can be severe. These laws and regulations generally prohibit competitors from fixing prices, boycotting competitors, dividing markets, or engaging in other conduct that unreasonably restrains competition.
In July 2021, the Department of Justice (“DOJ”) filed a notice of withdrawal of consent to its November 2020 proposed consent decree with NAR to settle a civil lawsuit in which the DOJ alleged that NAR established and enforced illegal restraints on competition in the real estate industry. The DOJ also filed to voluntarily dismiss the civil lawsuit without prejudice in July 2021, stating in a concurrently filed press release that “[t]he department determined that the [November 2020] settlement will not adequately protect the department’s rights to investigate other conduct by NAR that could impact competition in the real estate market…” The DOJ further noted in its press release that it “is taking this action to permit a broader investigation of NAR’s rules and conduct to proceed without restriction.” Although we were not a party to or a participant in the DOJ’s civil lawsuit against, or settlement agreement with, NAR, and may not agree with certain of the allegations asserted, we do believe the settlement provisions generally were reasonable and would modernize the practices at issue. In November 2021, NAR modified its rules to implement most of the changes the DOJ settlement sought, and we (through our subsidiaries, employees and/or affiliated agents) will comply with all of the rule changes.
In addition to the announcements by DOJ, there have been recent statements and actions by the Federal Trade Commission (“FTC”) and the executive branch focused on increasing competition across industries. For example, an Executive Order issued by the White House in July 2021 identified areas of interest for further investigation-including real estate brokerage and listings. Also, in July 2021, the FTC rescinded its generally applicable 2015 antitrust policy statement, noting in a press release that such statement “has constrained the agency’s use of its authority to stop anticompetitive business tactics under Section 5 of the FTC Act.” Additional action has been taken by the FTC, including a withdrawal of the 2020 Vertical Merger Guidelines in September 2021 and hosting a workshop focused on the welfare of workers and restrictions on competition (such as non-compete and non-disclosure agreements) in December 2021.
In 2018, the DOJ and FTC held a joint public workshop to explore competition issues in the residential real estate services industry at which a variety of issues, beyond those alleged in the DOJ's November 2020 civil lawsuit against NAR, were raised that could be determined to be anti-competitive in the future.
Our international business activities, and in particular our relocation operations, must comply with applicable laws and regulations that impose sanctions on improper payments, including the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act and similar laws of other countries.
RESPA. RESPA, state real estate brokerage laws, state title insurance laws, and similar laws in countries in which we do business restrict payments which real estate brokers, title agencies, mortgage bankers, mortgage brokers and other settlement service providers may receive or pay in connection with the sales of residences and referral of settlement services (e.g., mortgages, homeowners insurance, home warranty and title insurance). Such laws may to some extent impose limitations on arrangements involving our real estate franchise, real estate brokerage, title agency and underwriting services, lead generation, and relocation operations or the businesses of our joint ventures (including mortgage origination, RealSure, and real estate auction). In addition, with respect to our company owned real estate brokerage, lead generation, relocation and title, escrow and settlement and title underwriting services businesses as well as the businesses of certain of our joint ventures (including mortgage origination and RealSure), RESPA and similar state laws generally require timely disclosure of certain relationships or financial interests with providers of real estate settlement services. Pursuant to the Dodd-Frank Act, the Consumer Financial Protection Bureau (the "CFPB") administers RESPA. Some state authorities have also asserted enforcement rights.
RESPA and related regulations do, however, contain a number of provisions that allow for payments or fee splits between providers, including fee splits between title underwriters and their agents, real estate brokers and agents and market-based fees for the provision of goods or services and marketing arrangements. In addition, RESPA allows for referrals to affiliated entities, including joint ventures, when specific requirements have been met. We rely on these provisions in conducting our business activities and believe our arrangements comply with RESPA. However, RESPA compliance may become a greater challenge under certain administrations, including the current administration, for most industry participants offering settlement services, including mortgage companies, title companies and brokerages, because of expansive interpretations of RESPA or similar state statutes by certain courts and regulators. Permissible activities under state statutes similar to RESPA may be interpreted more narrowly and enforcement proceedings of those statutes by state regulatory authorities may also be aggressively pursued. RESPA also has been invoked by plaintiffs in private litigation for various purposes. Some regulators and other parties have advanced novel and stringent interpretations of RESPA including assertions that any provision of a thing of value in a separate, but contemporaneous transaction with a referral constitutes a breach of RESPA on the basis that all things of value exchanged should be deemed in exchange for the referral. Violations of RESPA or similar state statutes can lead to claims of substantial damages, which may include (but are not limited to) fines, treble damages and attorneys' fees.
We are also subject to state laws limiting or prohibiting inducements, cash rebates and gifts to consumers, which impacts our lead generation business.
Worker Classification. Although the legal relationship between residential real estate brokers and licensed sales agents throughout most of the real estate industry historically has been that of independent contractor, newer rules and interpretations of state and federal employment laws and regulations, including those governing employee classification and wage and hour regulations in our and other industries, may impact industry practices, our company owned brokerage operations and our affiliated franchisees.
Real estate laws generally permit brokers to engage sales agents as independent contractors. Federal and state agencies have their own rules and tests for classification of independent contractors as well as to determine whether employees meet exemptions from minimum wages and overtime laws. These tests consider many factors that also vary from state to state. The tests continue to evolve based on state case law decisions, regulations and legislative changes.
For example, in worker classification litigation involving real estate agents at a competing brokerage, the New Jersey Appellate Division recently applied a strict classification test to a wage and hour case. The brokerage has appealed the case to the New Jersey Supreme Court. In its holding in that matter, the New Jersey Appellate Division recognized that legislative statutory amendments made in 2018 may affect worker classification claims related to real estate agents in New Jersey on a go-forward basis. In January 2022, the New Jersey legislature clarified that the 2018 amendments explicitly provide that the amendments applied retroactively, which may impact the pending worker classification litigation against the competing brokerage. Also, there have been several challenges to the constitutionality and enforceability of a California worker classification statute adopted in 2019 as it applies to other industries, which if found unconstitutional, could have the effect of eliminating that statute's less restrictive test applicable to real estate professionals in California. We continue to monitor these matters as well as related federal and state developments.
Cybersecurity and Data Privacy Regulations. To run our business, it is essential for us to store and transmit sensitive personal information about our customers, prospects, employees, independent agents, and relocation transferees in our systems and networks. At the same time, we are subject to numerous laws, regulations, and other requirements, domestically and globally, that require businesses like ours to protect the security of personal information, notify customers and other individuals about our privacy practices, and limit the use, disclosure, sale, or transfer of personal data. Regulators in the U.S. and abroad continue to enact comprehensive new laws or legislative reforms imposing significant privacy and cybersecurity restrictions. The result is that we are subject to increased regulatory scrutiny, additional contractual requirements from corporate customers, and heightened compliance costs. For example, in the U.S., we are required to comply with the Gramm-Leach-Bliley Act, which governs the disclosure and safeguarding of consumer financial information, as well as state statutes governing privacy and cybersecurity matters like the California Consumer Privacy Act ("CCPA") and the New York Department of Financial Services ("NYDFS") Cybersecurity Regulation.
The CCPA imposes comprehensive requirements on organizations that collect, sell and disclose personal information about California residents and employees. In November 2020, California passed Proposition 24, establishing the California Privacy Rights Act (“CPRA”), which will take effect January 1, 2023. The CPRA provides further requirements that will impact our businesses’ compliance efforts and operational risks as the CPRA differentiates “personal information” and “sensitive information,” expands the term “sale” to include sharing of personal information, and imposes data minimization
and data retention requirements. The CPRA also established a new California Privacy Protection Agency, which is intended to take a more active role in enforcement of the law. Virginia and Colorado both passed privacy legislation in 2021, both of which will take effect in 2023, and which differ from the CPRA in how they will be implemented. Other states are likely to implement their own privacy statutes in the near term.
Under the NYDFS cybersecurity regulation, regulated financial institutions, including Realogy Title Group, are required to establish a detailed cybersecurity program. Other state regulatory agencies have or are expected to enact similar requirements following the adoption of the Insurance Data Security Model Law by the National Association of Insurance Commissioners that is consistent with the New York regulation.
Internationally, the European Union’s General Data Protection Regulation ("GDPR") has conferred significant privacy rights on individuals (including employees and independent agents) and materially increased penalties for violations. In 2020, the Court of Justice of the European Union invalidated the E.U.-U.S. Privacy Shield, one of the methods for transfers of personal data into the U.S. As a result, companies may have to rely on standard contractual clauses, or binding corporate rules for the transfer of personal data while awaiting further guidance or regulation. In 2021, the European Commission issued an implementing decision regarding the use of Standard Contractual Clauses. Other countries have also recently expanded on their data privacy laws and regulations.
For additional information with respect to related risks facing our business, see "Item 1A. Risk Factors" in this Annual Report, in particular under the caption "Cybersecurity incidents could disrupt business operations and result in the loss of critical and confidential information or litigation or claims arising from such incidents, any of which could have a material adverse effect on our reputation and results of operations."
The Telephone Consumer Protection Act (“TCPA”) restricts certain types of telemarketing calls and the use of automatic telephone dialing systems and artificial or prerecorded voice messages. The TCPA also established a national Do-Not-Call registry. The TCPA defines autodialing broadly and requires express written consent for certain communications to cellphones. Florida recently updated its equivalent of the TCPA to expand it in certain respects. Our industry is vulnerable to claims made by class action consumers for contacts made by independent contractor real estate agents.
Franchise Regulation. In the U.S., the sale of franchises is regulated by various state laws, as well as by federal law under the jurisdiction of the Federal Trade Commission (the "FTC"). The FTC requires that franchisors make extensive disclosure to prospective franchisees but does not require registration. A number of states require registration and/or disclosure in connection with franchise offers and sales. In addition, multiple states and U.S. territories have "franchise relationship laws" or "business opportunity laws" that limit the ability of franchisors to terminate franchise agreements (including mandated notice or cure periods), to discriminate unfairly among franchisees, or to withhold consent to the renewal or transfer of these agreements. Failure to comply with these laws could result in civil liability to the franchisors. While our franchising operations have not been materially adversely affected by such existing regulation, we cannot predict the effect of any future federal or state legislation or regulation. Internationally, many countries have similar laws affecting franchising.
State Brokerage Laws. Our company owned real estate brokerage business is also subject to numerous federal, state and local laws and regulations that contain general standards for and limitations on the conduct of real estate brokers and sales agents, including those relating to the licensing of brokers and sales agents, fiduciary, and agency and statutory duties, consumer disclosure obligations, administration of trust funds, collection of commissions, restrictions on information sharing with affiliates, fair housing standards and advertising and consumer disclosures. Under state law, our company owned real estate brokers have certain duties to supervise and are responsible for the conduct of their brokerage businesses.
Our company owned and franchised brokerages (and independent sales agents affiliated with such brokerages) are also required to comply with state and local laws related to dual agency (such as where the same brokerage represents both the buyer and seller of a home) and increased regulation of dual agency representation may restrict or reduce the ability of impacted brokerages to participate in certain real estate transactions.
Multiple Listing Services Rules. MLSs, NAR and respective state realtor associations each maintain rules, policies, data licenses, and terms of service, which specify, among other things, how MLS data and listings may be accessed, used, and displayed on websites and mobile applications. The rules of each MLS can vary widely and are complex. Changes in the rules and policies of NAR and the MLSs can also be driven by changes in membership, including the entry of new industry participants, as well as other industry forces including those discussed under the "Legal and Regulatory Environment" heading in this section.
Anti-Discrimination Laws. Our company owned and franchised brokerages, and agents affiliated with such brokerages, as well as our other businesses are subject to federal and state housing laws that generally make it illegal to discriminate against protected classes of individuals in housing or brokerage services. For example, the Fair Housing Act, its state and local law counterparts, and the regulations promulgated by the U.S. Department of Housing and Urban Development and various state agencies, all prohibit discrimination in housing on the basis of race or color, national origin, religion, sex, familial status, disability, and, in some states or locales, financial capability, sexual orientation, gender identity, military status, or source of income. Certain states or locales, such as New York, have or are in the process of expanding their laws.
Regulation of Title Insurance and Settlement Services. Nearly all states license and regulate title agencies, escrow companies and underwriters through their Departments of Insurance or other regulatory body. In many states, title insurance rates are either promulgated by the state or are required to be filed with each state by the agent or underwriter, and some states promulgate the split of title insurance premiums between the agent and underwriter. States may periodically lower the insurance rates relative to loss experience and other relevant factors. States may also require title agencies, escrow companies and title underwriters to meet certain minimum financial requirements for net worth and working capital.
Title Resources is domiciled in Texas. In connection with the planned sale of Title Resources in exchange for cash and a 30% equity interest in a title insurance joint venture that owns Title Resources, we made filings with the Texas Department of Insurance required under the insurance laws and regulations of Texas. These laws and regulations generally provide that no person may acquire control, directly or indirectly, of a Texas domiciled insurer, unless the person has provided required information to, and the acquisition is approved or not disapproved by, the Texas Department of Insurance. Title Resources is also subject to the holding company act in its state of domicile, which regulates, among other matters, investment policies and the ability to pay dividends. Title Resources must also defer a portion of premiums as an unearned premium reserve for the protection of policyholders (in addition to their reserves for known claims) and must maintain qualified assets based on statutory requirements.
Certain states in which we operate have "controlled business" statutes which impose limitations on the level of business our title and escrow companies can receive from its affiliated real estate brokers, mortgage lenders and other real estate service providers. We are aware of the states imposing such limits and monitor the others to ensure that if they implement such a limit we will be prepared to comply with any such rule. "Controlled business" typically is defined as sources controlled by, or which control, directly or indirectly, or are under common control with, the title agent. Pursuant to regulations in New York, title agents with affiliated businesses must make a good faith effort to obtain and be open for title insurance business from all sources and not business only from affiliated persons, including actively competing in the marketplace. A company's failure to comply with such statutes could result in the payment of fines and penalties or the non-renewal of the Company's license to provide title, escrow and settlement services. We provide our services not only to our affiliates but also to third-party businesses in the geographic areas in which we operate. Accordingly, we manage our business in a manner to comply with any applicable "controlled business" statutes by ensuring that we generate sufficient business from sources we do not control.
Regulation of the Mortgage Industry. We participate in the mortgage origination business through our 49.9% ownership of Guaranteed Rate Affinity. Private mortgage lenders operating in the U.S. are subject to comprehensive state and federal regulation and to significant oversight by government sponsored entities. Dodd-Frank endows the CFPB with rule making, examination and enforcement authority involving consumer financial products and services, including mortgage finance. The CFPB has issued a myriad of rules, including TILA-RESPA Integrated Disclosure rules, which impose significant obligations on Guaranteed Rate Affinity. The Federal Trade Commission (FTC) and Department of Justice (DOJ) also regulate the mortgage lending industry, specifically in the areas of fair lending and unfair and deceptive business practices.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
You should carefully consider each of the following risk factors and all of the other information set forth in this Annual Report. Based on the information currently known to us, we believe that the following information identifies the material risk factors affecting our Company and our common stock. The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results, cash flows, liquidity, and stock price. Please be advised that past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in the future.
Risks Related to Macroeconomic Conditions
The residential real estate market is cyclical and we are negatively impacted by downturns and disruptions in this market.
The residential real estate market tends to be cyclical and typically is affected by changes in general economic and residential real estate conditions which are beyond our control. For example, the U.S. residential real estate industry was in a significant and lengthy downturn from the second half of 2005 through 2011. In 2020, in connection with the COVID-19 pandemic, U.S. residential real estate industry experienced significant volatility. While the industry improved markedly from the COVID-19 related low seen in the second quarter of 2020, we cannot predict the duration or continued strength of housing demand. If the residential real estate market were to materially slow or deteriorate, if the economy as a whole does not improve, or if the broader real estate industry (including REITs, commercial and rental markets) were to experience a significant downtown, our business, financial condition and liquidity may be materially adversely affected, including our ability to access capital and grow our business and return capital to stockholders.
Any of the following factors related to the real estate industry could negatively impact the housing market and have a material adverse effect on our business by causing a lack of improvement or a decline in the number of homesales and/or stagnant or declining home prices, which in turn, could adversely affect our revenues and profitability:
•insufficient or excessive home inventory levels by market or price point;
•increases in mortgage rates or inflation;
•a reduction in the affordability of homes, including in connection with rising home prices;
•decreasing consumer confidence in the economy and/or the residential real estate market;
•an increase in potential homebuyers with low credit ratings or inability to afford down payments;
•stringent mortgage standards, reduced availability of mortgage financing or increasing down payment requirements or other mortgage challenges;
•an increase in foreclosure activity;
•legislative or regulatory changes (including changes in regulatory interpretations or enforcement practices) that would adversely impact the residential real estate market, including changes relating to RESPA;
•federal, state and/or local income tax changes and other tax reform affecting real estate and/or real estate transactions;
•decelerated or lack of building of new housing for homesales, increased building of new rental properties, or irregular timing of new development closings leading to lower unit sales at Realogy Brokerage Group;
•homeowners retaining their homes for longer periods of time, including as a result of inventory shortages in new and existing housing;
•a decline in home ownership levels in the U.S., including as a result of changing attitudes towards home ownership, particularly among potential first-time homebuyers who may delay, or decide not to, purchase a home, limits on the proclivity of home owners to purchase an alternative home due to constrained inventory, or changes in preferences to rent versus purchase a home; and
•other changes in consumer preferences, including weakening in the consumer trends that have benefited the Company since the second half of 2020.
Adverse developments in general business and economic conditions could have a material adverse effect on our financial condition and our results of operations.
Our business and operations and those of our franchisees are sensitive to general business and economic conditions in the U.S. and worldwide. A deterioration in economic factors that particularly impact the residential real estate market and
the business segments in which we operate whether broadly or by geography and price segments could have a material adverse effect on our results of operations and financial results. These factors include, but are not limited to: short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets, levels of unemployment, rate of wage growth, consumer confidence, rate of economic growth or contraction, U.S. fiscal policy (including government spending and tax reform) and the general condition of the U.S. and the world economy.
The residential real estate market also depends upon the strength of financial institutions, which are sensitive to changes in the general macroeconomic environment. Weak capital, credit and financial markets, instability of financial institutions, and/or the lack of available credit or lack of confidence in the financial sector could materially and adversely affect our business, financial condition and results of operations.
A host of factors beyond our control could cause fluctuations in these conditions, including pandemics and natural disasters, the political environment, U.S. immigration policies, disruptions in a major geoeconomic region or equity or commodity markets, acts or threats of war or terrorism or sustained pervasive civil unrest, or other geopolitical or economic instability, any of which could have a material adverse effect on our business, financial condition and results of operations.
For example, the COVID-19 crisis has had and is expected to continue to have a profound effect on the global economy and financial markets, which materially impacted relocation volume and contributed to significant homesale transaction volume volatility in 2021. Contraction in the U.S. economy, including the impact of recessions, slow economic growth, or a deterioration in other economic factors such as potential consumer, business or governmental defaults or delinquencies due to the COVID-19 crisis or otherwise could have a material adverse impact on our business, financial condition and results of operations.
Monetary policies of the federal government and its agencies may have a material adverse impact on our operations.
Our business is significantly affected by the monetary policies of the federal government and its agencies. We are particularly affected by the policies of the Federal Reserve Board. These policies regulate the supply of money and credit in the U.S. and impact the real estate market through their effect on interest rates as well as the cost of our interest-bearing liabilities. In December 2021, the Federal Reserve Board announced its intention to accelerate the reduction of its purchases of mortgage-backed securities (which could result in this stimulus program concluding in March 2022) and released economic projections that showed officials expect to raise interest rates three times in 2022 and could determine to taper its purchases of other securities as well - any of which could increase interest rates. If interest rates were to rise, homebuilders may determine to discontinue or delay new projects, which could further contribute to inventory constraints. Changes in the Federal Reserve Board's policies, the interest rate environment, and the mortgage market are beyond our control, are difficult to predict, and could have a material adverse effect on our business, results of operations and financial condition.
Increases in mortgage rates or tightened mortgage underwriting standards may result in declines in homesale transaction growth as well as mortgage and refinancing activity.
We have been and could again be negatively impacted by a rising interest rate environment as increases in mortgage rates generally have a negative impact on mortgage unit, closing and refinancing volumes, housing affordability and homesale transaction volume. For example, a rise in mortgage rates could result in decreased homesale transaction volume if potential home sellers choose to stay with their lower mortgage rate rather than sell their home and pay a higher mortgage rate with the purchase of another home or, similarly, if potential home buyers choose to rent rather than pay higher mortgage rates. If the pace of existing homesale transactions slows (due to increases in mortgage rates or otherwise), we would also expect decreased title services and mortgage origination activity. Refinancing volumes are highly correlated with fluctuations in mortgage rates as well (although they are also inherently cyclical), as home owners are less likely to refinance their mortgage during periods of increasing rates.
In addition, the imposition of more stringent mortgage underwriting standards or a reduction in the availability of alternative mortgage products could also reduce homebuyers' ability to access the credit markets on reasonable terms and adversely affect the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes. In addition, the combination of tightened mortgage underwriting standards with first-time homebuyers who have heavy debt and may be unable to satisfy down payment requirements may intensify first-time homebuyer concerns about investing in a home and impact their ability or willingness to enter into a homesale transaction. Changes in policy can impact other home buyers as well. For example, the Federal Housing Finance Agency recently introduce a new pricing framework that will increase fees for certain high-balance and second home loans, which could reduce demand by investors and consumers for homesale transactions with such financing. A significant decline in the number of homesale transactions or mortgage, title and refinancing activity due to any of the foregoing would adversely affect our financial and operating results.
Meaningful decreases in the average brokerage commission rate could materially adversely affect our financial results.
There are a variety of factors that could contribute to declines in the average broker commission rate, including regulation, the rise of certain other competitive brokerage or non-traditional competitor models (including iBuying and home swap business models and related models that help buyers compete as cash buyers), an increase in the popularity of discount brokers or other utilization of flat fees, rebates or lower commission rates on transactions as well as other competitive factors.
The average broker commission rate for a homesale transaction is a key driver for both Realogy Brokerage and Realogy Franchise Groups. Meaningful reductions in the average broker commission rate could materially adversely affect our revenues, earnings and financial results.
Continued or accelerated declines in inventory may result in insufficient supply, which could have a negative impact on homesale transaction growth and ancillary homesale services, including title and mortgage.
Inventory levels for the existing home market have been declining over the past several years due to strong demand, in particular in certain highly sought-after geographies and at lower price points and are significantly below historical average levels. Additional inventory pressure arises from periods of slow or decelerated new housing construction. In addition, real estate industry models that purchase homes for rental or corporate use (rather than immediate resale) can put additional pressure on available housing inventory, as may alternative competitors, such as iBuying models. While a continuation of low inventory levels may contribute to favorable demand conditions and improved homesale price growth, insufficient inventory levels generally have a negative impact on homesale volume growth and can contribute to a reduction in housing affordability, which can result in some potential home buyers deferring entry into the residential real estate market. In periods of rapid inventory turnover there is an increased risk that new real estate listings will not keep pace with demand, which could also negatively impact homesale transaction volume. Constraints in home inventory levels have typically had and may continue to have an adverse impact on the number of homesale transactions closed by Realogy Franchise and Brokerage Groups (and on ancillary homesale services, including title and mortgage), which could materially adversely affect our revenues, earnings and financial results.
The COVID-19 crisis has and may again amplify risks to our business and worsening economic consequences of the crisis or the reinstatement of significant limitations on normal business operations could have a material adverse effect on our business and the businesses of our joint ventures and franchisees.
The impact of the COVID-19 crisis and the corresponding economic and other consequences stemming from the pandemic on our business and financial results will depend largely on future developments, which we are unable to accurately predict, including, but not limited to: the extent, duration and severity of the spread of the COVID-19 pandemic; the impact of vaccines and virus mutations; the extent of any related governmental regulation (including those that preclude or strictly limit in-person showings of properties); the extent of related government financial support for franchisees, independent sales agents, consumers and corporations, including federal and/or state monetary or fiscal programs meant to assist businesses and individuals navigate COVID-19 related financial challenges; evolving societal reactions to the pandemic; the duration and severity of the impact on the U.S. economy (including economic contraction) as well as capital, credit and financial markets (including with respect to increasing down payment requirements from mortgage lenders or other tighter mortgage standards or a reduction in the availability of mortgage financing as well as with respect to consumer, business and governmental credit defaults); the materiality of increases in mortgage delinquencies or foreclosure rates; the magnitude and duration of unemployment rates and adverse impact to wage growth; the related impact on consumer confidence, preferences and spending; and the magnitude of the financial and operational consequences to our franchisees, all of which are highly uncertain.
Our business could be negatively impacted if the crisis, including adverse economic consequences of the crisis, worsen, if directives and mandates requiring businesses to again curtail or cease normal operations are reinstated, if mortgage rates rise, if beneficial consumer trends weaken (including changes in consumer behavior in connection with wide-spread vaccination), if mortgage delinquencies or foreclosure rates materially increase, or if housing inventory constraints, across geographies and price point, limit homesale transaction growth. The impact on our business may be further amplified in the event that our affiliated franchisees experience adverse financial effects from the COVID-19 crisis or if the crisis is particularly acute in geographies or the high-end markets in which our company owned brokerages are concentrated.
In addition, we believe that certain trends related to the COVID-19 crisis, such a growing acceptance of work from home arrangements, have supported recent beneficial consumer trends in the residential real estate industry, including demand in certain geographies and in the high-end markets. A prolonged slowdown or end to the crisis could result in a
reversal of such trends or give rise to new trends, the impact of which are currently unknown to us, but could be adverse to our business or the businesses of our joint ventures and franchisees. Further, we have observed continued strength in certain beneficial consumer trends that we believe are largely driven by behavioral changes related to the COVID-19 crisis, including home buyer preferences for certain geographies (including attractive tax and weather destinations), which we believe has contributed to the sustained high levels of demand in the residential real estate market. We can provide no assurance as to whether these consumer trends may continue, whether at the same strength, or at all, or whether such trends will continue to have a positive effect on the residential real estate market recovery.
Negative impacts from the crisis or related changes in consumer behavior may be more pronounced in future periods and could have a material adverse effect on our profitability, results of operations, liquidity and financial position, notwithstanding any mitigation actions we may take, and may materially heighten the other risks described herein. In addition, we may determine that mitigating cost-saving initiatives, which may be material, are required and such actions may negatively impact our ability to advance our business strategy and our operations.
Strategic and Operational Risks
Our ability to grow earnings is significantly dependent upon our and our franchisees' ability to attract and retain productive independent sales agents and on our ability to attract and retain franchisees.
If we and our franchisees, as applicable, are unable to successfully grow the base of productive independent sales agents at our company owned and franchisee brokerages (or if we or they fail to replace departing successful sales agents with similarly productive sales agents) or if we are unable to grow our base of franchisees, we may be unable to maintain or grow revenues or earnings and our results of operations may be materially adversely affected.
A variety of factors impact our ability to attract and retain independent sales agents and franchisees, including but not limited to, intense competition from other brokerages as well as companies employing technologies or alternative models intended to disrupt historical real estate brokerage models, such as iBuying and home swap models and other corporate-to-consumer models that minimize the role of agents; our ability to develop and deliver compelling products and services to independent sales agents and franchisees; our ability to generate high-quality leads to independent sales agents and franchisees; and our ability to adopt and implement commission plans (or pricing model structures) that are attractive to such agents (or such franchisees).
Our franchisees face the same challenges with respect to productive sales agent recruitment and retention as well as other market pressures generally facing the industry (such as margin compression). If a franchisee is unable to maintain or grow their affiliated sales agent base, the homesale transaction volume generated by such franchisee may decline, and such declines may be material and could result in a material decline in our royalty revenues. In addition, franchisees may seek lower royalty rates or higher incentives from us to moderate market pressures. Such pressures may also induce certain franchisees to exit our franchisee system. If franchisees, in particular multiple larger franchisees, fail to renew their franchise agreements (or otherwise leave our franchise system), or if we induce franchisees to renew these agreements through lower royalty rates or higher incentives (as we have done from time to time), then our royalty revenues may decrease, and profitability may be lower than in the past.
If we fail to successfully enhance our value proposition, we may fail to attract new or retain productive independent sales agents or franchisees, resulting in a reduction in commission income and royalty fees paid to us, which would have a material adverse effect on our results of operations. Even if we are successful in our recruitment and retention efforts, any additional revenue generated may not offset the related expenses we incur.
Continued erosion of our share of the commission income generated by homesale transactions due to shifts to affiliated independent sales agents or other market factors would further negatively affect our profitability.
Intense industry competition for agents combined with our strategic emphasis on the recruitment and retention of independent sales agents has and is expected to continue to put upward pressure on our commission expense, which has and could continue to negatively impact our profitability. Other market factors, including, but not limited to, competitors with access to outside capital that pursue increases in market share over profitability, models that operate at lower margins, including virtual brokerages and brokerages that operate in a more virtual fashion or reduced cost platforms, and listing aggregator concentration and market power is expected to further erode our share of commission income.
If independent sales agents affiliated with our company owned brokerages are paid a higher proportion of the commissions earned on a homesale transaction or the level of commission income we receive from a homesale transaction is
otherwise reduced, the operating margins of our company owned residential brokerages could continue to be adversely affected.
Our franchisees face similar risks and continued downward pressure on the commission income recognized by our franchisees could negatively impact their view of our value proposition and we may fail to attract new franchisees, expiring franchisees may not renew their agreements with us, or we may be required to offer reduced royalty fee or increased incentive arrangements to new and existing franchisees, any of which would result in a further reduction in royalty or other fees paid to us.
Our company owned brokerage operations are subject to geographic and high-end real estate market risks, which could adversely affect our revenues and profitability.
Realogy Brokerage Group operates real estate brokerage offices located in and around large U.S. metropolitan areas where competition for independent sales agents and independent sales agent teams is particularly intense. Local and regional economic conditions in these locations could differ materially from prevailing conditions in other parts of the country. For the year ended December 31, 2021, Realogy Brokerage Group realized approximately 25% of its revenues from California, 21% from the New York metropolitan area and 13% from Florida, which in the aggregate totals approximately 59% of its revenues. A downturn in the residential real estate market or economic conditions that is concentrated in these regions, or in other geographic concentration areas for us, could result in a decline in Realogy Brokerage Group's total gross commission income and profitability disproportionate to the downturn experienced throughout the U.S. and could have a material adverse effect on our financial position. In addition, given the significant geographic overlap of our title, escrow and settlement services business with our company owned brokerage offices, such regional declines affecting our company owned brokerage operations could have a disproportionate adverse effect on our title, escrow and settlement services business and mortgage origination joint venture as well.
Realogy Brokerage Group also has a significant concentration of transactions at the higher end of the U.S. real estate market and in high-tax states. Accordingly, the effects of certain state and local tax reform, such as the 2017 Tax Act or the mansion tax in New York City, may have a deeper impact on our business. A shift in transactions from high-tax to low-tax states or in Realogy Brokerage Group's mix of property transactions from high range to lower and middle range homes would adversely affect the average price of Realogy Brokerage Group's closed homesales. Such a shift, absent an increase in transactions, would have an adverse effect on our operating results. Due to Realogy Brokerage Group's concentration in high-end real estate, its business may also be adversely impacted by capital controls imposed by foreign governments that restrict the amount of capital individual citizens may legally transfer out of their countries. In addition, Realogy Brokerage Group continues to face heightened competition for both homesale transactions and high performing independent sales agents because of its prominent position in the higher end housing markets.
Moreover, Realogy Brokerage Group also has relationships with developers, primarily in major cities, to provide marketing and brokerage services in new developments. The irregular volume and timing of new development closings may contribute to uneven financial results and deceleration in the building of new housing may result in lower unit sales in the new development market, which has had and could continue to have a material adverse effect on the revenue generated by Realogy Brokerage Group and our profitability.
We may not successfully develop or procure products, services and technology that support our strategic initiatives, which could have a material adverse effect on our results of operations.
Our future success depends in part on our ability to continuously develop and improve, or procure, products, services, and technologies that are compelling to independent sales agents, franchisees and consumers (including consumers of our ancillary services businesses). We have expended and expect to continue to expend substantial time, capital, and other resources to identify the needs of our company owned brokerages, franchisees, independent sales agents and their customers and to develop product, service and technology offerings to meet their needs as well as those that will further complement our businesses.
We may incur unforeseen expenses in the development of, or enhancements to, products, services and technology, or may experience competitive delays in introducing new offerings as quickly as we would like. We also rely on third parties for the provision or development of certain key products that we offer to affiliated independent sales agents and brokers. Delays or other issues with such products could have a negative impact on our recruitment and retention efforts, which may be material. In addition, the increasingly competitive industry for technology talent may impact our ability to attract and retain employees involved in developing our technology products and services.
Furthermore, the investment and pace of technology development continue to accelerate across the industry, creating risk in the relative timing and attractiveness of our technology products and services, and there can be no assurance that affiliated franchisees, independent sales agents in our franchise system (including those affiliated with our company owned brokerages), or customers will choose to use the products, services or technologies we may develop or that affiliated agents or franchisees will find such products, services and technologies compelling. We may encounter delays or be unable to maintain and scale the technology underlying our offerings due to operational interruptions or failures, which could negatively impact the security and availability of our services and technologies. In addition, our competitors may develop or make available products, services or technologies that are preferred by agents, franchisees and/or consumers, which could have a negative impact on our competitive position, financial results and stock price. Further, third parties utilizing our open architecture platform may not create tools that meet the needs of agents and franchisees in a timely or effective manner, or at all.
In addition, we have made and may continue to make strategic investments in companies and joint ventures developing products, services and technologies that we believe will support our strategy and we may not realize the anticipated benefits from these investments or be able to recover our investments in such companies and joint ventures and such offerings may not become available to us or may become available to our competitors. For example, our RealSure joint venture may not result in increased revenues or earnings if competitors provide more attractive offers or are perceived as providing a better transactional experience by agents or consumers.
Any of the foregoing could adversely affect our value proposition to affiliated agents and franchisees, the productivity of independent sales agents, our appeal to consumers, or our ability to capture increased economics associated with homesale transactions, which in turn could adversely affect our competitive position, business and results of operations.
The businesses in which we, our joint ventures, and our franchisees operate are intensely competitive.
We face intense competition in the residential real estate services business, in particular with respect to productive independent sales agent recruitment and retention. Aggressive competition for the affiliation of independent sales agents continues to make recruitment and retention efforts at both Realogy Brokerage Group and Realogy Franchise Group challenging, in particular with respect to more productive sales agents and in the densely populated metropolitan areas in which we operate. The competitive environment has had a negative impact on our market share in the past (and may have such an impact again in the future) and may continue to put pressure on our and our franchisees' operating margins.
Competitive pressures for independent sales agents come from a variety of sources, including traditional brokerages as well as newer brokerage models, including virtual brokerages (and other brokerages that offer the sales agent fewer services, but a higher percentage of commission income) as well as brokerages that provide certain services to agents and agent teams, but with branding focused on the name of the agent or agent team, rather than the brokerage brand.
Increasingly, independent sales agents have affiliated with brokerages that offer a different mix of services to the agent, allowing the independent sales agent to select the services that they believe allow them to retain a greater percentage of the commission and purchase services from other vendors as needed. In addition, certain types of compensation that may be appealing to independent sales agents, such as equity awards, may not be available to us at a reasonable cost or at all.
These competitive market factors also impact our franchisees and such franchisees have and may continue to seek reduced royalty fee arrangements or other incentives from us to offset the continued business pressures on such franchisees, which has and could continue to result in a reduction in royalty fees paid to us or other associated costs.
We expect this highly competitive environment to continue and, accordingly, we and our affiliated franchisees may fail to attract and retain independent sales agents if we are unable to compete with a combination of continuously improved value proposition and/or commission plans that appeal to a broad base of independent sales agents in a profitable and effective manner.
If we or our franchisees fail to attract and retain successful independent sales agents or we or they fail to replace departing successful independent sales agents with similarly productive independent sales agents, the gross commission income generated by our company owned brokerages and franchises may decrease, which may have a material adverse impact on our business and financial results.
Our franchise business is also highly competitive. Upon the expiration of a franchise agreement, a franchisee may choose to franchise with one of our competitors or operate as an independent broker. Competitors may offer franchisees whose franchise agreements are expiring or prospective franchisees products and services similar to ours at rates that are
lower than we charge or a combination of products and services that are more attractive to the franchisee. We also face the risk that brokers may not enter into or renew franchise agreements with us for a variety of reasons, including because they believe they can compete effectively in the market without the need to license a brand of a franchisor and receive services offered by a franchisor, because competitive costs associated with agent recruitment makes affiliation with a brand economically challenging, or because they may believe that their business will be more attractive to a prospective purchaser without the existence of a franchise relationship. Additional competitive pressure is provided by regional and local franchisors as well as franchisors offering different franchise models or services.
To remain competitive in the sale of franchises and to retain our existing franchisees, we have taken and may continue to take actions that result in increased costs to us (such as increased sales incentives to franchisees) or decreased royalty payments to us (such as a reduction in or cap on the fees we charge our franchisees, including lower royalty rates), which may have a material adverse effect on our earnings and growth opportunities. If we fail to successfully offer franchisees compelling value propositions, we may fail to attract new franchisees and expiring franchisees may not renew their agreements with us, resulting in a reduction in royalty fees paid to us.
In addition, our continued implementation of strategic initiatives intended to add new franchisees and grow our agent base through the introduction of new franchisee fee models and brands, while intended to capture additional market share with brokers unaffiliated with our brands, could result in greater intra-brand competition among our brands. In order to enhance our competitive profile, we may increase the amounts that we spend on marketing and the development of products and services that we believe will appeal to independent sales agents, franchisees and consumers.
As noted in the following risk factor, we and our franchisees also face substantial competition from non-traditional market participants.
Competition in our related businesses and the businesses of our joint ventures is also acute. See "Item 1.-Business-Competition" in this Annual Report for additional information.
Consumer preferences for the home buying and selling experience may change more quickly than we can adapt our businesses, which may have a material adverse effect on our results of operations and financial condition.
The real estate brokerage industry has minimal barriers to entry for new participants and a growing number of companies are competing in non-traditional ways for a portion of the gross commission income generated by homesale transactions, including new entrants that employ technologies intended to disrupt historical real estate brokerage models, minimize or eliminate the role brokers and sales agents perform in the homesale transaction process, and/or shift the nature of the residential real estate transaction from the historic consumer-to-consumer model to a corporate-to-consumer model.
Some of these models, such as traditional iBuying or home swap models, may have less exposure to risks related to the continued rise of sales agent's share of commission income generated by homesale transactions, as they are less reliant on agent services. Changes to industry rules and/or the introduction of disruptive products and services may also result in an increase in the number of transactions that do not utilize the services of independent sales agents, including for sale by owner transactions.
The significant size of the U.S. real estate market has continued to attract outside capital investment in disruptive competitors that seek to access a portion of this market, which has and is likely to continue to contribute to the competitive environment. Meaningful gains in market share by these alternative models, including traditional iBuying or home swap models, and/or the introduction of other industry-disruptive competitors may adversely impact our market share and reduce homesale and ancillary transaction volume if we are unable to introduce competing products and services that are more attractive to consumers in a timely manner. A loss of market share or reduction in such transaction volume may have a material adverse effect on our operations and financial performance.
Listing aggregator concentration and market power creates, and is expected to continue to create, disruption in the residential real estate brokerage industry, which may have a material adverse effect on our results of operations and financial condition.
The concentration and market power of the top listing aggregators allow them to monetize their platforms by a variety of actions, including expanding into the brokerage business, charging significant referral fees, charging listing and display fees, diluting the relationship between agents and brokers and between agents and the consumer, tying referrals to use of their products, consolidating and leveraging data, and engaging in preferential or exclusionary practices to favor or disfavor
other industry participants. These actions divert and reduce the earnings of other industry participants, including our company owned and franchised brokerages.
Aggregators could intensify their current business tactics or introduce new programs that could be materially disadvantageous to our business and other brokerage participants in the industry including, but not limited to:
•broadening and/or increasing fees for their programs that charge brokerages and their affiliated sales agents fees including, referral, listing, display, advertising and related fees or introducing new fees for new or existing services;
•setting up competing brokerages and/or businesses, which could include directing referrals to agents and brokers that share revenue with them;
•expanding their offerings to include products (including agent tools) and services ancillary to the real estate transaction, such as title, escrow and mortgage origination services, that compete with services offered by us;
•bundling their listing services with such ancillary offerings;
•not including our or our franchisees' listings on their websites;
•controlling significant inventory and agent referrals, tying referrals to use of their products, and/or engaging in preferential or exclusionary practices to favor or disfavor other industry participants;
•leveraging their position to compel the use of their platforms exclusively, which may include requiring disclosure of competitively sensitive information;
•aggregating consumer data from their listing sites and ancillary services for competitive advantage;
•establishing oppressive contract terms, including with respect to data sharing requirements;
•disintermediating our relationship with affiliated franchisees and independent sales agents; and/or
•disintermediating the relationship between the sales agent and the buyers and sellers of homes, including through the promotion of products or services designed to replace the role of the sales agent in both buy side and sell side transactions.
Such tactics could further increase pressures on the profitability of our company owned and franchised brokerages and affiliated independent sales agents, reduce our market share, reduce our franchisor service revenue and dilute our relationships with our franchisees and our franchisees' relationships with affiliated independent sales agents and buyers and sellers of homes.
We may not be able to generate a meaningful number of high-quality leads for affiliated independent sales agents and franchisees, which could materially adversely impact our revenues and profitability.
A key component of our growth strategy is focused on providing affiliated independent sales agents and franchisees with high-quality leads, including through company-directed real estate benefit programs. We expect that significant time and effort and meaningful investment will be required to increase awareness of and consumer participation in existing and new real estate benefit programs and other lead generation programs and partnerships. In addition, our leads generation business is highly regulated, subject to complex federal and state laws (including RESPA and similar state laws as well as state laws limiting or prohibiting inducements, cash rebates and gifts to consumers), and subject to changing economic and political influences. A change in such laws, or more restrictive interpretations of such laws by administrative, legislative or other governmental bodies, could have a material adverse effect on this business. Even if we are successful in our efforts to increase awareness of, and participation in, our lead generation programs, such programs may not generate a meaningful number of high-quality leads, which could negatively impact our ability to recruit and retain independent sales agents and attract and retain new franchisees and could materially adversely affect our revenues and profitability, including as a result of the loss of downstream revenues at our franchise, brokerage and title businesses as well as our minority-owned mortgage origination joint venture.
Our financial results are affected by the operating results of our franchisees.
Realogy Franchise Group receives revenue in the form of royalties, which are based on a percentage of gross commission income earned by our franchisees. Accordingly, the financial results of Realogy Franchise Group are dependent upon the operational and financial success of our franchisees, in particular with respect to our largest franchisees. Recent strength in the high-end real estate market, along with agent recruitment and business consolidation, has spurred above-industry market growth for certain franchisees, in particular at Sotheby’s International Realty (some of which are our top-performing franchisees). If industry trends or economic conditions worsen or do not improve, if beneficial consumer trends slow or reverse, or if one or more of our top performing franchisees become less competitive or leaves our franchise
system, Realogy Franchise Group's financial results may worsen and our royalty revenues may decline, which could have a material adverse effect on our revenues and profitability. In addition, we may have to increase our bad debt and note reserves, including with respect to the conversion notes we extend to eligible franchisees, which are forgiven ratably over the term of the franchise agreement upon satisfaction of certain revenue performance-based thresholds. We may also have to terminate franchisees due to non-payment. Moreover, the ownership model for some larger franchisees has shifted to control by private investor groups that are more likely to have a higher proportion of debt and may have different priorities than historic franchisee owners, which increases franchisee liquidity, termination and non-renewal risks.
Consolidation among our top 250 franchisees may cause our royalty revenue to grow at a slower pace than homesale transaction volume.
A significant majority of revenue at Realogy Franchise Group is generated from our top 250 franchisees, which have grown faster than our other franchisees through organic growth and market consolidation in recent years. The growing concentration in our top 250 franchisees puts pressure on our ability to renew or negotiate franchise agreements with favorable terms, including with respect to contractual royalty rates, sales incentives and covered geographies. In addition, such concentration increases risks related to the financial health of our franchisees as well as with respect to franchisee non-renewal or termination. If the amount of gross commission income generated by our top 250 franchisees continues to grow at a quicker pace relative to our other franchisees, we would expect to experience pressure on our royalty revenue, which we would expect to continue to increase, but at a slower pace than homesale transaction volume due to increased volume incentives, lower negotiated rates, and other incentives earned by such franchisees, all of which directly impact our royalty revenue.
Negligence or intentional actions of our franchisees and their independent sales agents could harm our business.
Our franchisees (other than our company owned brokerages at Realogy Brokerage Group) are independent business operators and we do not exercise control over their day-to-day operations. Our franchisees may not successfully operate a real estate brokerage business in a manner consistent with industry standards or may not affiliate with effective independent sales agents or employees. If our franchisees or their independent sales agents were to engage in negligent or intentional misconduct or provide diminished quality of service to customers, our image and reputation may suffer materially, which could adversely affect our results of operations. Negligent or improper actions involving our franchisees or master franchisees, including regarding their relationships with independent sales agents, clients and employees, have and may in the future also lead to direct claims against us based on theories of vicarious liability, negligence, joint operations and joint employer liability which, if determined adversely, could increase costs, negatively impact the business prospects of our franchisees and subject us to incremental liability for their actions.
Additionally, franchisees and their independent sales agents (including those handling properties for our relocation operations) may engage or be accused of engaging in unlawful or tortious acts, such as violating the anti-discrimination requirements of the Fair Housing Act or failing to make necessary disclosures under federal and state law. Such acts or the accusation of such acts could harm our brands' image, reputation and goodwill or compromise our relocation operations relationships with clients.
Negligence or intentional actions of independent sales agents engaged by our company owned brokerages could materially and adversely affect our reputation and subject us to liability.
Our company owned brokerage operations rely on the performance of independent sales agents. If the independent sales agents were to provide lower quality services to our customers or engage in negligent or intentional misconduct, our image and reputation could be materially adversely affected. In addition, we could also be subject to litigation and regulatory claims arising out of their performance of brokerage services, which if adversely determined, could materially and adversely affect us.
We do not own two of our brands and difficulties in the business or changes in the licensing strategy of, or disagreements or complications in our relationship with, the brand owners could disrupt our business and/or negatively reflect on the brand and the brand value.
The Sotheby's International Realty® and Better Homes and Gardens® Real Estate brands are owned by the companies that founded these brands. Under separate long-term license agreements, we are the exclusive party licensed to run brokerage services in residential real estate under those brands, whether through our franchisees or our company owned operations. Our future operations and performance with respect to these brands requires the successful protection of those brands. In 2021, we formed a strategic joint venture with one of the brand owners that acquired a stake in an online
residential auction platform. Any disagreements or complications in our relationship with, or difficulties in the business or changes in the licensing strategy of, the brand owners could disrupt our business and/or negatively reflect on the brand and the brand value. For additional information see "Item 1.-Business-Realogy Franchise Group-Intellectual Property".
If our largest real estate benefit program client or multiple significant relocation clients cease or reduce volume under their contracts with us, our revenues and profitability would be materially adversely affected.
Contracts with our real estate benefit program and relocation clients are generally terminable at any time at the option of the client, do not require such client to maintain any level of business with us and are non-exclusive. Our real estate benefit program revenues are highly concentrated. If our largest real estate benefit program client or multiple significant relocation clients cease or reduce volume under their contracts with us, our revenues (including downstream revenue at Realogy Franchise, Brokerage and Title Groups) and profitability would be materially adversely affected.
Many of the general residential housing trends impacting our businesses that derive revenue from homesales also impact our relocation services business. Additionally, global corporate spending on relocation services has continued to shift to lower cost relocation benefits as corporate clients engage in cost reduction initiatives and/or restructuring programs, as well as changes in employment relocation trends. As a result of a shift in the mix of services and number of services being delivered per move as well as lower volume growth, our relocation operations have been subject to an increasingly competitive pricing environment and lower average revenue per relocation, which negatively impacts the operating results of our relocation operations. The COVID-19 crisis along with related ongoing travel restrictions in the U.S. and elsewhere, has exacerbated these trends and is expected to continue to put pressure on the financial results of Cartus Relocation Services. We are unable to determine when, or if, relocation volumes will return to levels consistent with those prior to the onset of the COVID-19 crisis. In addition, the greater acceptance of remote work arrangements has the potential to have a negative impact on relocation volumes in the long-term.
The failure of third-party vendors or partners to perform as we expect or appropriately manage risks, or our failure to adequately monitor third-party performance, could result in harm to our reputation and have a material adverse effect on our business and results of operations.
We engage with third-party vendors and partners in a variety of ways, ranging from strategic collaborations and joint ventures and product development to running key internal operational processes and critical client systems. In many instances, these third parties are in direct contact with our customers in order to deliver services on our behalf or to fulfill their role in the applicable collaboration. In some instances, these third parties may be in possession of personal information of our customers or employees. In other instances, these third parties may play a critical role in developing products and services central to our business strategy. For example, we have partnered with a strategic third party to provide its product suite to affiliated agents, brokerages and franchisees, and these products form an important part of our value proposition to such parties. In addition, we have engaged with other strategic third-party partners for other key software development projects. Our third-party partners may encounter difficulties in the provision of required deliverables or may fail to provide us with timely services, which may delay us, and also may make decisions that may harm us or that are contrary to our best interests, including by pursuing opportunities outside of the applicable Company project or program, to the detriment of such project or program.
If our third-party partners or vendors were to fail to perform as we expect, fail to appropriately manage risks, provide diminished or delayed services to our customers or face cybersecurity breaches of their information technology systems, or if we fail to adequately monitor their performance, our operations and reputation could be materially adversely affected, in particular with respect to any such failures related to the provision or development of key products. Depending on the function involved, vendor or third-party application failure or error may lead to increased costs, business disruption, distraction to management, processing inefficiencies, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, effects on financial reporting, loss of customers, damage to our reputation, or litigation, regulatory claims and/or remediation costs (including claims based on theories of breach of contract, vicarious liability, negligence or failure to comply with laws and regulations). Third-party vendors and partners may also fail to maintain or keep adequate levels of insurance, which could result in a loss to us or expose us to litigation. In addition, although we have a Vendor Code of Conduct, we may be subject to the consequences of fraud, bribery, or misconduct by employees of our vendors, which could result in significant financial or reputational harm. The actions of our third-party vendors and unaffiliated third-party developers are beyond our control. We face the same risks with respect to subcontractors that might be engaged by our third-party vendors and partners.
We are reliant upon information technology to operate our business and maintain our competitiveness.
Our ability to leverage our technology and data scale is critical to our long-term strategy. Our business, including our ability to attract employees and independent sales agents, increasingly depends upon the use of sophisticated information technologies and systems, including technology and systems (cloud solutions, mobile and otherwise) utilized for communications, marketing, productivity tools, training, lead generation, records of transactions, business records (employment, accounting, tax, etc.), procurement, call center operations and administrative systems. The operation of these technologies and systems is dependent upon third-party technologies, systems and services for which there are no assurances of continued or uninterrupted availability and support by the applicable third-party vendors on commercially reasonable terms. We also cannot assure that we will be able to continue to effectively operate and maintain our information technologies and systems. In addition, our information technologies and systems are expected to require refinements and enhancements on an ongoing basis, and we expect that advanced new technologies and systems will continue to be introduced. We may not be able to obtain such new technologies and systems, or to replace or introduce new technologies and systems as quickly as our competitors or in a cost-effective manner. Also, we may not achieve the benefits anticipated or required from any new technology or system, and we may not be able to devote financial resources to new technologies and systems in the future.
Cybersecurity incidents could disrupt business operations and result in the loss of critical and confidential information or litigation or claims arising from such incidents, any of which could have a material adverse effect on our reputation and results of operations.
We face growing risks and costs related to cybersecurity threats to our operations, our data and customer, franchisee, employee and independent sales agent data, including but not limited to:
•the failure or significant disruption of our operations from various causes, including human error, computer malware, ransomware, insecure software, zero-day threats, threats to or disruption of joint venture partners or of third-party vendors who provide critical services, or other events related to our critical information technologies and systems;
•the increasing level and sophistication of cybersecurity attacks, including distributed denial of service attacks, data theft, fraud or malicious acts on the part of trusted insiders, social engineering, or other unlawful tactics aimed at compromising the systems and data of our businesses, officers, employees, franchisees and company owned brokerage independent sales agents and their customers (including via systems not directly controlled by us, such as those maintained by our franchisees, affiliated independent sales agents, joint venture partners and third party service providers, including our third-party relocation service providers); and
•the reputational, business continuity and financial risks associated with a loss of data or material data breach (including unauthorized access to, or destruction or corruption of, our proprietary business information or personal information of our customers, employees and independent sales agents), the transmission of computer malware, cyberattacks, or the diversion of homesale transaction closing funds.
In the ordinary course of our business, we and our third-party service providers, our franchisee and company owned brokerage sales agents and our relocation operations collect, store and transmit sensitive data, including our proprietary business information and intellectual property and that of our clients as well as personal information, sensitive financial information and other confidential information of our employees, customers and the customers of our franchisee and company owned brokerage sales agents.
Third parties, including vendors or suppliers that provide essential services for our global operations, could also be a source of security risk to us if they experience a failure of their own security systems and infrastructure. We increasingly rely on third-party data processing, storage providers, and critical infrastructure services, including but not limited to cloud solution providers. The secure processing, maintenance and transmission of this information is critical to our operations and with respect to information collected and stored by our third-party service providers, we are reliant upon their security procedures, which may not be as robust as our own procedures. A breach or attack affecting one of our third-party service providers or partners could harm our business even if we do not control the service that is attacked.
Moreover, the real estate industry is actively targeted by cyber-attacker attempts to conduct electronic fraudulent activity directed at participants in real estate services transactions. These attacks, when successful, can result in fraud, including wire fraud related to the diversion of home sale transaction funds, or other harm, which could result in significant claims and reputational damage to us, our brands, our franchisees, and our independent sales agents and could also result in material increases in our operational costs. Further, these threats to our business may be wholly or partially beyond our
control as our franchisees as well as our customers, franchisee and company owned brokerage independent sales agents and their customers, joint venture partners and third-party service providers may use e-mail, computers, smartphones and other devices and systems that are outside of our security control environment. In addition, real estate transactions involve the transmission of funds by the buyers and sellers of real estate and consumers or other service providers selected by the consumer may be the subject of direct cyber-attacks that result in the fraudulent diversion of funds, notwithstanding efforts we have taken to educate consumers with respect to these risks.
Cybersecurity incidents, depending on their nature and scope, could result in, among other things, the misappropriation, destruction, corruption or unavailability of critical systems, data and confidential or proprietary information (our own or that of third parties, including personal information and financial information) and the disruption of business operations. The potential consequences of a material cybersecurity incident include regulatory violations of applicable U.S. and international privacy and other laws, reputational damage, loss of market value, litigation with third parties (which could result in our exposure to material civil or criminal liability), diminution in the value of the services we provide to our customers, and increased cybersecurity protection and remediation costs (that may include liability for stolen assets or information), which in turn could have a material adverse effect on our competitiveness and results of operations.
Our security systems and IT infrastructure may not adequately protect against all potential security breaches, cyber-attacks, or other unauthorized access to personal information, including ransomware incidents. We, our third-party service providers, franchisees, franchisee and company owned brokerage independent sales agents, and joint venture partners have experienced and expect to continue to experience these types of threats and incidents. Cyberattacks have led and will likely continue to lead to increased costs to us with respect to preventing, investigating, mitigating, insuring against and remediating these incidents and risks, as well as any related attempted or actual fraud. Our corporate errors and omissions and cybersecurity breach insurance, or that of applicable third parties, may be insufficient to compensate us for losses that may occur.
Moreover, we are required to comply with growing laws and regulations both in the United States and in other countries where we do business that regulate cybersecurity, privacy and related matters. With an increased percentage of our business occurring virtually, there is an increased risk of a potential violation of these expanding laws and regulations. Any significant violations of such laws and regulations could result in the loss of new or existing business, litigation, regulatory investigations, the payment of fines and/or penalties (which may not be covered by cybersecurity breach insurance) and damage to our reputation. Any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.
We may not realize the expected benefits from our existing or future joint ventures or strategic partnerships.
We have entered into several important strategic joint ventures with third party partners, including Guaranteed Rate Affinity (our non-exclusive mortgage origination joint venture) and RealSure as well as a real estate auction joint venture and several other joint ventures at Realogy Title Group. We also expect to form a title insurance underwriter joint venture in connection with the planned sale of Title Resources. We hold (or will hold, with respect to the title insurance underwriter joint venture) a minority stake in each of these joint ventures. While we have certain governance rights, we do not (or will not, with respect to the title insurance underwriter), have a controlling financial or operating interest in these joint ventures. Likewise, we do not realize the full economic benefit of profits from these businesses (nor do we bear the full losses from these ventures).
There are inherent risks to joint ventures, including execution risks that could arise if our strategic priorities do not align with those of our partners. Such risks may increase with particularly complex joint ventures that offer innovative products, such as our RealSure joint venture and there can be no assurance that such products will be successful or will operate as intended. Our current or future joint venture partners may make decisions which may harm the joint venture or are contrary to our best interests, including by pursuing opportunities outside of the joint venture. For example, our mortgage origination joint venture is not exclusive and our joint venture partner could continue to expand relationships with competitors or pursue relationships with other competitors to our detriment.
Additionally, even when we hold a minority interest in a joint venture, improper actions by our joint venture partners may also lead to direct claims against us based on theories of vicarious liability, negligence, joint operations and joint employer liability, which, if determined adversely, could increase costs, negatively impact our reputation and subject us to liability for their actions. Any of the foregoing may have a material adverse effect on our results of operations or equity interest in the applicable joint venture.
Each of our existing joint ventures faces risks specific to their business as well. For example, our mortgage origination joint venture has been and may again be materially adversely affected by changes affecting the mortgage and mortgage refinancing industry, which is inherently cyclical in nature. Such changes may include, but are not limited to, regulatory changes, increases in mortgage interest rates or other changes in market conditions, consumer trends (including those related to refinancing transactions), high levels of competition, decreases in operating margins and gain-on-sale margins, and declines in the mark-to-market value of the mortgage loan pipeline. In addition, although we intend to continue to invest meaningfully in our RealSure joint venture, such products may not be well-received by franchisees, brokerages, affiliated agents or consumers.
In addition, our joint ventures or our joint venture partners could face operational or liquidity risks, such as litigation or regulatory investigations that may arise. Any of the foregoing could have an adverse impact, which may be material, on our earnings and dividends from the applicable joint venture. Operational, liquidity, regulatory, macroeconomic and competitive risks would likely apply to any joint venture we may enter into in the future.
Consummation of the planned sale of our title underwriting business is subject to satisfaction of closing conditions, including the receipt of certain regulatory approvals, and, even if we successfully consummate the planned sale, we may fail to achieve the anticipated benefits of the transaction.
Completion of the planned sale of our title insurance underwriter (in exchange for cash and a 30% equity interest in a title insurance underwriter joint venture) is subject to certain closing conditions, including the receipt of certain required regulatory approvals, among others. There can be no assurance that any of such conditions will be satisfied or that the planned sale will be successfully completed on a timely basis or at all.
In addition, the transaction is subject to additional risks, including that we may not achieve the anticipated benefits of the transaction; the transaction may involve unexpected costs, liabilities or delays; the transaction may disrupt the title underwriter’s plans and operations or adversely affect employee retention or otherwise adversely impact the business of the title underwriter; and the joint venture may be adversely affected by other economic, business and/or competitive factors as well as the ongoing COVID-19 crisis. We may also experience negative reactions from our clients, stockholders, creditors, vendors, and employees, among others. There can be no assurances as to whether the joint venture will successfully grow the underwriting business and its volume of business could be lower than the historical level of activity generated under Realogy Title Group.
Any of these factors could decrease or eliminate the anticipated benefits of the transaction and could negatively impact our stock price and our business, financial condition and results of operations.
We may be unable to simplify and modernize our business in support of growth and strategic initiatives and achieve or maintain cost savings and other benefits from our cost-saving initiatives.
We continue to engage in business optimization and cost-saving initiatives that focus on maximizing the efficiency and effectiveness of the cost structure of each of the Company's businesses. These actions are designed to improve client service levels across each of the business units while enhancing the Company's profitability and incremental margins. We may not be able to achieve these improvements in the efficiency and effectiveness of our operations or cost structure and, even if achieved, any cost-savings realized may not be sufficient to offset ongoing inflationary pressures, including those related to employees and leases, or to offset continued upward pressure on the share of commission income paid to affiliated independent sales agents. We also may incur greater costs than currently anticipated to achieve these savings and we may not be able to maintain these cost savings and other benefits in the future. Failure to improve the efficiency and effectiveness of our cost structure could have a material adverse effect on our competitive position (including with respect to the recruitment and retention of production independent sales agents and franchisees), business, financial condition, results of operations and cash flows.
Failure to successfully complete or integrate acquisitions and joint ventures into our existing operations, or to complete or effectively manage divestitures or refranchisings, could adversely affect our business, financial condition or results of operations.
We regularly review our portfolio of businesses and evaluate potential acquisitions, joint ventures, divestitures, refranchisings and other strategic transactions. Potential issues associated with these activities could include, among other things: our ability to complete or effectively manage such transactions on terms commercially favorable to us or at all; our ability to realize the full extent of the expected returns, benefits, cost savings or synergies as a result of a transaction, within the anticipated time frame, or at all; and diversion of management’s attention from day-to-day operations. In addition, the
success of any future acquisition strategy we may pursue will depend upon our ability to fund such acquisitions given our total outstanding indebtedness, find suitable acquisition candidates on favorable terms and for target companies to find our acquisition proposals more favorable than those made by other competitors. If an acquisition or majority-held joint venture is not successfully completed or integrated into our existing operations (including our internal controls and compliance environment), or if a divestiture or refranchising is not successfully completed or managed or does not result in the benefits or cost savings we expect, our business, financial condition or results of operations may be adversely affected.
Risks Related to Our Indebtedness
Our liquidity has been, and is expected to continue to be, negatively impacted by the substantial interest expense on our debt obligations.
We are significantly encumbered by our debt obligations. As of December 31, 2021, our total debt, excluding our securitization obligations, was $3,042 million (without giving effect to outstanding letters of credit). As a result, a substantial portion of our cash flows from operations must be dedicated to the payment of interest on our indebtedness and, as a result, is not available for other purposes, including our operations, capital expenditures, technology, share repurchases, dividends and future business opportunities or principal repayment. Our liquidity position has been, and is expected to continue to be, negatively impacted by the substantial interest expense on our debt obligations.
Our significant indebtedness and interest obligations could prevent us from meeting our obligations under our debt instruments and could adversely affect our ability to fund our operations, invest in our business or pursue growth opportunities, react to changes in the economy or our industry, or incur additional borrowings under our existing facilities.
Our leverage could have important consequences, including the following:
•it could cause us to be unable to comply with the senior secured leverage ratio covenant under our Senior Secured Credit Facility and Term Loan A Facility;
•it could cause us to be unable to meet our debt service requirements under our debt agreements or meet our other financial obligations;
•it may limit our ability to incur additional borrowings under our existing facilities, including our Revolving Credit Facility, to refinance our indebtedness, or to obtain additional debt or equity financing for working capital, capital expenditures, business development, debt service requirements, acquisitions or general corporate or other purposes;
•it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have no or less debt;
•it may cause a downgrade of our debt and long-term corporate ratings;
•it may limit our ability to repurchase shares or declare dividends;
•it may limit our ability to attract acquisition candidates or to complete future acquisitions;
•it may cause us to be more vulnerable to periods of negative or slow growth in the general economy or in our business, or may cause us to be unable to carry out capital spending that is important to our growth; and
•it may limit our ability to attract and retain key personnel.
A material decline in our ability to generate EBITDA calculated on a Pro Forma Basis, as defined in the Senior Secured Credit Agreement governing the Senior Secured Credit Facility could result in our failure to comply with the senior secured leverage ratio covenant under our Senior Secured Credit Facility (including the Revolving Credit Facility) and Term Loan A Facility, which would result in an event of default if we fail to remedy or avoid a default as permitted under the applicable debt arrangement.
Our debt risk may also be increased as a result of competitive pressures that reduce margins and free cash flow. If our EBITDA calculated on a Pro Forma Basis were to decline and/or we were to incur additional senior secured debt (including borrowings under the Revolving Credit Facility), our ability to borrow the full capacity under the Revolving Credit Facility (without refinancing secured debt into unsecured debt) could be limited as we must maintain compliance with the senior secured leverage ratio under the Senior Secured Credit Agreement. Any inability to borrow sufficient funds to operate our business could have a material adverse impact on our business, results of operations and liquidity.
Restrictive covenants under our Senior Secured Credit Facility, Term Loan A Facility, and indentures governing the Unsecured Notes may limit the manner in which we operate.
Our Senior Secured Credit Facility, Term Loan A Facility, and the indentures governing the Unsecured Notes contain, and any future indebtedness we may incur may contain, various negative covenants that restrict our ability to, among other things:
•incur or guarantee additional indebtedness, or issue disqualified stock or preferred stock;
•pay dividends or make distributions to our stockholders;
•repurchase or redeem capital stock;
•make investments or acquisitions;
•incur restrictions on the ability of certain of our subsidiaries to pay dividends or to make other payments to us;
•enter into transactions with affiliates;
•create liens;
•merge or consolidate with other companies or transfer all or substantially all of our assets;
•transfer or sell assets, including capital stock of subsidiaries; and
•prepay, redeem or repurchase certain indebtedness.
As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs.
An event of default under our Senior Secured Credit Facility, the Term Loan A Facility or the indentures governing our other material indebtedness would adversely affect our operations and our ability to satisfy obligations under our indebtedness.
If we are unable to comply with the senior secured leverage ratio covenant under the Senior Secured Credit Facility or Term Loan A Facility due to a material decline in our ability to generate EBITDA calculated on a Pro Forma Basis (as defined in the Senior Secured Credit Agreement) or otherwise or if we are unable to comply with other restrictive covenants under those agreements or the indentures governing our Unsecured Notes and we fail to remedy or avoid a default as permitted under the applicable debt arrangement, there would be an "event of default" under such arrangement.
Other events of default include, without limitation, nonpayment of principal or interest, material misrepresentations, insolvency, bankruptcy, certain material judgments, change of control, and cross-events of default on material indebtedness as well as, under the Senior Secured Credit Facility and Term Loan A Facility, failure to obtain an unqualified audit opinion by 90 days after the end of any fiscal year. Upon the occurrence of any event of default under the Senior Secured Credit Facility and Term Loan A Facility, the lenders:
•will not be required to lend any additional amounts to us;
•could elect to declare all borrowings outstanding, together with accrued interest and fees, to be immediately due and payable;
•could require us to apply all of our available cash to repay these borrowings; or
•could prevent us from making payments on the Unsecured Notes, any of which could result in an event of default under the indentures governing such notes or our Apple Ridge Funding LLC securitization program.
If we were unable to repay the amounts outstanding under our Senior Secured Credit Facility or Term Loan A Facility, the lenders and holders of such debt could proceed against the collateral granted to secure those debt arrangements. We have pledged a significant portion of our assets as collateral to secure such indebtedness. If the lenders under those debt arrangements accelerate the repayment of borrowings, we may not have sufficient assets to repay the Senior Secured Credit Facility or Term Loan A Facility and our other indebtedness or be able to borrow sufficient funds to refinance such indebtedness. Upon the occurrence of an event of default under the indentures governing our Unsecured Notes, the trustee or holders of 25% of the outstanding applicable notes could elect to declare the principal of, premium, if any, and accrued but unpaid interest on such notes to be due and payable. Any of the foregoing would have a material adverse effect on our business, financial condition and results of operations.
The exchangeable note hedge and warrant transactions may affect the value of our common stock.
Concurrent with the offering of the Exchangeable Senior Notes, we entered into exchangeable note hedge transactions and warrant transactions with certain counterparties (the "Option Counterparties"). The exchangeable note hedge transactions are expected generally to reduce the potential dilution upon exchange of the notes and/or offset any cash payments we are required to make in excess of the principal amount of exchanged notes, as the case may be. However, the warrant transactions could separately have a dilutive effect on our common stock to the extent that the market price per share of common stock exceeds the strike price of the warrants.
The Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling the common stock or other securities of ours in secondary market transactions prior to the maturity of the Exchangeable Senior Notes (and are likely to do so during any observation period related to an exchange of the notes). This activity could cause or avoid an increase or a decrease in the market price of our common stock.
We are subject to counterparty risk with respect to the exchangeable note hedge transactions.
The Option Counterparties are financial institutions or affiliates of financial institutions, and we are subject to the risk that one or more of such Option Counterparties may default under the exchangeable note hedge transactions. Our exposure to the credit risk of the Option Counterparties is not secured by any collateral. If any Option Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the exchangeable note hedge transaction. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in our common stock market price and in the volatility of the market price of our common stock. In addition, upon a default by the Option Counterparty, we may suffer adverse tax consequences and dilution with respect to our common stock. We can provide no assurance as to the financial stability or viability of any Option Counterparty.
We have substantial indebtedness and we may not be able to refinance any such debt on terms as favorable as those of currently outstanding debt.
We consistently evaluate potential refinancing and financing transactions with respect to our debt, including repaying or refinancing certain tranches of our indebtedness and extending maturities, among other potential alternatives. There can be no assurance as to which, if any, of these alternatives we may pursue as the choice of any alternative will depend upon numerous factors such as market conditions, our financial performance and the limitations applicable to such transactions under our existing financing agreements and the consents we may need to obtain under the relevant documents. The high-yield market may not be accessible to companies with our debt profile and such or other financing alternatives may not be available to us on commercially reasonable terms, terms that are acceptable to us, or at all. Any future indebtedness may impose various additional restrictions and covenants on us which could limit our ability to respond to market conditions, to make capital investments or to take advantage of business opportunities. Refinancing debt at a higher cost would affect our operating results. We could also issue public or private placements of our common stock or preferred stock or convertible notes, any of which could, among other things, dilute our current stockholders and materially and adversely affect the market price of our common stock.
A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us or our indebtedness could make it more difficult for us to refinance our debt or obtain additional debt financing in the future.
Our indebtedness has been rated by nationally recognized rating agencies and may in the future be rated by additional rating agencies. We cannot assure you that any rating assigned to us or our indebtedness will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, circumstances relating to the basis of the rating, such as adverse changes in our business, so warrant. Any downgrade, suspension or withdrawal of a rating by a rating agency (or any anticipated downgrade, suspension or withdrawal) as well as any actual or anticipated placement on negative outlook by a rating agency could make it more difficult or more expensive for us to refinance our debt or obtain additional debt financing in the future.
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
At December 31, 2021, $232 million of our borrowings under our Senior Secured Credit Facility and Term Loan A Facility was at variable rates of interest thereby exposing us to interest rate risk. If interest rates increase, our debt service
obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our net income would decrease.
The phase-out of LIBOR, or the replacement of LIBOR with SOFR or a different reference rate or modification of the method used to calculate LIBOR, may adversely affect interest rates which may have an adverse impact on us.
Our primary interest rate exposure is interest rate fluctuations, specifically with respect to LIBOR, due to its impact on our variable rate borrowings under our Senior Secured Credit Facility and Term Loan A Facility. Our interest rate swaps are also based on LIBOR.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers’ Association member banks entered into settlements with certain regulators and law enforcement agencies with respect to the alleged manipulation of LIBOR, and LIBOR and other “benchmark” rates are subject to ongoing national and international regulatory scrutiny and reform. The cessation date for submission and publication of rates for certain tenors of LIBOR has since been extended by the ICE Benchmark Administration until mid-2023. In response to concerns regarding the future of LIBOR, the United States Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities: the Secured Overnight Financing Rate, or ‘‘SOFR.’’ We are unable to predict whether SOFR will attain market traction as a LIBOR replacement or the impact of other reforms, whether currently enacted or enacted in the future. Any new benchmark rate, including SOFR, will likely not replicate LIBOR exactly and if future rates based upon a successor rate are higher than LIBOR rates as currently determined, it could result in an increase in the cost of our variable rate indebtedness and may have a material adverse effect on our financial condition and results of operations.
We may be unable to continue to securitize certain of the relocation assets of Cartus Relocation Services, which may adversely impact our liquidity.
At December 31, 2021, $118 million of securitization obligations were outstanding through special purpose entities monetizing certain assets of Cartus Relocation Services under two lending facilities. We have provided a performance guaranty which guarantees the obligations of Cartus Relocation Services and its subsidiaries, as originator and servicer under the Apple Ridge securitization program. Our significant debt obligations may limit our ability to incur additional borrowings under our existing securitization facilities. The securitization markets have experienced, and may again experience, significant disruptions, including in connection with the COVID-19 crisis, which may have the effect of increasing our cost of funding or reducing our access to these markets in the future.
In addition, the Apple Ridge securitization facility contains terms which if triggered may result in a termination or limitation of new or existing funding under the facility and/or may result in a requirement that all collections on the assets be used to pay down the amounts outstanding under such facility. If securitization financing is not available to us for any reason, we could be required to borrow under the Revolving Credit Facility, which would adversely impact our liquidity, or we may be required to find additional sources of funding which may be on less favorable terms or may not be available at all.
Regulatory and Legal Risks
There may be adverse financial and operational consequences to us and our franchisees if independent sales agents are reclassified as employees.
Although the legal relationship between residential real estate brokers and licensed sales agents throughout most of the real estate industry historically has been that of independent contractor, newer rules and interpretations of state and federal employment laws and regulations, including those governing employee classification and wage and hour regulations in our and other industries, may impact industry practices, our company owned brokerage operations, and our affiliated franchisees. Certain jurisdictions have adopted or are considering adopting standards that are significantly more restrictive than those historically used in wage and hour cases, which could have a material adverse effect on our business and results of operations. See "Item 1.-Business-Government and Other Regulations" in this Annual Report for additional information.
Significant sales agent reclassification determinations in the absence of available exemptions from minimum wage or overtime laws, including damages and penalties for prior periods (if assessed), could be disruptive to our business, constrain
our operations in certain jurisdictions and could have a material adverse effect on the operational and financial performance of the Company.
If we fail to protect the privacy and personal information of our customers or employees, we may be subject to legal claims, government action and damage to our reputation.
Regulators in the U.S. and abroad continue to enact comprehensive new laws or legislative reforms imposing significant privacy and cybersecurity restrictions. The result is that we are subject to increased regulatory scrutiny, additional contractual requirements from corporate customers, and heightened compliance costs as a result of numerous laws, regulations, and other requirements, domestically and globally, that require businesses like ours to protect the security of personal information, notify customers and other individuals about our privacy practices, and limit the use, disclosure, sale, or transfer of personal data. These ongoing changes to privacy and cybersecurity laws also may make it more difficult for us to operate our business and may have a material adverse effect on our operations. For example, we are required to comply with the European Union's GDPR and in the U.S. we are required to comply with numerous federal and state statutes governing privacy and cybersecurity matters such as the CCPA, CPRA and the NYDFS Cybersecurity Regulation. States like Washington, Colorado and Virginia have also enacted privacy laws and many other states have draft proposals pending before their legislatures. See "Item 1.-Business-Government and Other Regulations-Cybersecurity and Data Privacy Regulations" in this Annual Report for additional information.
We could also be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations or financial condition. These ongoing changes to privacy and cybersecurity laws also may make it more difficult for us to operate our business and may have a material adverse effect on our operations.
Any significant violations of privacy and cybersecurity laws and regulations (including those involving joint ventures or our third-party vendors or partners) could result in the loss of new or existing business (including potential home buyers or sellers, our corporate relocation or real estate benefit program clients, their employees or members, franchisees, independent sales agents and lender channel clients), litigation, regulatory investigations, the payment of fines, damages, and penalties and damage to our reputation, which could have a material adverse effect on our business, financial condition, and results of operations. With an increased percentage of our business occurring virtually, there is an enhanced risk of a potential violation of the expanding privacy and cybersecurity laws and regulations.
In addition, while we disclose our information collection and dissemination practices in a published privacy statement on our websites, which we may modify from time to time, we may be subject to legal claims, government action and damage to our reputation if we act or are perceived to be acting inconsistently with the terms of our privacy statement, customer expectations or state, national and international regulations.
The occurrence of a significant claim in excess of our insurance coverage in any given period could have a material adverse effect on our financial condition and results of operations during the period.
Industry structure changes that disrupt the functioning of the residential real estate market could materially adversely affect our operations and financial results.
All of our businesses and the businesses of our joint ventures and our franchisees are highly regulated and subject to shifts in public policy, statutory interpretation and enforcement priorities of regulators and other government authorities as well as amendments to existing regulations and regulatory guidance. In addition, through our subsidiaries, employees and/or affiliated agents, we are a participant in many MLSs, a member-owner of certain MLSs, and a member of NAR and respective state realtor associations. The rules and policies for these organizations are also subject to change due to shifts in internal policy, regulatory developments, litigation or other legal action. Changes in the rules and policies of NAR and/or any MLSs can also be driven by changes in membership, including the entry of new industry participants, and other industry forces. We cannot assure you that changes in legislation, regulations, interpretations or regulatory guidance, enforcement priorities, or the rules and policies of NAR and/or any MLSs will not result in additional limitations or restrictions on our business or otherwise adversely affect us.
From time to time, certain industry practices have come under federal or state scrutiny or have been the subject of litigation. Examples may include, but are not limited to, various NAR and MLS rules, compliance with RESPA or similar state statutes (including, but not limited to, those related to the broker-to-broker exception, marketing agreements or consumer rebates), sales agent classification and worker classification statutes, broker fiduciary duties, federal and state fair
housing laws, consumer lending and debt collection laws, false or fraudulent claims laws, and state laws limiting or prohibiting inducements, cash rebates and gifts to consumers.
Heightened scrutiny can follow changes in administration, and the industry is currently experiencing such increased interest by regulators and other government offices, both on a federal and state level. See "Item 1.-Business-Government and Other Regulations"" for additional information.
Realogy, NAR and other industry participants are also currently named in putative class action complaints under which the plaintiffs contend that certain NAR or MLS rules are anti-competitive under the Sherman Act. See Note 14, "Commitments and Contingencies-Litigation-Real Estate Litigation", to our Consolidated Financial Statements included elsewhere in this Annual Report for additional information on these matters.
There can be no assurances as to whether the DOJ or FTC, their state counterparts, state or federal courts, or other governmental body will determine that any industry practices or developments have an anti-competitive effect on the industry or are otherwise proscribed. Any such determination could result in industry investigations, enforcement actions, changes in legislation, regulations, interpretations or regulatory guidance or other legislative or regulatory action or other actions, any of which could have the potential to result in additional limitations or restrictions on our business, cause material disruption to our business or otherwise adversely affect us.
Moreover, we believe certain industry participants, including listing aggregators and participants pursuing non-traditional methods of marketing real estate, are pursuing changes to MLS and NAR rules and legal regulations that are intended to benefit their competitive position to the disadvantage of historical real estate brokerage models.
Meaningful changes in industry operations or structure, as a result of any of the foregoing or as the result other governmental pressures or the introduction or growth of certain competitive models, or otherwise could have a material adverse effect on our operations, revenues, earnings and financial results.
Our businesses and the businesses of our joint ventures and affiliated franchisees are highly regulated and any failure to comply with such regulations or any changes in such regulations could adversely affect our business.
As noted in the prior risk factor, all of our businesses (including company owned brokerage, franchise, leads generation, relocation, title underwriting and title agency) and the businesses of our joint ventures (including mortgage origination, RealSure and real estate auction) as well as the businesses of our franchisees are highly regulated and subject to changing economic and political influences. We must comply with numerous laws and regulations both domestically and abroad.
For example, we must comply with RESPA, state real estate brokerage laws, state title insurance laws, and similar laws in countries in which we do business, which restrict payments that real estate brokers, title agencies, mortgage bankers, mortgage brokers and other settlement service providers may receive or pay in connection with the sales of residences and referral of settlement services (e.g., mortgages, homeowners insurance, home warranty and title insurance). Such laws may to some extent impose limitations on arrangements involving our real estate franchise, real estate brokerage, title agency and underwriting services, lead generation, and relocation operations or the business of our joint ventures (including mortgage origination, RealSure and real estate auction). RESPA compliance may become a greater challenge under certain administrations, including the current administration, for most industry participants offering settlement services, including mortgage companies, title companies and brokerages, because of expansive interpretations of RESPA or similar state statutes by certain courts and regulators. Permissible activities under state statutes similar to RESPA may be interpreted more narrowly and enforcement proceedings of those statutes by state regulatory authorities may also be aggressively pursued. RESPA also has been invoked by plaintiffs in private litigation for various purposes. Some regulators and other parties have advanced novel and stringent interpretations of RESPA including assertions that any provision of a thing of value in a separate, but contemporaneous transaction with a referral constitutes a breach of RESPA on the basis that all things of value exchanged should be deemed in exchange for the referral. Violations of RESPA or similar state statutes can lead to claims of substantial damages, which may include (but are not limited to) fines, treble damages and attorneys' fees.
Moreover, we are required to comply with growing regulations both in the United States and in other countries where we do business that regulate cybersecurity, privacy and related matters, some of which impose steep fines and penalties for noncompliance, which would likely not be covered by cybersecurity breach insurance. Certain additional laws and regulations impacting our business are described under "Item 1.-Business-Government and Other Regulations" in this Annual Report. In all of our businesses there is a risk that we could be adversely affected by current laws, regulations or interpretations or that more restrictive laws, regulations or interpretations could increase responsibilities and duties to customers and franchisees and other parties, the adoption of which could make compliance more difficult or expensive.
There is also a risk that a change in current laws could adversely affect our business. In addition, any adverse changes in regulatory interpretations, rules and laws that would place additional limitations or restrictions on affiliated transactions could have the effect of limiting or restricting collaboration among our businesses. We cannot assure you that future changes in legislation, regulations or interpretations will not adversely affect our business operations. Regulatory authorities also have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our financial condition or our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could limit our ability to renew current franchisees or sign new franchisees or otherwise have a material adverse effect on our operations.
Our compliance efforts may result in increased expenses, diversion of management's time or changes to the manner in which we conduct our business. Our failure to comply with laws and regulations may subject us to fines, penalties, injunctions and/or potential criminal violations. Any changes to these laws, regulations or interpretations or any new laws or regulations may make it more difficult for us to operate our business. Likewise, all of the foregoing could adversely affect the businesses of our joint ventures or franchisees. Any of the foregoing may have a material adverse effect on our operations.
We are subject to certain risks related to litigation filed by or against us or against affiliated agents, franchisees or our joint ventures, and adverse results may harm our business and financial condition.
We cannot predict with certainty the cost of defense, the cost of prosecution, insurance coverage or the ultimate outcome of litigation and other proceedings filed by or against us or against affiliated agents or franchisees, including remedies or damage awards, and adverse results in such litigation and other proceedings, including treble damages and penalties. Adverse outcomes may materially harm our business and financial condition. Such litigation and other proceedings may include, but are not limited to:
•antitrust and anti-competition claims (including claims related to NAR or MLS rules regarding buyer broker commissions);
•actions relating to claims alleging violations of RESPA or state consumer fraud statutes, federal consumer protection statutes or other state real estate law violations;
•employment law claims, including claims challenging the classification of sales agents as independent contractors as well as joint employer, wage and hour and retaliation claims;
•information security, including claims under new and emerging data privacy laws related to the protection of customer, employee or third-party information;
•cyber-crime, including claims related to the diversion of homesale transaction closing funds;
•claims by current or former franchisees that franchise agreements were breached, including improper terminations;
•claims related to the Telephone Consumer Protection Act, including autodialer claims;
•claims generally against the company owned brokerage operations for negligence, misrepresentation or breach of fiduciary duty in connection with the performance of real estate brokerage or other professional services as well as other brokerage claims associated with listing information and property history;
•vicarious or joint liability based upon the conduct of individuals or entities traditionally outside of our control, including franchisees and independent sales agents, under joint employer claims or other theories of actual or apparent agency;
•claims related to intellectual property or copyright law, including infringement actions alleging improper use of copyrighted photographs on websites or in marketing materials without consent of the copyright holder or claims challenging our trademarks;
•actions against our title company for defalcations on closing payments or claims against the title agent contending that the agent knew or should have known that a transaction was fraudulent or that the agent was negligent in addressing title defects or conducting settlement;
•claims concerning breach of obligations to make websites and other services accessible for consumers with disabilities;
•claims related to disclosure or securities law violations as well as derivative suits; and
•general fraud claims.
Other ordinary court legal proceedings that may arise from time to time include those related to commercial arrangements, indemnification (under contract or common law), franchising arrangements, the fiduciary duties of brokers, standard brokerage disputes like the failure to disclose accurate square footage or hidden defects in the property such as mold, claims under the False Claims Act (or similar state laws), consumer lending and debt collection law claims, employment law claims related to business actions responsive to the COVID-19 outbreak and governmental and regulatory directives thereto, state auction law, and violations of similar laws in countries we operate in around the world with respect to any of the foregoing.
See Note 14, "Commitments and Contingencies-Litigation", to our Consolidated Financial Statements included elsewhere in this Annual Report for additional information on our litigation matters, including class action litigation. Class action lawsuits can often be particularly burdensome litigation given the breadth of claims, the large potential damages claimed (in particular, if the courts grant partial or full certification of a large class) and the significant costs of defense. Insurance coverage may be unavailable for certain types of claims and even where available, insurance carriers may dispute coverage for various reasons, including the cost of defense, there is a deductible for each such case, and such insurance may not be sufficient to cover the losses we incur.
Adverse decisions in litigation or regulatory actions against companies unrelated to us could impact our business practices and those of our franchisees in a manner that adversely impacts our financial condition and results of operations.
Litigation, investigations, claims and regulatory proceedings against other participants in the residential real estate or relocation industry may impact the Company and its affiliated franchisees when the rulings or settlements in those cases cover practices common to the broader industry or business community and may generate litigation for the Company. Examples may include RESPA, worker classification, or antitrust and anti-competition claims, among others. Similarly, the Company may be impacted by litigation and other claims against companies in other industries. To the extent plaintiffs are successful in these types of litigation matters, and we or our franchisees cannot distinguish our or their practices (or our industry’s practices), we and our franchisees could face significant liability and could be required to modify certain business relationships, either of which could materially and adversely impact our financial condition and results of operations.
We may experience significant claims relating to our operations, and losses resulting from fraud, defalcation or misconduct.
We issue title insurance policies which provide coverage for real property to mortgage lenders and buyers of real property. When acting as a title agent issuing a policy on behalf of an underwriter, our insurance risk is typically limited to the first five thousand dollars for claims on any one policy, though our insurance risk is not limited if we are negligent. Our title underwriter assumes the risk of the first $1.5 million on each transaction it insures. However, we maintain a reinsurance arrangement under which we may reinsure amounts over $1.5 million on certain transactions. To date, our title underwriter has experienced claims losses that are significantly below the industry average; however, our claims experience could increase in the future, which could negatively impact the profitability of our underwriter. We may also be subject to legal claims or additional claims losses arising from the handling of escrow transactions and closings by our owned title agencies or our underwriter's independent title agents. We carry errors and omissions insurance for errors made by our title and escrow companies, by our company owned brokerage business during the real estate settlement process, and by us related to real estate services. Our franchise agreements also require our franchisees to name us as an additional insured on their errors and omissions and general liability insurance policies. The occurrence of a significant claim in excess of our insurance coverage (including any coverage under franchisee insurance policies) in any given period could have a material adverse effect on our financial condition and results of operations during the period. In addition, insurance carriers may dispute coverage for various reasons and there can be no assurance that all claims will be covered by insurance.
Fraud, defalcation and misconduct by employees are also risks inherent in our business, particularly given the high transactional volumes and significant funds that flow though our company owned brokerage, title, escrow and settlement services and relocation operations. We may also from time to time be subject to liability claims based upon the fraud or misconduct of our franchisees. To the extent that any loss or theft of funds substantially exceeds our insurance coverage, our business could be materially adversely affected.
The weakening or unavailability of our intellectual property rights could adversely impact our business, including through the loss of intellectual property we license.
Our trademarks, trade names, domain names and other intellectual property rights are fundamental to our brands and our franchising business. The steps we take to obtain, maintain and protect our intellectual property rights may not be
adequate and, in particular, we may not own all necessary registrations for our intellectual property. Applications we have filed to register our intellectual property may not be approved by the appropriate regulatory authorities. Our intellectual property rights may not be successfully asserted in the future or may be invalidated, circumvented or challenged. We may be unable to prevent third parties from using our intellectual property rights without our authorization or independently developing technology that is similar to ours. Also, third parties may own rights in similar trademarks. Any unauthorized use of our intellectual property by third parties, including formerly affiliated franchisees, could reduce our competitive advantages or otherwise harm our business and brands. If we had to litigate to protect these rights, any proceedings could be costly, and we may not prevail. Our intellectual property rights, including our trademarks, may fail to provide us with significant competitive advantages in the U.S. and in foreign jurisdictions that do not have or do not enforce strong intellectual property rights.
We cannot be certain that our intellectual property does not and will not infringe issued intellectual property rights of others. We may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties. Any such claims, whether or not meritorious, could result in costly litigation. Adverse outcomes in intellectual property litigation and proceedings could include the cancellation, invalidation or other loss of material intellectual property rights used in our business and injunctions prohibiting our use of intellectual property that is subject to third-party patents or other third-party intellectual property rights. We may be required to enter into licensing or consent agreements (if available on acceptable terms or at all), or to pay damages or royalties or cease using certain service marks, trademarks, technology or other intellectual property.
We franchise our brands to franchisees. While we try to ensure that the quality of our brands is maintained by all of our franchisees, we cannot assure that these franchisees will not take actions that hurt the value of our brands or our reputation. In addition, our license agreements for the use of the Sotheby's International Realty® and Better Homes and Gardens® Real Estate brands are terminable by the respective licensor prior to the end of the license term if certain conditions occur and the loss of either of these licenses could have a material adverse effect on our business and results of operations.
Other Business Risks
Our goodwill and other long-lived assets are subject to potential impairment which could negatively impact our earnings.
A significant portion of our assets consists of goodwill and other long-lived assets, the carrying value of which may be reduced if we determine that those assets are impaired. If actual results differ from the assumptions and estimates used in the goodwill and long-lived asset valuation calculations, we could incur impairment charges, which would negatively impact our earnings. We have recognized significant non-cash impairment charges in the past, including as related to management’s estimates with respect to the potential impact of the COVID-19 crisis on our business, and we may be required to take additional such charges in the future, which may be material.
We could be subject to significant losses if banks do not honor our escrow and trust deposits.
Our company owned brokerage business and our title, escrow and settlement services business act as escrow agents for numerous customers. As an escrow agent, we receive money from customers to hold until certain conditions are satisfied. Upon the satisfaction of those conditions, we release the money to the appropriate party. We deposit this money with various banks and while these deposits are not assets of the Company (and therefore excluded from our consolidated balance sheet), we remain contingently liable for the disposition of these deposits. These escrow and trust deposits totaled $601 million at December 31, 2021. The banks may hold a significant amount of these deposits in excess of the federal deposit insurance limit. If any of our depository banks were to become unable to honor any portion of our deposits, customers could seek to hold us responsible for such amounts and, if the customers prevailed in their claims, we could be subject to significant losses.
Potential reform of Fannie Mae or Freddie Mac or certain federal agencies or a reduction in U.S. government support for the housing market could have a material impact on our operations.
Numerous pieces of legislation seeking various types of changes for government sponsored entities or GSEs have been introduced in Congress to reform the U.S. housing finance market including among other things, changes designed to reduce government support for housing finance and the winding down of the federal conservatorship of Fannie Mae or Freddie Mac over a period of years. Legislation, if enacted, or additional regulation which curtails Fannie Mae's and/or Freddie Mac's activities and/or results in the wind down of the federal conservatorship of these entities could increase mortgage costs and could result in more stringent underwriting guidelines imposed by lenders or cause other disruptions in the mortgage
industry. Any of the foregoing could have a material adverse effect on the housing market in general and our operations in particular.
Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have an adverse effect on results of operations.
Generally accepted accounting principles in the United States and related accounting pronouncements, implementation guidance and interpretations with regard to a wide range of matters, such as revenue recognition, lease accounting, stock-based compensation, asset impairments, valuation reserves, income taxes and fair value accounting, are highly complex and involve many subjective assumptions, estimates and judgments made by management. Changes in these rules or their interpretations or changes in underlying assumptions, estimates or judgments made by management could significantly change our reported results.
Our international operations are subject to risks not generally experienced by our U.S. operations.
Our relocation services business operates worldwide and we have other international operations and relationships, including but not limited to international franchisees and master franchisees. Such operations and relationships are subject to risks that are not generally experienced by our U.S. operations and could result in losses against which we are not insured and have a negative impact on our profitability. Such risks include, but are not limited to, heightened exposure to local economic conditions and local laws and regulations (including those related to employees), fluctuations in foreign currency exchange rates, and potential adverse changes in the political stability of foreign countries or in their diplomatic relations with the U.S. In addition, the activities of franchisees and master franchisees outside of the U.S. are more difficult and more expensive to monitor and improper activities or mismanagement may be more difficult to detect.
Loss or attrition among our senior executives or other key employees and our inability to develop our existing workforce and to recruit top talent could adversely affect our financial performance.
Our success is largely dependent on the efforts and abilities of our executive officers and other key employees, our ability to develop the skills and talent of our workforce and our ability to recruit, retain and motivate top talent. Talent management has been and continues to be a strategic priority and our ability to recruit and retain our executive officers and key employees, including those with significant experience in the residential real estate market, is subject to numerous factors, including the compensation and benefits we pay. The prevalence of virtual and remote-work arrangements has accelerated in connection with the COVID-19 crisis, leading to the increased mobility of our employee base, which could result in additional competition for critical talent. If we are unable to internally develop or hire skilled executives and other critical positions, successfully plan for succession of employees holding key management positions, or if we encounter challenges associated with change management or the competitiveness of compensation actually realized by our executive officers and other key employees, our ability to continue to execute or evolve our strategy may be impaired and our business may be adversely affected.
Severe weather events or natural or man-made disasters, including increasing severity or frequency of such events due to climate change or otherwise, or other catastrophic events may disrupt our business and have an unfavorable impact on homesale activity.
Realogy Brokerage Group has a significant concentration of offices and transactions in geographic regions where home prices are at the higher end of the U.S. real estate market, particularly the east and west coasts. Coastal areas, including California and Florida, are particularly subject to severe weather events (including hurricanes and flooding) and natural disasters. Increasingly, wildfires in the west have been difficult to contain and cover large areas.
The occurrence of a severe weather event or natural or man-made disaster can reduce the level and quality of home inventory and negatively impact the demand for homes in affected areas, which can disrupt local or regional real estate markets, delay the closing of homesale transactions and have an unfavorable impact on home prices, homesale transaction volume, relocation transactions, and title closing units. These effects may be compounded when the taxes or insurance costs associated with homeownership in the affected area are higher than average. In addition, we could incur damage, which may be significant, to our office locations as a result of severe weather events or natural disasters and our insurance may not be adequate to cover such losses. The impact of climate change, such as more frequent and severe weather events and/or long-term shifts in climate patterns, exacerbates these risks. Likewise our business and operating results could suffer as the result of other catastrophic events, including public health crises, such as pandemics and epidemics.
Increasing scrutiny and changing expectations from investors and customers with respect to corporate sustainability practices may impose additional costs on us or expose us to reputational or other risks.
There is an increasing focus from certain investors and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance (ESG) factors. We publicly share certain information about our ESG initiatives and we may face increased scrutiny related to these activities, including if we fail to achieve progress in these areas on a timely basis, if at all. We could also be criticized for the scope of such initiatives or goals.
Some investors may use ESG factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our related policies are inadequate. In addition, certain clients may require that we implement certain additional ESG procedures or standards in order to continue to do business with us. Meeting these evolving expectations could be costly and failure (or perceived failure) to satisfy investor, client, consumer or other stakeholder expectations and standards, could also cause reputational harm to our business and brands.
Market forecasts and estimates may prove to be inaccurate and, even if achieved, our business could fail to grow at similar rates.
We use forecasts and data from a wide variety of industry sources (including NAR, Fannie Mae and other independent sources) in addition to good faith estimates derived from management's knowledge of the industry to inform our own forecasts and estimates for key market trends. Forecasts regarding rates of home ownership, median sales price, volume of homesales, and other housing industry metrics are inherently uncertain or speculative in nature and actual results for any period could materially differ. Even if the markets in which we compete achieve the growth forecasted by an industry source like NAR or Fannie Mae, our business could fail to grow at similar rates, if at all. See "Item 1.-Business-Market and Industry Data and Forecasts" in this Annual Report for additional information.
Our tax rate is dependent upon a number of factors, a change in any of which could impact our future tax rates and net income.
If our effective tax rate increases, our net income and cash flow could be adversely affected. Our effective income tax rate can vary significantly between periods due to a number of complex factors including projected levels of taxable income; increases in expenses that are not deductible for tax purposes; changes in tax laws or the interpretation of such tax laws; tax audits conducted and settled by various tax authorities; changes to assessments of uncertain tax positions; adjustments to estimated taxes upon finalization of various tax returns; the ability to claim certain tax credits; increases or decreases to valuation allowances recorded against deferred tax assets; and fluctuations in our stock price, impacting deductions for equity grants.
We may incur substantial and unexpected liabilities arising out of our legacy pension plan.
We have a defined benefit pension plan for which participation was frozen as of July 1, 1997; however, the plan is subject to minimum funding requirements. Although the Company to date has met its minimum funding requirements, the pension plan represents a liability on our balance sheet and will continue to require cash contributions from us, which may increase beyond our expectations in future years based on changing market conditions. In addition, changes in interest rates, mortality rates, health care costs, early retirement rates, investment returns and the market value of plan assets can affect the funded status of our pension plan and cause volatility in the future funding requirements of the plan.
We are responsible for certain of Cendant's contingent and other corporate liabilities.
Although we have resolved various Cendant contingent and other corporate liabilities and have established reserves for most of the remaining unresolved claims of which we have knowledge, adverse outcomes from the unresolved Cendant liabilities for which Realogy Group has assumed partial liability under the Separation and Distribution Agreement dated as of July 27, 2006 among Cendant, Realogy Group, Wyndham Worldwide and Travelport could be material with respect to our earnings or cash flows in any given reporting period.
Risks Related to an Investment in Our Common Stock
The price of our common stock may fluctuate significantly.
The market price for our common stock could fluctuate significantly for various reasons, many of which are outside our control, including, but not limited to, those described above and the following:
•our quarterly or annual earnings or those of other companies in our industry;
•our business and/or financial guidance, any revisions to such guidance and/or failure to achieve results consistent with such guidance;
•our operating and financial performance and prospects;
•future sales of substantial amounts of our common stock in the public market;
•the incurrence of additional indebtedness or other adverse changes relating to our debt;
•changes in, or the elimination of, our stock repurchase program or stock repurchases, if any;
•the public's reaction to announcements concerning our business or our competitors' businesses;
•changes in earnings estimates by securities analysts covering our stock;
•ratings changes or commentary by rating agencies on our debt;
•press releases or other commentary by industry forecasters or other housing market participants;
•market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
•actual or potential changes in laws, regulations and legal and regulatory interpretations;
•changes in housing or mortgage finance markets or other housing fundamentals;
•changes in accounting standards, policies, guidance, interpretations or principles;
•arrival and departure of key personnel;
•commencement of new, or adverse resolution of, legal or regulatory proceedings against the Company;
•actions of current or prospective stockholders that may cause temporary or speculative market perceptions, including market rumors and short selling activity in our stock; and
•changes in general market, economic and political conditions in the United States and global economies or financial markets.
If any of the foregoing occurs, it could cause our stock price to fall or experience volatility and may expose us to litigation, including class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
Share repurchase programs could affect the price of our common stock and could be suspended or terminated at any time.
Under the share repurchase program authorized by our Board of Directors in the first quarter of 2022, we are authorized to repurchase our common stock. Such program does not have an expiration date and we are not be obligated to repurchase a specified number or dollar value of shares. The actual timing, number and value of shares repurchased will be determined by us and may fluctuate based on a number of factors, including, but not limited to, our priorities for the use of cash, price, market and economic conditions, and legal requirements and contractual requirements (including compliance with the terms of our debt agreements). Any such repurchase program could also be suspended or terminated at any time.
Repurchases pursuant to a share repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could diminish our cash reserves. Even if such a share repurchase program was to be fully implemented, it may not enhance long-term stockholder value. We can provide no assurance that we will repurchase shares at favorable prices, if at all.
Delaware law and our organizational documents may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their shares.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, provisions of our amended and restated certificate of incorporation and amended and restated bylaws may make
it more difficult for, or prevent a third party from, acquiring control of us without the approval of our Board of Directors. Among other things, these provisions:
•do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
•delegate the sole power to a majority of the Board of Directors to fix the number of directors;
•provide the power to our Board of Directors to fill any vacancy on our Board of Directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;
•authorize the issuance of "blank check" preferred stock without any need for action by stockholders;
•eliminate the ability of stockholders to call special meetings of stockholders;
•prohibit stockholders from acting by written consent; and
•establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
The foregoing factors could impede a merger, takeover or other business combination or discourage a potential investor from making a tender offer for our common stock which, under certain circumstances, could reduce the market value of our common stock and our investors' ability to realize any potential change-in-control premium.
We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.
Our amended and restated certificate of incorporation authorizes us to issue one or more series of preferred stock. Our Board of Directors will have the authority to determine the preferences, limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

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ITEM 2. PROPERTIES
Item 2. Properties.
Substantially all of our properties are leased commercial space; we do not own any real property of significance. From December 31, 2020 to December 31, 2021, we decreased our leased-office footprint from approximately 5.7 million square feet to approximately 5.2 million square feet, of which as of December 31, 2021, approximately 0.8 million square feet are impaired or restructured.
Corporate headquarters; Realogy Franchise and Brokerage Groups. Our corporate headquarters is located in Madison, New Jersey with a lease term expiring in December 2029. This office also serves as the main operating space for Realogy Franchise Group and as corporate headquarters (and one regional headquarters) for Realogy Brokerage Group. The space consists of approximately 270,000 square feet, of which our businesses currently utilize approximately 56%.
Other Realogy Brokerage Group. As of December 31, 2021, Realogy Brokerage Group leased approximately 3.7 million square feet of domestic office space under approximately 872 leases. As of December 31, 2021, Realogy Brokerage Group leased one facility serving as regional headquarters, 48 facilities serving as local administration, training facilities or storage, and approximately 680 brokerage sales offices under 823 leases. These sales offices are generally located in shopping centers and small office parks, typically with lease terms of one to five years. Included in the 3.7 million square feet is approximately 0.3 million square feet of vacant and/or subleased space, principally relating to brokerage sales office consolidations.
Realogy Title Group. Our title agency business conducts its main operations at a leased facility in Mount Laurel, New Jersey, pursuant to a lease expiring in December 2026. Our title underwriting business is headquartered in Dallas, Texas, with a lease expiring in July 2026. As of December 31, 2021, these businesses also have leased regional and branch offices in 24 states and Washington, D.C.
We believe that all of our properties and facilities are well maintained.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
See Note 14, "Commitments and Contingencies-Litigation", to the Consolidated Financial Statements in this Annual Report for additional information on the Company's legal proceedings.
See "Item 1. Business-Government and Other Regulations" in this Annual Report for additional information on important legal and regulatory matters that impact our business, including a summary of the current legal and regulatory environment.
The Company believes that it has adequately accrued for legal matters as appropriate. The Company records litigation accruals for legal matters which are both probable and estimable.
Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur and even cases brought by us can involve counterclaims asserted against us. In addition, litigation and other legal matters, including class action lawsuits and regulatory proceedings challenging practices that have broad impact can be costly to defend and, depending on the class size and claims, could be costly to settle. As such, the Company could incur judgments or enter into settlements of claims with liability that are materially in excess of amounts accrued and these settlements could have a material adverse effect on the Company’s financial condition, results of operations or cash flows in any particular period.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
None.
Information about our Executive Officers
The following provides information regarding individuals who served as executive officers of Realogy Group and Realogy Holdings at February 23, 2022. Our executive officers also serve as officers or directors of certain of our other subsidiaries or minority-owned joint ventures. The age of each individual indicated below is as of February 23, 2022.
Ryan M. Schneider, 52, has served as our Chief Executive Officer and President since December 31, 2017 and as a director since October 20, 2017. From October 23, 2017 until his appointment as our CEO and President, Mr. Schneider served as the Company’s President and Chief Operating Officer. Prior to joining the Company, Mr. Schneider served as
President, Card of Capital One Financial Corporation (“Capital One”), a financial holding company, from December 2007 to November 2016 where he was responsible for all of Capital One’s consumer and small business credit card lines of business in the United States, the United Kingdom and Canada. Mr. Schneider held a variety of other positions within Capital One from December 2001 to December 2007, including Executive Vice President and President, Auto Finance and Executive Vice President, U.S. Card. From November 2016 until April 2017, he served as Senior Advisor to Capital One. Under the terms of his employment agreement, Mr. Schneider serves as a member of the Board of Realogy. He is also a member of the Board of Directors of Anthem, Inc.
Rizwan Akhtar, 46, has served as our Executive Vice President, Chief Technology Officer-Business Technology since November 2020, having previously served as our Senior Vice President, Chief Information Officer at Cartus Corporation from August 2018. Prior to joining the Company, Mr. Akhtar served as Managing Director, Personal & Business Banking U.S. at BMO Harris, a North American bank, from April 2017 to August 2018, where he was responsible for technology solutions and products supporting bank customers. From November 2007 to March 2017, he served as Group Vice President, M&T Bank, a financial holding company, where he was responsible for enterprise digital channels (online and mobile) across M&T Bank business lines. Mr. Akhtar has over 20 years of diverse experience in business-focused IT leadership, including support of business strategies enabling growth and transformation.
Donald J. Casey, 60, has served as the President and Chief Executive Officer of Realogy Title Group LLC (formerly known as Title Resource Group LLC) since April 2002. From 1995 until April 2002, he served as Senior Vice President, Brands of PHH Mortgage. From 1993 to 1995, Mr. Casey served as Vice President, Government Operations of Cendant Mortgage. From 1989 to 1993, Mr. Casey served as a secondary marketing analyst for PHH Mortgage Services (prior to its acquisition by Cendant).
M. Ryan Gorman, 43, has served as the President and Chief Executive Officer of Realogy Brokerage Group LLC (formerly known as NRT LLC) since January 2018 and as CEO of Coldwell Banker (both company owned and franchised brokerages) since January 2020. Previously he served as the Chief Strategy & Operating Officer of NRT LLC from September 2016 to January 2018. From May 2012 to September 2016, Mr. Gorman served at NRT’s Senior Vice President, Strategic Operations and from November 2007 to May 2012 he served as the Company’s Head of Strategic Development. From October 2004 to November 2007, Mr. Gorman served as the Head of Strategic Development of TRG (formerly known as Cendant Settlement Services Group). Before joining the Company, he held advisory and principal investment roles with PricewaterhouseCoopers, Credit Suisse and The Blackstone Group.
Timothy B. Gustavson, 54, has served as our Chief Accounting Officer, Controller and Senior Vice President for Realogy since March 2015. In addition to this role, from November 2018 to March 2019, Mr. Gustavson served as our as Interim Chief Financial Officer and Treasurer. From 2008 until March 2015, he served as our Assistant Corporate Controller and Vice President of Finance. Mr. Gustavson joined Realogy in 2006 as Vice President of External Reporting and prior to Realogy, Mr. Gustavson spent 16 years in public accounting with the KPMG audit practice. Mr. Gustavson is a certified public accountant.
Katrina Helmkamp, 56, has served as the President and Chief Executive Officer of Realogy Leads Group and Cartus Relocation Services since July 2018. Prior to Realogy, Ms. Helmkamp served as Chief Executive Officer of Lenox Corporation, a market leader in quality tabletop and giftware, from November 2016 to June 2018. From 2015 to 2016, she acted as a consultant, primarily working with private equity firms. From 2010 to 2014, she was Chief Executive Officer of SVP Worldwide, the global leader in consumer sewing machines. From 2007 to 2010, she led teams at Whirlpool Corporation as Vice President, Global Refrigeration, and then Senior Vice President, North America Product. From 2005 to 2007, Ms. Helmkamp held leadership roles at ServiceMaster, including as President of Terminix. In addition to her executive experience, she was a partner for six years at The Boston Consulting Group, from 1998 to 2004.
Nashira Layade, 42, has served as our Executive Vice President, Chief Technology Officer-Technology Services since November 2020, having previously served as our Senior Vice President, Chief Information Security Officer since July 2016. Prior to joining the Company, Ms. Layade served as Executive Director at Time Warner, Inc., a multinational media and entertainment conglomerate, from August 2011 to June 2016, where she responsible to protect the digital assets of Time Warner Inc., and collaborated with Time Warner’s business, technology, and legal executives to effectively manage Time Warner’s risk and reputational profile. She has 20 years’ experience as a thought leader in information security, data privacy and risk managements, having previously served at Prudential Financial as Director, Information Security, Citigroup Inc. as Vice President, Senior Risk Control Officer and Bloomberg LP as Global Head.
Melissa K. McSherry, 49, has served as our Chief Operating Officer since February 22, 2022. Prior to joining the Company, Ms. McSherry served as Senior Vice President, Global Head of Risk and Identity Solutions at Visa, Inc., a multinational financial services corporation, from 2016 to February 2022. While at Visa, Ms. McSherry led a cross functional team of approximately 500 persons that spanned product, engineering, sales, data science, client success, operations, and product marketing, among others. From 2014 to 2016, Ms. McSherry founded and served as the Chief Executive Officer of Firinne, advising CEOs, owners, and boards on strategy and execution. Ms. McSherry also served at Capital One Financial Corporation from 2002 until 2014, most recently in the role of Senior Vice President, Card Partnerships from 2010 until 2014.
Tanya Reu-Narvaez, 45, has served as our Executive Vice President, Chief People Officer since January 2021, having previously served as our Senior Vice President, Human Resources since 2018, where she oversaw the team responsible for supporting Realogy Brokerage Group and the Realogy Franchise Group. From 2009 to 2018, she served as Senior Vice President of Human Resources for the Company’s corporate and franchise group divisions. In that role, she was responsible for implementing strategic talent initiatives aligned to business objectives including talent management and acquisition, employee engagement, retention and diversity and inclusion. Ms. Reu-Narvaez joined Cendant Corporation in 2002, where she last held the role of Vice President of Human Resources before joining Realogy in 2006 at the time of its spin-off from Cendant in the same role. She is a member and former Chair of the Corporate Board of Governors of the National Association of Hispanic Real Estate Professionals (NAHREP).
Charlotte Simonelli, 50, has served as our Executive Vice President, Chief Financial Officer and Treasurer since March 2019. Immediately prior to joining Realogy, Ms. Simonelli was employed by Johnson & Johnson as Vice President and Chief Financial Officer, Medical Devices from September 2017 and, prior thereto, as Vice President and Chief Financial Officer, Enterprise Supply Chain from January 2016. Previously, she held various finance roles in large multi-brand global organizations, including Reckitt Benckiser Inc. (a multinational consumer goods company), Kraft Foods Inc. (now Mondelez International Inc.), and PepsiCo, Inc. Ms. Simonelli served at Reckitt Benckiser from 2011 to 2015, including in the roles of Vice President, Finance, North America (from July 2014 to September 2015), Senior Vice President, Finance, ENA (a territory that included Europe and North America) from January 2012 to July 2014 and Senior Vice President, Finance, NAA (a territory that included North America, Australia and New Zealand) from April 2011 to December 2011. Ms. Simonelli began her career at Unilever US, Inc., focused on financial planning and analysis. She is also a member of the board of directors of NielsenIQ and serves as their Audit Committee Chair.
Marilyn J. Wasser, 66, has served as our Executive Vice President, General Counsel and Corporate Secretary since May 10, 2007. From May 2005 until May 2007, Ms. Wasser was Executive Vice President, General Counsel and Corporate Secretary for Telcordia Technologies, a provider of telecommunications software and services. From 1983 until 2005, Ms. Wasser served in several positions of increasing responsibility with AT&T Corporation and AT&T Wireless Services, ultimately serving as Executive Vice President, Associate General Counsel and Corporate Secretary of AT&T Wireless Services from September 2002 to February 2005 and immediately prior thereto, from 1995 until 2002, as Executive Vice President, Law, Corporate Secretary and Chief Compliance Officer of AT&T.
Susan Yannaccone, 46, has served as our Executive Vice President, President and Chief Executive Officer of Realogy Franchise Group since November 30, 2020, having previously served as Regional Executive Vice President of Realogy Brokerage Group LLC, heading the Eastern Seaboard and Midwest regions for Coldwell Banker Realty, the brand’s owned brokerage operations since March 2018. Ms. Yannaccone joined Realogy in 2015, serving as Chief Operating Officer of ERA from July 2015 to September 2016 and as President and Chief Executive Officer of ERA from September 2016 to March 2018. Prior to that time, she served as Senior Vice President, Network Services for HSF Affiliates from 2013 to July 2015 and Vice President of Operations for Real Living from 2010 to 2012.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol "RLGY". As of February 23, 2022, the number of stockholders of record was 47.
Share Repurchase Program
The Company may repurchase shares of its common stock pursuant to authorizations made from its Board of Directors. Shares repurchased are retired and not displayed separately as treasury stock on the consolidated financial statements. The par value of the shares repurchased and retired is deducted from common stock and the excess of the purchase price over par value is first charged against any available additional paid-in-capital with the balance charged to retained earnings. Direct costs incurred to repurchase the shares are included in the total cost of the shares.
On February 16, 2022, our Board of Directors authorized a new share repurchase program of up to $300 million of the Company's common stock. Repurchases under the program may be made at management's discretion from time to time on the open market or through privately negotiated transactions. The actual timing, number and value of shares repurchased will be determined by us and may fluctuate based on a number of factors, including, but not limited to, our priorities for the use of cash, price, market and economic conditions, and legal and contractual requirements (including compliance with the terms of our debt agreements). The repurchase program has no time limit and may be suspended or discontinued at any time.
Dividends
In early November 2019, the Company's Board of Directors discontinued the Company's quarterly dividend. The Company does not anticipate paying any dividends on its common stock in the foreseeable future.
Stock Performance Graph
The stock performance graph set forth below is not deemed filed with the Securities and Exchange Commission and shall not be deemed incorporated by reference into any of our prior or future filings made with the Securities and Exchange Commission.
The following graph assumes a $100 investment on December 31, 2016, and reinvestment of all dividends, in the S&P MidCap 400 index and the S&P Home Builders Select Industry index, or XHB Index (which includes a diversified group of holdings representing home building, building products, home furnishings and home appliances). A portion of our 2019, 2020 and 2021 long-term incentive compensation awards are tied to the relative performance of our total stockholder return as compared to the S&P MidCap 400 over the three-year periods ending December 31, 2021, 2022 and 2023.
Cumulative Total Return
December 31,
2016 2017 2018 2019 2020 2021
Realogy Holdings Corp. $ 100.00 $ 104.26 $ 58.72 $ 40.01 $ 54.23 $ 69.48
SPDR S&P Homebuilders ETF (XHB) index $ 100.00 $ 173.35 $ 117.44 $ 177.10 $ 220.46 $ 331.46
S&P MidCap 400 index $ 100.00 $ 116.24 $ 103.36 $ 130.44 $ 148.26 $ 184.97

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts in tables are in millions. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements. See "Forward-Looking Statements" and "Item 1A.-Risk Factors" for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements.
RECENT DEVELOPMENTS
Senior Notes Offering and Redemption of 9.375% Senior Notes and 7.625% Senior Secured Second Lien Notes
We took steps in 2021 and the first quarter of 2022 to extend our debt maturity profile, reduce interest expense, and improve the mix of secured and unsecured debt, resulting in multiple credit rating upgrades.
On January 10, 2022, the Company issued $1,000 million of 5.25% Senior Notes due 2030. On February 4, 2022, we used the net proceeds from the issuance, together with cash on hand, to redeem in full both the $550 million of 9.375% Senior Notes and the $550 million of 7.625% Senior Secured Second Lien Notes, each at a redemption price of 100% plus the applicable "make whole" premium, together with accrued interest to the redemption date on both such notes.
See the pro forma debt table as of December 31, 2021 after giving effect to the foregoing refinancing transactions under the header "Financial Obligations" below. See Note 9, "Short and Long-Term Debt", and Note 19, "Subsequent Events", to the Consolidated Financial Statements for additional information.
CURRENT BUSINESS AND INDUSTRY TRENDS
The residential real estate market has seen robust growth since 2019. According to NAR, since 2019, homesale transaction volume increased 37% due to a 19% increase in the average homesale price and a 15% increase in homesale transactions. A strong recovery in the residential real estate market began late in the second quarter of 2020, following a period of sharp decline in homesale transactions that started in the final weeks of the first quarter of 2020 due to the COVID-19 crisis.
During 2021, we believe sustained high levels of demand in the residential real estate market have been supported by the continuation of certain beneficial consumer trends such as home buyer preferences for certain geographies (including attractive tax and weather destinations) and demand in the high-end market as well as a favorable mortgage rate environment, an increase in the prevalence of remote work arrangements, and home buying trends among millennials. Both our company owned and franchised businesses have benefited from increased volume in the high-end markets, in particular our Sotheby's International Realty, Corcoran and Coldwell Banker brands. Continued high demand and low inventory levels have driven increases in average homesale prices throughout the recovery and, starting in the third quarter of 2021, we believe limited inventory contributed to the decline in existing homesale transactions.
On a combined basis for Realogy Franchise and Brokerage Groups, homesale transaction volume increased 29% during 2021 compared to 2020-exceeding the 20% increase in homesale transaction volume reported by NAR over the same period.
•Homesale transaction volume at Realogy Brokerage Group increased 32% during such period, primarily as a result of a 19% increase in average homesale price and an 11% increase in existing homesale transactions.
•Homesale transaction volume at Realogy Franchise Group increased 27% during such period, primarily as a result of a 19% increase in average homesale price and a 7% increase in existing homesale transactions.
The 20% increase in homesale transaction volume reported by NAR was attributed to an 11% increase in average homesale price and a 9% increase in existing homesale transactions.
The exceptional recovery from the COVID-19 crisis that we experienced starting in the third quarter of 2020 makes year-over-year comparisons of homesale transaction volume in the second half of 2021 challenging. However, the strength of homesale transaction volume during 2021 can also be demonstrated by comparison to 2019, as shown in the following charts.
NAR(a) Existing Homesale Transaction Volume
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(a) Historical existing homesale data is as of the most recent NAR press release, which is subject to sampling error.
Existing Homesales
For the year ended December 31, 2021, NAR existing homesale transactions increased to 6.1 million homes or up 9% compared to 2020. For the year ended December 31, 2021, homesale transactions on a combined basis for Realogy Franchise and Brokerage Groups increased 8% compared to 2020 due primarily to continued strong demand, particularly at the high-end of the market. Realogy Brokerage Group also benefited from its concentrated geographic footprint in certain major metropolitan markets, including New York City. We believe that constrained inventory contributed to the year-over-year decline in homesale transactions in the second half of 2021. The annual and quarterly year-over-year trends in homesale transactions are as follows:
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(a) Historical existing homesale data is as of the most recent NAR press release, which is subject to sampling error.
(b) Existing homesale data, on a seasonally adjusted basis, is as of the most recent Fannie Mae press release.
As of their most recent releases, NAR is forecasting existing homesale transactions to decrease 3% in 2022 and to increase 2% in 2023 while Fannie Mae is forecasting existing homesale transactions to decrease 5% in 2022 and 4% in 2023.
Existing Homesale Price
In 2021, NAR existing homesale average price increased 11% compared to 2020. For the year ended December 31, 2021, average homesale price on a combined basis for Realogy Franchise and Brokerage Groups increased 20% compared to 2020 with approximately equal contribution from each. Strong demand in the overall housing market benefited both Realogy Franchise Group and Realogy Brokerage Group. Low inventory also contributed to higher average homesale price, with both Realogy Franchise Group and Realogy Brokerage Group also benefiting from strength at the high-end of the housing market. Realogy Brokerage Group also benefited from its concentrated geographic footprint in certain major metropolitan markets, including New York City. The annual and quarterly year-over-year trends in the price of homes are as follows:
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(a) Historical homesale price data is for existing homesale average price and is as of the most recent NAR press release.
(b) Existing homesale price data is for median price and is as of the most recent Fannie Mae press release.
As of their most recent releases, NAR is forecasting median existing homesale price to increase 5% in 2022 and 4% in 2023 while Fannie Mae is forecasting median existing homesale price to increase 11% in 2022 and 4% in 2023.
Given the cyclical nature of the industry, there remain significant uncertainties regarding whether the strong demand and other beneficial consumer trends discussed above will be maintained at the same strength or at all, and whether such trends will continue to have a positive effect on our financial results, as well as significant uncertainties related to the COVID-19 crisis, including the impact of vaccines and virus mutations on the severity, duration and extent of the pandemic.
2020 Temporary Cost-Saving Measures. Quarterly earnings comparisons were challenged in 2021 by the absence of the temporary cost-saving measures we took in the second and third quarters of 2020 in response to the COVID-19 crisis. Those temporary cost saving measures resulted in approximately $150 million of aggregate savings in the second and third quarter of 2020, with approximately two-thirds of such amount recognized in the second quarter of 2020. Substantially all of these measures were reversed during the third quarter of 2020 and we do not expect to realize comparable cost-savings from these prior temporary measures in future periods.
Realogy Title Group, including Mortgage Origination Joint Venture. We have been in an unusually prolonged period of low interest rates. Our financial results are typically favorably impacted by a low interest rate environment as a decline in mortgage rates generally drives increased refinancing activity as well as homesale transactions that in turn drives increased title services and mortgage origination activity. If the pace of existing homesale transactions slows (due to increases in mortgage rates, declines in affordability, or otherwise), we would also expect decreased title services and mortgage origination activity. For example, the number of purchase title and closing units declined 2% in the fourth quarter of 2021 compared to the prior period, as the number of homesale transactions declined.
However, while refinancing volumes are highly correlated with (and particularly sensitive to) increases in mortgage rates, they are also inherently cyclical. Refinancing volumes were exceptionally strong throughout 2020 and into the first quarter of 2021, but began to soften during the second and third quarters of 2021. In the fourth quarter of 2021, refinancing title and closing units at Realogy Title Group declined 44% compared to the prior period. Given the strength of refinancing volumes in the first quarter of 2021, we expect year-over-year comparisons to continue to be challenging in the first quarter of 2022.
Equity in earnings at Guaranteed Rate Affinity declined from $126 million in 2020 to $49 million in 2021, primarily driven by the impact of mark-to-market adjustments on the mortgage loan pipeline and gain-on-sale margin compression, partially offset by strong purchase volume growth. Operating margins and mark-to-market adjustments may continue to be compressed due to competitive factors related to decreased demand as well as any mortgage rate increases.
Mortgage Rates. As noted above, mortgage rate increases generally have a negative impact on multiple aspects of our business. A wide variety of factors can contribute to mortgage rates, including Treasury note yields, federal interest rates, inflation, demand, consumer income, unemployment levels and foreclosure rates. Yields on the 10-year Treasury note hit all-time lows during the COVID-19 crisis, but as of December 31, 2021 were 1.52% as compared to 0.93% as of December 31, 2020.
Fiscal and monetary policies of the federal government and its agencies can also adversely impact rates, including reductions in the level of its purchases of mortgage-backed securities. In December 2021, the Federal Reserve Board announced its intention to accelerate the reduction of its purchases of mortgage-backed securities (which could result in this stimulus program concluding in March 2022) and released economic projections that showed officials expect to raise interest rates three times in 2022.
Although mortgage rates began to increase during 2021 from the lows seen in late 2020, they continued during the year to be at low levels compared to the 10-year average of 3.79% on a 30-year fixed-rate mortgage, according to Freddie Mac. On December 31, 2021, mortgage rates on a 30-year fixed-rate mortgage were 3.10%, or approximately 40 basis points higher than on December 31, 2020 and approximately 70 basis points lower than the 10-year average, according to Freddie Mac. For the week ending February 24, 2022, mortgage rates on a 30-year fixed-rate mortgage averaged 3.89%, according to Freddie Mac.
Banks may tighten mortgage standards, even if rates remain at low levels or decline, which could limit the availability of mortgage financing. In addition, many federal and/or state monetary or fiscal programs meant to assist individuals and businesses in the navigation of COVID-related financial challenges (including mortgage forbearance programs) have ended or are expected to end in the near term, which could have a negative impact on consumer financial health.
Inventory. Insufficient inventory levels generally have a negative impact on homesale transaction growth and we believe this factor contributed to the decline in homesale transactions in the second half of 2021. We have also seen an intensified pace of inventory supply turnover since the second half of 2020. For example, at our company owned Coldwell
Banker brokerages, the speed at which a home that was listed for sale went under contract reduced to a median of 19 days on the market in the fourth quarter of 2021 from a median of 21 days on the market in the fourth quarter of 2020 and a median of 37 days on the market in the fourth quarter of 2019. Continued or accelerated declines in inventory have and may continue to result in insufficient supply to meet any increased demand driven by the lower interest rate environment and beneficial consumer trends. Additional inventory pressure arises from periods of slow or decelerated new housing construction, real estate models that purchase homes for rental or corporate use (rather than immediate resale), and alternative competitors, such as traditional iBuying models.
Low housing inventory levels have been a persistent industry-wide concern for years, in particular in certain highly sought-after geographies and at lower price points. According to NAR, the inventory of existing homes for sale in the U.S. decreased approximately 17% from 1.0 million as of January 2021 to 0.9 million as of January 2022, representing a record-setting low since 1999, when NAR started tracking the data. As a result, inventory has decreased from 1.9 months of supply in January 2021 to 1.6 months as of January 2022. These levels continue to be significantly below the 10-year average of 4.2 months, the 15-year average of 5.8 months and the 25-year average of 5.5 months.
Affordability. The fixed housing affordability index, as reported by NAR, decreased from 173 for December 2020 to 147 for December 2021 which is the lowest it has been since 2018. A housing affordability index above 100 signifies that a family earning the median income has sufficient income to purchase a median-priced home, assuming a 20 percent down payment and ability to qualify for a mortgage. Housing affordability may be impacted in future periods by inflationary pressures, increases in mortgage rates and average homesale price, further or accelerated declines in inventory, or a rise in unemployment or other economic challenges.
Recruitment and Retention of Independent Sales Agents; Commission Income. Recruitment and retention of independent sales agents and independent sales agent teams are critical to the business and financial results of a brokerage, including our company owned brokerages and those operated by our affiliated franchisees. In 2021, agents affiliated with our company owned brokerages grew 6% and, based on information from such franchisees, agents affiliated with our U.S. franchisees increased 2%, in each case as compared to 2020.
Aggressive competition for the affiliation of independent sales agents in this industry continues to make recruitment and retention efforts at both Realogy Franchise and Brokerage Groups challenging, in particular with respect to more productive sales agents, and has had in the past and may again in the future have a negative impact on our market share. These competitive market factors along with other trends (such as changes in the spending patterns of independent sales agents, as more agents purchase services from third parties outside of their affiliated broker) are expected to continue to put upward pressure on the average share of commissions earned by independent sales agents. If independent sales agents affiliated with our company owned brokerages are paid a higher proportion of the commissions earned on a homesale transaction or the level of commission income we receive from a homesale transaction is otherwise reduced, the operating margins of our company owned residential brokerages could continue to be adversely affected. Similarly, franchisees have and may continue to seek reduced royalty fee arrangements or other incentives from us to offset the continued business pressures on such franchisees, which would result in a reduction in royalty fees paid to us. For additional information, see "Item 1.-Business-Competition."
Non-Traditional Competition and Industry Disruption. The significant size of the U.S. real estate market has continued to attract outside capital investment in disruptive and traditional competitors that seek to access a portion of this market. These competitors and their investors may pursue increases in market share over profitability, further complicating the competitive landscape.
A growing number of companies are competing in non-traditional ways for a portion of the gross commission income generated by homesale transactions. For example, virtual brokerages and other brokerages that offer the sales agent fewer services, but a higher percentage of commission income (or other compensation, such as sign-on or equity awards), directly compete with traditional brokerage models and may dilute the relationship between the brokerage and the agent and add additional competitive pressure for independent sales agent talent.
We believe that certain alternative transaction models, such as iBuying and home swap models (and related models that help buyers compete as cash buyers), charge significant fees to purchase homes and are less reliant on brokerages and sales agents, which could have a negative impact on such brokerages and agents as well as on the average homesale broker commission rate. These models also look to capture ancillary real estate services such as title and mortgage services and referral fees. RealSure offers consumers alternatives to such models through products and services designed to offer home buyers and sellers options that give them a competitive edge when buying or selling a home, while also keeping the
expertise of an independent sales agent at the center of the transaction. RealSure® Sell is available in 24 U.S. cities as of December 31, 2021. We are investing to expand the scale of RealSure. In the fourth quarter of 2021, RealSure® Buy was launched in three pilot cities in the U.S.
In addition, the concentration and market power of the top listing aggregators allow them to monetize their platforms by a variety of actions, including but not limited to, setting up competing brokerages and/or expanding their offerings to include products (including agent tools) and services ancillary to the real estate transaction, such as title, escrow and mortgage origination services, that compete with services offered by us, charging significant referral, listing and display fees, diluting the relationship between agents and brokers and between agents and the consumer, tying referrals to use of their products, consolidating and leveraging data, and engaging in preferential or exclusionary practices to favor or disfavor other industry participants. These actions divert and reduce the earnings of other industry participants, including our company owned and franchised brokerages. Aggregators could intensify their current business tactics or introduce new programs that could be materially disadvantageous to our business and other brokerage participants in the industry and such tactics could further increase pressures on the profitability of our company owned and franchised brokerages and affiliated independent sales agents, reduce our franchisor service revenue and dilute our relationships with affiliated franchisees and such franchisees' relationships with affiliated independent sales agents and buyers and sellers of homes.
New Development. Realogy Brokerage Group has relationships with developers, primarily in major cities, in particular New York City, to provide marketing and brokerage services in new developments. New development closings can vary significantly from year to year due to timing matters that are outside of our control, including long cycle times and irregular project completion timing. In addition, the new development industry has also experienced significant disruption due to COVID-19. Accordingly, earnings attributable to this business can fluctuate meaningfully from year to year, impacting both homesale transaction volume and the share of gross commission income we realize on such transactions.
Relocation Spending. Global corporate spending on relocation services has continued to shift to lower cost relocation benefits as corporate clients engage in cost reduction initiatives and/or restructuring programs, as well as changes in employment relocation trends. As a result of a shift in the mix of services and number of services being delivered per move, as well as lower volume growth, our relocation operations have been increasingly subject to a competitive pricing environment and lower average revenue per relocation. The COVID-19 crisis, along with related ongoing travel restrictions in the U.S. and elsewhere, has exacerbated these trends and is expected to continue to put pressure on the financial results of Cartus Relocation Services (part of the Realogy Franchise Group segment). We are unable to determine when, or if, relocation volumes will return to levels consistent with those prior to the onset of the COVID-19 crisis. In addition, the greater acceptance of remote work arrangements during the COVID-19 crisis has the potential to have a negative impact on relocation volumes in the long-term.
Leads Generation. Through Realogy Leads Group, a part of Realogy Franchise Group, we seek to provide high-quality leads to affiliated agents, including through real estate benefit programs that provide home-buying and selling assistance to members of organizations such as credit unions and interest groups that have established members who are buying or selling a home as well as to consumers and corporations who have expressed interest in a certain brand, product or service (such as relocation services). We operate several real estate benefit programs, including a program with a large long-term client as well as other programs we have launched in the past two years, including AARP® Real Estate Benefits. There can be no assurance that we will be able to maintain or expand these programs, and even if we are successful in these efforts, such programs may not generate a meaningful number of high-quality leads.
Legal & Regulatory Environment. See Part I., "Item 1.-Business-Government and Other Regulations" of this Annual Report for a discussion of the current legal and regulatory environment and how such environment could potentially impact us.
KEY DRIVERS OF OUR BUSINESSES
Within Realogy Franchise and Brokerage Groups, we measure operating performance using the following key operating metrics: (i) closed homesale sides, which represents either the "buy" side or the "sell" side of a homesale transaction, (ii) average homesale price, which represents the average selling price of closed homesale transactions, and (iii) average homesale broker commission rate, which represents the average commission rate earned on either the "buy" side or "sell" side of a homesale transaction.
For Realogy Franchise Group, we also use net royalty per side, which represents the royalty payment to Realogy Franchise Group for each homesale transaction side taking into account royalty rates, homesale price, average broker commission rates, volume incentives achieved and other incentives. We utilize net royalty per side as it includes the impact of changes in average homesale price as well as all incentives and represents the royalty revenue impact of each incremental side.
For Realogy Brokerage Group, we also use gross commission income per side, which represents gross commission income divided by closed homesale sides. Gross commission income includes commissions earned in homesale transactions and certain other activities, primarily leasing transactions. Realogy Brokerage Group, as a franchisee of Realogy Franchise Group, pays a royalty fee of approximately 6% per transaction to Realogy Franchise Group from the commission earned on a real estate transaction. The remainder of gross commission income is split between the broker (Realogy Brokerage Group) and the independent sales agent in accordance with their applicable independent contractor agreement (which specifies the portion of the broker commission to be paid to the agent), which varies by agent agreement.
For Realogy Title Group, operating performance is evaluated using the following key metrics: (i) purchase title and closing units, which represent the number of title and closing units we process as a result of home purchases, (ii) refinance title and closing units, which represent the number of title and closing units we process as a result of homeowners refinancing their home loans, and (iii) average fee per closing unit, which represents the average fee we earn on purchase title and refinancing title sides.
The following table presents our drivers for the years ended December 31, 2021, 2020 and 2019. See "Results of Operations" below for a discussion as to how these drivers affected our business for the periods presented.
Year Ended December 31, % Change Year Ended December 31, % Change
2021 2020 2020 2019
Realogy Franchise Group (a)
Closed homesale sides 1,163,036 1,090,345 7 % 1,090,345 1,061,500 3 %
Average homesale price $ 424,436 $ 355,214 19 % $ 355,214 $ 314,769 13 %
Average homesale broker commission rate 2.45 % 2.48 % (3) bps 2.48 % 2.47 % 1 bps
Net royalty per side $ 406 $ 353 15 % $ 353 $ 327 8 %
Realogy Brokerage Group
Closed homesale sides 371,135 333,736 11 % 333,736 325,652 2 %
Average homesale price $ 657,307 $ 553,081 19 % $ 553,081 $ 522,282 6 %
Average homesale broker commission rate 2.42 % 2.43 % (1) bps 2.43 % 2.41 % 2 bps
Gross commission income per side $ 16,486 $ 13,990 18 % $ 13,990 $ 13,296 5 %
Realogy Title Group
Purchase title and closing units (b) 163,187 144,271 13 % 144,271 142,926 1 %
Refinance title and closing units (c) 56,675 62,887 (10) % 62,887 25,383 148 %
Average fee per closing unit (d) $ 2,709 $ 2,291 18 % $ 2,291 $ 2,358 (3) %
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(a)Includes all franchisees except for Realogy Brokerage Group.
(b)Purchase title and closing units for the years ended December 31, 2020 and 2019 were revised to reflect a decrease of 4,855 and 3,284 units, respectively. The change was for the number of units only and did not impact revenue.
(c)Refinance title and closing units for the years ended December 31, 2020 and 2019 were revised to reflect a decrease of 2,437 and 1,206 units, respectively. The change was for the number of units only and did not impact revenue.
(d)With the change in units noted above, Average fee per closing unit for the years ended December 31, 2020 and 2019 was updated to reflect an increase of $78 and $61, respectively.
A decline in the number of homesale transactions and/or decline in homesale prices could adversely affect our results of operations by: (i) reducing the royalties we receive from our franchisees, (ii) reducing the commissions our company owned brokerage operations earn, (iii) reducing the demand for services offered through Realogy Title Group, including title, escrow and settlement services or the services of our mortgage origination or other joint ventures, and (iv) increasing the risk of franchisee default due to lower homesale volume. Our results could also be negatively affected by a decline in commission rates charged by brokers, greater commission payments to independent sales agents, lower royalty rates from franchisees or an increase in other incentives paid to franchisees, among other factors.
Over the past 10 years, we have experienced an average of approximately one basis point decline in the average homesale broker commission rate each year, which we believe has been largely attributable to increases in average homesale prices (as higher priced homes tend to have a lower broker commission) and, to a lesser extent, competitors providing fewer or similar services for a reduced fee.
Royalty fees are charged to all franchisees pursuant to the terms of the relevant franchise agreements and are included in each of the real estate brands' franchise disclosure documents. Other incentives may also be used as consideration to attract new franchisees, grow franchisees (including through independent sales agent recruitment) or extend existing franchise agreements, although in contrast to volume incentives, the majority of other incentives are not homesale transaction based. See "Item 1.-Business-Realogy Franchise Group-Operations-Franchising" for additional information.
Transaction volume growth has generally exceeded royalty revenue growth due primarily to the growth in gross commission income generated by our top 250 franchisees and our increased use of other sales incentives, both of which directly impact royalty revenue. Over the past several years, our top 250 franchisees have grown faster than our other franchisees through organic growth and market consolidation. If the amount of gross commission income generated by our top 250 franchisees continues to grow at a quicker pace relative to our other franchisees, we would expect our royalty revenue to continue to increase, but at a slower pace than homesale transaction volume. Likewise, our royalty revenue would continue to increase, but at a slower pace than homesale transaction volume, if the gross commission income generated by all of our franchisees grows faster than the applicable annual volume incentive table increase or if we increase our use of standard volume or other incentives. However, in the event that the gross commission income generated by our franchisees increases as a result of increased transaction volume, we would expect to recognize an increase in overall royalty payments to us.
We face significant competition from other national real estate brokerage brand franchisors for franchisees and we expect that the trend of increasing incentives will continue in the future in order to attract, retain, and help grow certain franchisees. Taking into account competitive factors, we may, from time to time, introduce pilot programs or restructure or revise the model used at one or more franchised brands, including with respect to fee structures, minimum production requirements or other terms.
We expect to experience pressures on net royalty per side, largely due to the impact of competitive market factors noted above, continued concentration among our top 250 franchisees, and the impact of affiliated franchisees of our Better Homes and Gardens® Real Estate brand moving to the "capped fee model" we adopted in 2019; however, these pressures were more than offset by increases in homesale prices in the three and twelve-month periods ended December 31, 2021.
Realogy Brokerage Group has a significant concentration of real estate brokerage offices and transactions in geographic regions where home prices are at the higher end of the U.S. real estate market, particularly the east and west coasts, while Realogy Franchise Group has franchised offices that are more widely dispersed across the United States. Accordingly, operating results and homesale statistics may differ between Realogy Brokerage Group and Realogy Franchise Group based upon geographic presence and the corresponding homesale activity in each geographic region. In addition, the share of commissions earned by independent sales agents directly impacts the margin earned by Realogy Brokerage Group. Such share of commissions earned by independent sales agents varies by region and commission schedules are generally progressive to incentivize sales agents to achieve higher levels of production.
RESULTS OF OPERATIONS
Discussed below are our consolidated results of operations and the results of operations for each of our reportable segments. The reportable segments presented below represent our segments for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our segments. Management evaluates the operating results of each of our reportable segments based upon revenue and Operating EBITDA. Operating EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations), income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, gains or losses on the early extinguishment of debt, impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets. Our presentation of Operating EBITDA may not be comparable to similarly titled measures used by other companies.
Year Ended December 31, 2021 vs. Year Ended December 31, 2020
Our consolidated results comprised the following:
Year Ended December 31,
2021 2020 Change
Net revenues $ 7,983 $ 6,221 $ 1,762
Total expenses 7,548 6,812 736
Income (loss) before income taxes, equity in earnings and noncontrolling interests
435 (591) 1,026
Income tax expense (benefit) 133 (104) 237
Equity in earnings of unconsolidated entities (48) (131) 83
Net income (loss) 350 (356) 706
Less: Net income attributable to noncontrolling interests (7) (4) (3)
Net income (loss) attributable to Realogy Holdings and Realogy Group $ 343 $ (360) $ 703
Net revenues increased $1,762 million or 28% for the year ended December 31, 2021 compared with the year ended December 31, 2020 driven by higher homesale transaction volume at Realogy Franchise and Brokerage Groups and an increase in volume at Realogy Title Group, in each case due primarily to continued strong demand and higher prices in the residential real estate market, which we attribute to certain beneficial consumer trends supported by other factors, including a favorable mortgage rate environment and low inventory contributing to higher average homesale price. Year-over-year comparisons, on a Company-wide and individual segment basis, also benefited from comparison against the sharp decline in homesale transactions that occurred in the second quarter of 2020 due to factors related to the COVID-19 crisis.
Total expenses increased $736 million or 11% compared to 2020 primarily due to:
•a $1,226 million increase in commission and other sales agent-related costs primarily due to an increase in homesale transaction volume as well as a result of higher agent commission costs primarily driven by a shift in mix to more productive, higher compensated agents, the impact of recruitment and retention efforts, and business and geographic mix;
•a $225 million increase in operating and general and administrative expenses, largely the result of the absence in 2021 of the benefit of the temporary cost savings measures that were taken in the second and third quarters of 2020 in response to the COVID-19 crisis and due to higher employee incentive accruals;
•a $48 million increase in marketing expense primarily due to higher advertising costs as compared to the year ended December 31, 2020, during which such expenses were reduced due to the COVID-19 crisis, and
•a $21 million loss on the early extinguishment of debt primarily as a result of the refinancing transactions in the first quarter of 2021 compared to an $8 million loss on the early extinguishment of debt as a result of the refinancing transactions in June 2020;
partially offset by:
•non-cash impairments of $4 million during the year ended December 31, 2021 compared to $682 million during the year ended December 31, 2020;
•a $56 million net decrease in interest expense primarily due to a $65 million decrease in expense related to mark-to-market adjustments for interest rate swaps that resulted in $14 million of gains for the year ended December 31, 2021 compared to $51 million of losses for the year ended December 31, 2020, partially offset by an increase in interest expense associated with the amortization of the debt discount on the Exchangeable Senior Notes since issuance in the second quarter of 2021;
•a $50 million decrease in restructuring costs; and
•an $11 million net gain on the sale of business.
Equity in earnings were $48 million for the year ended December 31, 2021 compared to earnings of $131 million for the year ended December 31, 2020. Equity in earnings primarily related to Guaranteed Rate Affinity which was $49 million for the year ended December 31, 2021, decreasing by $77 million from $126 million for the year ended December 31, 2020. The decrease was primarily driven by the impact of mark-to-market adjustments on the mortgage loan pipeline and gain-on-sale margin compression, partially offset by strong purchase volume growth.
During the year ended December 31, 2021, we incurred $17 million of restructuring costs compared to $67 million for the year ended December 31, 2020 primarily related to the Company's restructuring program focused on office consolidation and instituting operational efficiencies to drive profitability. The Company expects the estimated total cost of the program to be approximately $170 million, with $129 million incurred to date and $41 million remaining primarily related to future expenses as a result of reducing the leased-office footprints. See Note 12, "Restructuring Costs", to the Consolidated Financial Statements for additional information.
The provision for income taxes was an expense of $133 million for the year ended December 31, 2021 compared to a benefit of $104 million for the year ended December 31, 2020. Our effective tax rate was 28% and 23% for the year ended December 31, 2021 and 2020, respectively. See Note 11, "Income Taxes", to the Consolidated Financial Statements for additional information and a reconciliation of the Company’s effective income tax rate.
The following table reflects the results of each of our reportable segments during the years ended December 31, 2021 and 2020:
Revenues (a) $ Change % Change Operating
EBITDA $ Change % Change Operating EBITDA Margin Change
2021 2020 2021 2020 2021 2020
Realogy Franchise Group
$ 1,249 $ 1,059 190 18 $ 751 $ 594 157 26 60 % 56 % 4
Realogy Brokerage Group 6,189 4,742 1,447 31 109 48 61 127 2 1 1
Realogy Title Group 952 736 216 29 200 226 (26) (12) 21 31 (10)
Corporate and Other (407) (316) (91) (a) (158) (142) (16) (11)
Total Company $ 7,983 $ 6,221 1,762 28 $ 902 $ 726 176 24 11 % 12 % (1)
Less: Depreciation and amortization 204 186
Interest expense, net 190 246
Income tax expense (benefit) 133 (104)
Restructuring costs, net (b) 17 67
Impairments (c) 4 682
Former parent legacy cost, net (d) 1 1
Loss on the early extinguishment of debt (d) 21 8
Gain on the sale of business, net (e) (11) -
Net income (loss) attributable to Realogy Holdings and Realogy Group
$ 343 $ (360)
_______________
(a)Revenues include the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by Realogy Brokerage Group of $407 million and $316 million during the years ended December 31, 2021 and 2020, respectively, and are eliminated through the Corporate and Other line.
(b)Restructuring charges incurred for the year ended December 31, 2021 include $5 million at Realogy Franchise Group, $7 million at Realogy Brokerage Group and $5 million at Corporate and Other. Restructuring charges incurred for the year ended December 31, 2020 include $15 million at Realogy Franchise Group, $37 million at Realogy Brokerage Group, $4 million at Realogy Title Group and $11 million at Corporate and Other.
(c)Non-cash impairments for the year ended December 31, 2021 primarily relate to software and lease asset impairments. Non-cash impairments for the year ended December 31, 2020 include:
•a goodwill impairment charge of $413 million related to Realogy Brokerage Group;
•an impairment charge of $30 million related to Realogy Franchise Group's trademarks;
•$133 million of impairment charges during the nine months ended September 30, 2020 (while Cartus Relocation Services was held for sale) to reduce the net assets to the estimated proceeds;
•a goodwill impairment charge of $22 million related to Cartus Relocation Services;
•an impairment charge of $34 million related to Cartus Relocation Services' trademarks; and
•other asset impairments of $50 million primarily related to lease asset impairments.
(d)Former parent legacy items and Loss on the early extinguishment of debt are recorded in Corporate and Other.
(e)Gain on the sale of business, net is primarily recorded in Realogy Brokerage Group.
As described in the aforementioned table, Operating EBITDA margin for "Total Company" expressed as a percentage of revenues decreased 1 percentage point to 11% from 12% for the year ended December 31, 2021 compared to 2020. Operating EBITDA margin for "Total Company", as well as on a segment basis, was negatively impacted by the absence in 2021 of the benefit of the temporary cost savings measures that were taken in the second and third quarters of 2020 in response to the COVID-19 crisis. Realogy Franchise Group's margin increased 4 percentage points to 60% from 56% primarily due to an increase in royalty revenue as a result of an increase in homesale transaction volume, partially offset by the result of the absence of the cost savings measures discussed above. Realogy Brokerage Group's margin increased 1 percentage point to 2% from 1% primarily due to higher transaction volume, partially offset by the result of the absence of the cost savings measures discussed above and higher agent commission costs driven by a shift in mix to more productive, higher compensated agents, the impact of recruiting and retention efforts, as well as business and geographic mix. Realogy Title Group's margin decreased 10 percentage points to 21% from 31% due to a decrease in equity in earnings of Guaranteed Rate Affinity, mostly the result of the impact of mark to market adjustments on the mortgage loan pipeline, as well as gain-on-sale margin compression. Realogy Title Group's margin, excluding equity in earnings of Guaranteed Rate Affinity, increased 2 percentage points to 16% from 14% largely the result of an increase in resale and underwriter revenue, partially offset by the absence of the cost savings measures discussed above, higher variable costs as a result of higher volume and higher employee incentive accruals.
Corporate and Other Operating EBITDA for the year ended December 31, 2021 declined $16 million to negative $158 million, largely the result of the absence in 2021 of the benefit of the temporary cost savings measures that were taken in the second and third quarters of 2020 in response to the COVID-19 crisis as well as higher employee incentive accruals.
Realogy Franchise Group
Revenues increased $190 million to $1,249 million and Operating EBITDA increased $157 million to $751 million for the year ended December 31, 2021 compared with 2020.
Revenues increased $190 million primarily as a result of:
•a $90 million increase in third-party domestic franchisee royalty revenue primarily due to a 27% increase in homesale transaction volume at Realogy Franchise Group which consisted of a 19% increase in average homesale price and a 7% increase in existing homesale transactions;
•an $87 million increase in intercompany royalties received from Realogy Brokerage Group; and
•a $24 million increase in brand marketing fund revenue and related expense primarily due to higher advertising costs in 2021 as compared to 2020, when such expenses were reduced due to the COVID-19 crisis,
partially offset by:
•a $6 million decrease in revenue related to the early termination of third party listing fee agreements during 2020; and
•a $5 million decrease in service and other revenue as a result of a $16 million net decrease in revenue from our relocation and lead generation operations primarily in the first quarter of 2021, driven by lower volume largely related to the impact of the COVID-19 pandemic, partially offset by an increase in international royalty revenue.
Realogy Franchise Group revenue includes intercompany royalties received from Realogy Brokerage Group of $393 million and $306 million during the years ended December 31, 2021 and 2020, respectively, which are eliminated in consolidation against the expense reflected in Realogy Brokerage Group's results.
The $157 million increase in Operating EBITDA was primarily due to the $190 million increase in revenues discussed above and $14 million of lower expense for bad debt and notes reserves. These Operating EBITDA increases were partially offset by the $24 million increase in marketing expense discussed above and a $23 million increase in employee and other operating costs, largely the result of the absence in 2021 of the benefit of the temporary cost savings measures that were taken in the second and third quarters of 2020 in response to the COVID-19 crisis and due to higher employee incentive accruals.
Realogy Brokerage Group
Revenues increased $1,447 million to $6,189 million and Operating EBITDA increased $61 million to $109 million for the year ended December 31, 2021 compared with 2020.
The revenue increase of $1,447 million was primarily driven by a 32% increase in homesale transaction volume at Realogy Brokerage Group which consisted of a 19% increase in average homesale price and an 11% increase in existing homesale transactions. Realogy Brokerage Group's revenue results during the year ended December 31, 2021 benefited from continued strong demand and higher prices in the residential real estate market which we attribute to certain beneficial consumer trends supported by other factors, including a favorable mortgage rate environment and low inventory contributing to higher average homesale price.
Operating EBITDA increased $61 million primarily due to the $1,447 million increase in revenues discussed above, partially offset by:
•a $1,226 million increase in commission expenses paid to independent sales agents from $3,527 million for the year ended December 31, 2020 to $4,753 million for the year ended December 31, 2021. Commission expense increased primarily as a result of the impact of higher homesale transaction volume as discussed above, as well as higher agent commission costs primarily driven by a shift in mix to more productive, higher compensated agents, the impact of recruiting and retention efforts, as well as business and geographic mix;
•an $87 million increase in royalties paid to Realogy Franchise Group from $306 million during the year ended December 31, 2020 to $393 million during the year ended December 31, 2021 associated with the homesale transaction volume increase as described above;
•a $42 million increase in employee-related and other costs, largely the result of the absence in 2021 of the benefit of the temporary cost savings measures that were taken in the second and third quarters of 2020 in response to the COVID-19 crisis and due to higher employee incentive accruals;
•a $24 million increase in marketing expense primarily due to higher advertising costs as compared to 2020, when such expenses were reduced due to the COVID-19 crisis; and
•$7 million of losses in equity in earnings related to the RealSure joint venture.
Realogy Franchise and Brokerage Groups on a Combined Basis
The following table reflects Realogy Franchise and Brokerage Groups' results before intercompany royalties and marketing fees as well as on a combined basis to show the Operating EBITDA contribution of these business segments to the overall Operating EBITDA of the Company. The Operating EBITDA margin for the combined segments remained flat at 12% during the year ended December 31, 2021 compared to 2020 primarily due to higher homesale transaction volume, offset by the absence in 2021 of the benefit of the temporary cost savings measures that were taken in 2020 in response to COVID-19 crisis and higher agent commission costs driven by a shift in mix to more productive, higher compensated agents, the impact of recruiting and retention efforts, as well as business and geographic mix:
Revenues $ Change %
Change Operating EBITDA $ Change %
Change Operating EBITDA Margin Change
2021 2020 2021 2020 2021 2020
Realogy Franchise Group (a)
$ 842 $ 743 99 13 $ 344 $ 278 66 24 41 % 37 % 4
Realogy Brokerage Group (a) 6,189 4,742 1,447 31 516 364 152 42 8 8 -
Realogy Franchise and Brokerage Groups Combined $ 7,031 $ 5,485 1,546 28 $ 860 $ 642 218 34 12 % 12 % -
_______________
(a)The segment numbers noted above do not reflect the impact of intercompany royalties and marketing fees paid by Realogy Brokerage Group to Realogy Franchise Group of $407 million and $316 million during the years ended December 31, 2021 and 2020, respectively.
Realogy Title Group
Revenues increased $216 million to $952 million and Operating EBITDA decreased $26 million to $200 million for the year ended December 31, 2021 compared with 2020.
Revenues increased $216 million primarily as a result of a $104 million increase in resale revenue due to increased purchase unit activity and increased homesale prices that benefited from continued strong demand in the residential real estate market, which we attribute to certain beneficial consumer trends supported by other factors, including a favorable mortgage rate environment and low inventory contributing to higher average homesale price. In addition, there was a $103 million increase in underwriter revenue (including a $101 million increase in underwriter revenue with unaffiliated agents, which had a $22 million net positive impact on Operating EBITDA due to the related expense increase of $79 million) and an $9 million increase in refinance and other revenue. Equity earnings or losses related to our minority interest in Guaranteed Rate Affinity are included in the financial results of Realogy Title Group, but are not reported as revenue to Realogy Title Group.
Operating EBITDA decreased $26 million primarily as a result of a $93 million increase in employee and other operating costs largely the result of the absence in 2021 of the benefit of the temporary cost savings measures that were taken in 2020 in response to the COVID-19 crisis and due to higher variable costs as a result of higher volume and higher employee incentive accruals, and a $79 million increase in variable operating costs related to the increase in underwriter revenue with unaffiliated agents discussed above where the revenue and expense are recorded on a gross basis. In addition, equity in earnings decreased $76 million from $131 million for the year ended December 31, 2020 to $55 million for the year ended December 31, 2021 primarily related to Guaranteed Rate Affinity, mostly driven by the impact of mark-to-market adjustments on the mortgage loan pipeline and gain-on-sale margin compression, partially offset by strong purchase volume growth. These decreases were partially offset by the $216 million increase in revenues discussed above and a $6 million unrealized gain on an investment.
Year Ended December 31, 2020 vs. Year Ended December 31, 2019
Our consolidated results comprised the following:
Year Ended December 31,
2020 2019 Change
Net revenues $ 6,221 $ 5,870 $ 351
Total expenses 6,812 6,059 753
Loss before income taxes, equity in earnings and noncontrolling interests
(591) (189) (402)
Income tax (benefit) expense (104) 14 (118)
Equity in earnings of unconsolidated entities (131) (18) (113)
Net loss (356) (185) (171)
Less: Net income attributable to noncontrolling interests (4) (3) (1)
Net loss attributable to Realogy Holdings and Realogy Group $ (360) $ (188) $ (172)
Net revenues increased $351 million or 6% for the year ended December 31, 2020 compared with the year ended December 31, 2019 driven by higher homesale transaction volume at Realogy Brokerage Group and Realogy Franchise Group and an increase in volume at Realogy Title Group due to a strong recovery in the residential real estate market which began late in the second quarter of 2020, following a period of sharp decline in homesale transactions starting in the final weeks of the first quarter of 2020 due to the COVID-19 pandemic. We attribute the recovery in 2020 to increased demand driven by a favorable mortgage rate environment and low inventory contributing to higher average homesale price. In addition, we have observed continued strength in certain trends that we believe are largely driven by behavioral changes related to the COVID-19 crisis, including home buyer preferences for certain geographies, including suburban locations and attractive tax and weather destinations and second home purchases.
Total expenses increased $753 million or 12% compared to 2019 primarily due to:
•non-cash impairments of $682 million during the year ended December 31, 2020 compared to $271 million during the year ended December 31, 2019. Non-cash impairments during the year ended December 31, 2020 include:
◦a goodwill impairment charge of $413 million related to Realogy Brokerage Group during the first quarter of 2020;
◦an impairment charge of $30 million related to Realogy Franchise Group's trademarks during the first quarter of 2020;
◦$133 million of reserves recorded during the nine months ended September 30, 2020 (while Cartus Relocation Services was held for sale) to reduce the net assets to the estimated proceeds which were included in Impairments in connection with the reclassification of Cartus Relocation Services as continuing operations during the fourth quarter of 2020;
◦a goodwill impairment charge of $22 million related to Cartus Relocation Services during the fourth quarter of 2020;
◦an impairment charge of $34 million related to Cartus Relocation Services' trademarks during the fourth quarter of 2020; and
◦other asset impairments of $50 million primarily related to lease asset impairments,
compared to a non-cash impairments during the year ended December 31, 2019, which includes a goodwill impairment charge of $237 million related to Realogy Brokerage Group, a $22 million reduction to record net assets held for sale at the lower of carrying value or fair value, less costs to sell, for Cartus Relocation Services which was presented as held for sale at December 31, 2019 and $12 million of other impairment charges primarily related to lease asset impairments.
•a $371 million increase in commission and other sales agent-related costs primarily due to an increase in homesale transaction volume as well as a result of higher agent commission costs primarily driven by a shift in mix to more productive, higher compensated agents, the impact of recruitment and retention efforts, and business and geographic mix;
•a $15 million increase in restructuring costs;
•an $8 million loss on the early extinguishment of debt during the year ended December 31, 2020 as a result of the refinancing transactions in June 2020 compared to a $5 million net gain on the early extinguishment of debt during the year ended December 31, 2019 primarily due to the repurchase of Senior Notes during the third quarter of 2019; and
•a $10 million increase in operating and general and administrative expenses primarily due to higher employee incentive accruals, partially offset by lower employee-related, occupancy and other operating costs as a result of temporary COVID-19 related cost savings initiatives in the second and third quarter of 2020,
partially offset by:
•a $49 million decrease in marketing expense primarily due to the absence of in person meetings and conferences and lower advertising costs due to the COVID-19 pandemic during 2020; and
•a $4 million net decrease in interest expense primarily due to LIBOR rate decreases and lower revolver borrowings, partially offset by a $12 million increase in expense related to mark-to-market adjustments for interest rate swaps that resulted in losses of $51 million for the year ended December 31, 2020 compared to losses of $39 million during the same period of 2019.
Equity in earnings were $131 million for the year ended December 31, 2020 compared to earnings of $18 million for the year ended December 31, 2019 primarily due to an improvement in earnings of Guaranteed Rate Affinity at Realogy Title Group. Equity in earnings for Guaranteed Rate Affinity was $126 million, representing approximately 17% of the Company's Operating EBITDA for the year ended December 31, 2020, increasing by $111 million from $15 million for the year ended December 31, 2019. This improvement was the result of the low mortgage rate environment, an increase in refinancing transactions and improved margins in the venture. Equity in earnings for Realogy Title Group's other equity method investments was $5 million for the year ended December 31, 2020 which increased by $2 million from $3 million for the year ended December 31, 2019.
During the year ended December 31, 2020, we incurred $67 million of restructuring costs primarily related to the Company's restructuring program focused on office consolidation and instituting operational efficiencies to drive profitability. The two most significant lease impairments recognized by the Company during 2020 were the corporate headquarters in Madison, New Jersey which has a lease term expiring in December 2029 for which approximately 44% of the space (approximately 120,000 square feet) was impaired and the relocation service's main corporate operations in Danbury, Connecticut which has a lease term expiring in November 2030 with an early termination date in November 2025.
The provision for income taxes was a benefit of $104 million for the year ended December 31, 2020 compared to an expense of $14 million for the year ended December 31, 2019. Our effective tax rate was 23% and negative 8% for the year ended December 31, 2020 and 2019, respectively.
The following table reflects the results of each of our reportable segments during the years ended December 31, 2020 and 2019:
Revenues (a) $ Change % Change Operating EBITDA $ Change % Change Operating EBITDA Margin Change
2020 2019 2020 2019 2020 2019
Realogy Franchise Group
$ 1,059 $ 1,158 (99) (9) $ 594 $ 616 (22) (4) 56 % 53 % 3
Realogy Brokerage Group 4,742 4,409 333 8 48 4 44 1,100 1 - 1
Realogy Title Group 736 596 140 23 226 68 158 232 31 11 20
Corporate and Other (316) (293) (23) (a) (142) (98) (44) (45)
Total Company $ 6,221 $ 5,870 351 6 $ 726 $ 590 136 23 12 % 10 % 2
Less: Depreciation and amortization 186 195
Interest expense, net 246 250
Income tax (benefit) expense (104) 14
Restructuring costs, net (b)
67 52
Impairments (c) 682 271
Former parent legacy cost, net (d)
1 1
Loss (gain) on the early extinguishment of debt (e)
8 (5)
Net loss attributable to Realogy Holdings and Realogy Group
$ (360) $ (188)
_______________
(a)Revenues includes the elimination of transactions between segments, which consists of intercompany royalties and marketing fees paid by Realogy Brokerage Group of $316 million and $293 million during the years ended December 31, 2020 and 2019, respectively, and are eliminated through the Corporate and Other line.
(b)Restructuring charges incurred for the year ended December 31, 2020 include $15 million at Realogy Franchise Group, $37 million at Realogy Brokerage Group, $4 million at Realogy Title Group and $11 million at Corporate and Other. Restructuring charges incurred for the year ended December 31, 2019 include $14 million at Realogy Franchise Group, $25 million at Realogy Brokerage Group, $3 million at Realogy Title Group and $10 million at Corporate and Other.
(c)Non-cash impairments for the year ended December 31, 2020 include:
•a goodwill impairment charge of $413 million related to Realogy Brokerage Group during the first quarter of 2020;
•an impairment charge of $30 million related to Realogy Franchise Group's trademarks during the first quarter of 2020;
•$133 million of reserves recorded during the nine months ended September 30, 2020 (while Cartus Relocation Services was held for sale) to reduce the net assets to the estimated proceeds which were included in Impairments in connection with the reclassification of Cartus Relocation Services as continuing operations during the fourth quarter of 2020;
•a goodwill impairment charge of $22 million related to Cartus Relocation Services during the fourth quarter of 2020;
•an impairment charge of $34 million related to Cartus Relocation Services' trademarks during the fourth quarter of 2020; and
•other asset impairments of $50 million primarily related to lease asset impairments.
Non-cash impairments for the year ended December 31, 2019 include a goodwill impairment charge of $237 million related to Realogy Brokerage Group, a $22 million reduction to record net assets held for sale at the lower of carrying value or fair value, less costs to sell, for Cartus Relocation Services which was presented as held for sale at December 31, 2019 and $12 million of other impairment charges primarily related to lease asset impairments.
(d)Former parent legacy items are recorded in Corporate and Other.
(e)Loss (gain) on the early extinguishment of debt is recorded in Corporate and Other. During the year ended December 31, 2019, the Company recorded a net gain on the early extinguishment of debt of $5 million which consisted of a $10 million gain as a result of the repurchase of Senior Notes completed in the third quarter of 2019, partially offset by a $5 million loss as a result of the refinancing transactions in the first quarter of 2019.
As described in the aforementioned table, Operating EBITDA margin for "Total Company" expressed as a percentage of revenues increased 2 percentage points to 12% from 10% for the year ended December 31, 2020 compared to 2019. On a segment basis, Realogy Franchise Group's margin increased 3 percentage points to 56% from 53% primarily due to an increase in royalty revenue as a result of an increase in homesale transaction volume, partially offset by a decrease in revenue related to the early termination of third party listing fee agreements. Realogy Brokerage Group's margin increased
1 percentage point to 1% from zero primarily due to lower operating expenses principally driven by temporary COVID-19 related cost savings initiatives, partially offset by higher agent commission costs driven by a shift in mix to more productive, higher compensated agents, the impact of recruiting and retention efforts, as well as business and geographic mix. Realogy Title Group's margin increased 20 percentage points to 31% from 11% for the year ended December 31, 2020 compared to 2019 primarily due to a $111 million increase in equity in earnings of Guaranteed Rate Affinity as a result of the low mortgage rate environment, an increase in refinancing transactions and improved margins in the venture, as well as an increase in underwriter, refinance and resale activity at Realogy Title Group.
Corporate and Other Operating EBITDA for the year ended December 31, 2020 declined $44 million to negative $142 million primarily due to higher employee incentive accruals.
Realogy Franchise Group
Revenues decreased $99 million to $1,059 million and Operating EBITDA decreased $22 million to $594 million for the year ended December 31, 2020 compared with 2019.
Third-party domestic franchisee royalty revenue increased $35 million primarily due to a 16% increase in homesale transaction volume at Realogy Franchise Group, which consisted of a 13% increase in average homesale price and a 3% increase in existing homesale transactions, and a $24 million increase in intercompany royalties received from Realogy Brokerage Group.
Realogy Franchise Group revenue includes intercompany royalties received from Realogy Brokerage Group of $306 million and $282 million during the years ended December 31, 2020 and 2019, respectively, which are eliminated in consolidation against the expense reflected in Realogy Brokerage Group's results.
Royalty revenue increases were offset by:
•a $113 million decrease in service and other revenue primarily related to a $110 million decrease in relocation service revenue, driven by lower volume largely related to the COVID-19 pandemic, and a decrease in revenues from our lead generation and relocation operations, driven by lower volume and lead transactions primarily due to discontinuation of the USAA real estate benefit program that ceased new enrollments in the third quarter of 2019, which at the time was our largest real estate benefit program;
•a $28 million decrease in registration revenue and brand marketing fund revenue (associated with the waiver of marketing fees from affiliates in the second quarter of 2020 in response to the COVID-19 pandemic), which had a related expense decrease of $37 million resulting in a net $9 million net positive impact on Operating EBITDA, due to the absence of in person meetings and conferences and lower advertising costs due to the COVID-19 pandemic; and
•a $17 million decrease in revenue related to the early termination of third party listing fee agreements.
The $22 million decrease in Operating EBITDA was primarily due to the $99 million decrease in revenues discussed above and $7 million of higher expense for bad debt primarily due to the early termination of third party listing fee agreements. These Operating EBITDA decreases were partially offset by a $47 million decrease in employee and other operating costs principally due to cost savings initiatives, including temporary COVID-19 related cost savings initiatives during the second and third quarters of 2020, partially offset by higher employee incentive accruals, and the $37 million decrease in marketing expense discussed above.
Realogy Brokerage Group
Revenues increased $333 million to $4,742 million and Operating EBITDA increased $44 million to $48 million for the year ended December 31, 2020 compared with 2019.
The revenue increase of $333 million was primarily driven by a 9% increase in homesale transaction volume at Realogy Brokerage Group which primarily consisted of a 6% increase in average homesale price and a 2% increase in existing homesale transactions. There was a strong recovery in the residential real estate market which began in the late second quarter of 2020 following a period of sharp decline in homesale transactions starting in the final weeks of the first quarter of 2020.
Operating EBITDA increased $44 million primarily due to:
•the $333 million increase in revenues discussed above;
•a $76 million decrease in employee-related, occupancy and other operating costs due primarily to temporary COVID-19 related cost savings initiatives, partially offset by higher employee incentive accruals;
•a $27 million decrease in marketing expense due to lower advertising costs as a result of the COVID-19 pandemic; and
•a $3 million gain on the sale of assets,
partially offset by:
•a $371 million increase in commission expenses paid to independent sales agents from $3,156 million for the year ended December 31, 2019 to $3,527 million for the year ended December 31, 2020. Commission expense increased primarily as a result of the impact of higher homesale transaction volume as discussed above, as well as higher agent commission costs primarily driven by a shift in mix to more productive, higher compensated agents, the impact of recruiting and retention efforts, as well as business and geographic mix; and
•a $24 million increase in royalties paid to Realogy Franchise Group from $282 million during the year ended December 31, 2019 to $306 million during the year ended December 31, 2020 associated with the homesale transaction volume increase as described above.
Realogy Franchise and Brokerage Groups on a Combined Basis
The following table reflects Realogy Franchise and Brokerage Groups' results before the intercompany royalties and marketing fees as well as on a combined basis to show the Operating EBITDA contribution of these business segments to the overall Operating EBITDA of the Company. The Operating EBITDA margin for the combined segments remained flat at 12% during the year ended December 31, 2020 compared to 2019:
Revenues $ Change %
Change Operating EBITDA $ Change %
Change Operating EBITDA Margin Change
2020 2019 2020 2019 2020 2019
Realogy Franchise Group (a)
$ 743 $ 865 (122) (14) % $ 278 $ 323 (45) (14) % 37 % 37 % -
Realogy Brokerage Group (a) 4,742 4,409 333 8 364 297 67 23 8 7 1
Realogy Franchise and Brokerage Groups Combined $ 5,485 $ 5,274 211 4 % $ 642 $ 620 22 4 % 12 % 12 % -
_______________
(a)The segment numbers noted above do not reflect the impact of intercompany royalties and marketing fees paid by Realogy Brokerage Group to Realogy Franchise Group of $316 million and $293 million during the years ended December 31, 2020 and 2019, respectively.
Realogy Title Group
Revenues increased $140 million to $736 million and Operating EBITDA increased $158 million to $226 million for the year ended December 31, 2020 compared with 2019.
Revenues increased $140 million primarily as a result of a $68 million increase in underwriter revenue (including a $61 million increase in underwriter revenue with unaffiliated agents, which had a $10 million net positive impact on Operating EBITDA due to the related expense increase of $51 million) and a $50 million increase in refinance revenue due to an increase in activity in the refinance market driven by the favorable interest rate environment. In addition there was a $21 million increase in resale revenue attributable to increased purchase unit activity due to a strong recovery in the residential real estate market which began in the late second quarter of 2020 following a period of sharp decline in homesale transactions starting in the final weeks of the first quarter of 2020.
Operating EBITDA increased $158 million primarily as a result of the $140 million increase in revenues discussed above and a $113 million increase in equity in earnings mostly related to Guaranteed Rate Affinity due to the favorable mortgage rate environment and improved margins in the venture. These increases were partially offset by a $51 million increase in variable operating costs related to the increase in underwriter revenue with unaffiliated agents discussed above where the revenue and expense are recorded on a gross basis and a $44 million increase in employee and other operating costs due to higher variable costs as a result of higher volume and higher employee incentive accruals, partially offset by temporary COVID-19 related cost savings initiatives.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
December 31, 2021 December 31, 2020 Change
Total assets $ 7,210 $ 6,934 $ 276
Total liabilities 5,018 5,167 (149)
Total equity 2,192 1,767 425
For the year ended December 31, 2021, total assets increased $276 million primarily due to:
•a $215 million increase in cash and cash equivalents due to cash flows from operations, partially offset by debt repayments;
•a $134 million increase in other current and non-current assets primarily due to technology and agent incentives, as well as equity method investments;
•a $13 million increase in goodwill primarily due to acquisitions at Realogy Brokerage Group in the fourth quarter of 2021, partially offset by the sale of a business at Realogy Brokerage Group in the second quarter of 2021; and
•a $7 million increase in indefinite life intangible assets,
partially offset by:
•an $89 million net decrease in franchise agreements and other amortizable intangible assets primarily due to amortization; and
•a $7 million decrease in property and equipment.
For the year ended December 31, 2021, total liabilities decreased $149 million primarily due to:
•a $257 million net decrease in corporate debt primarily related to repayment of debt partially offset by the issuance of the 5.75% Senior Notes and Exchangeable Senior Notes;
•a $35 million decrease in other non-current liabilities primarily due to mark-to-market adjustments on the Company's interest rate swaps; and
•a $14 million decrease in operating lease liabilities,
partially offset by:
•a $77 million increase in deferred tax liabilities;
•a $66 million increase in accrued expenses and other current liabilities primarily due to higher employee-related accruals and an increase in accrued interest due to timing, partially offset by a decline in advances from clients; and
•a $12 million increase in securitization obligations.
Total equity increased $425 million primarily due to net income of $343 million and a $71 million increase in additional paid in capital primarily related to the issuance of the Exchangeable Senior Notes in the second quarter of 2021.
Liquidity and Capital Resources
Cash flows from operations and distributions from our unconsolidated joint ventures, supplemented by funds available under our Revolving Credit Facility and securitization facilities, are our primary sources of liquidity. We did not borrow under our Revolving Credit Facility during the year ended December 31, 2021.
Our primary uses of liquidity include working capital, business investment and capital expenditures, as well as debt service.
Business investments may include investments in strategic initiatives, including our existing or future joint ventures, products and services that are designed to simplify the home sale and purchase transaction, independent sales agent recruitment and retention, franchisee system growth and acquisitions.
Debt service includes contractual amortization and interest payments on our long-term debt. As described below, we took steps in 2021 and the first quarter of 2022 to extend our debt maturity profile, reduce interest expense, and improve the mix of secured and unsecured debt, resulting in multiple credit rating upgrades. We intend to repay or refinance our 4.875% Senior Notes due 2023 at or prior to maturity. In addition, we may, from time to time, seek to repay or refinance certain of our other debt.
In the first quarter of 2021, we issued $900 million of 5.75% Senior Notes due in 2029 and in the second quarter of 2021, we issued $403 million of 0.25% Exchangeable Senior Notes due in 2026, which contributed to the debt reduction described in the table below. In the first quarter of 2022, we issued $1,000 million of 5.25% Senior Notes due in 2030. Since the beginning of 2021, we have repaid or redeemed the following debt, including all of our Non-extended Term Loan A, Term Loan B Facility, 9.375% Senior Notes and 7.625% Senior Secured Second Lien Notes:
Reporting Period Amount Paid/Redeemed Debt Instrument Source of Funds
Q1 2021 $250 million
Term Loan A Facility
Issuance of $900 million of 5.75% Senior Notes
$655 million
Term Loan B Facility
Q2 2021 $150 million
Term Loan B Facility
Cash on hand
Q3 2021 $197 million
Term Loan A Facility Cash on hand
$238 million
Term Loan B Facility
Q1 2022 $596 million*
9.375% Senior Notes
Issuance of $1,000 million of 5.25% Senior Notes, together with cash on hand
$584 million*
7.625% Senior Secured Second Lien Notes
_______________
* includes "make whole" premium, but excludes accrued interest paid.
On February 16, 2022, our Board of Directors authorized a new share repurchase program of up to $300 million of the Company's common stock. Repurchases under the program may be made at management's discretion from time to time on the open market or through privately negotiated transactions. The actual timing, number and value of shares repurchased will be determined by us and may fluctuate based on a number of factors, including, but not limited to, our priorities for the use of cash, price, market and economic conditions, and legal and contractual requirements (including compliance with the terms of our debt agreements). The repurchase program has no time limit and may be suspended or discontinued at any time. In addition, we may seek to repurchase our outstanding debt from time to time through, as applicable, tender offers, open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on similar factors, including prevailing market conditions, our liquidity requirements, and contractual restrictions, among other factors.
Our material cash requirements from known contractual and other obligations as of December 31, 2021, were as follows:
Debt Obligations (including Interest Payments). As of December 31, 2021, on a pro forma basis, the principal amount of our total short-term and long-term debt was $2,942 million, after giving effect to the refinancing transactions that took place in the first quarter of 2022 (see below under the header "Financial Obligations-Pro Forma Indebtedness Table" for our borrowing arrangements as of December 31, 2021 on a pro forma basis). Taking into consideration the refinancing transactions in the first quarter of 2022, we expect to pay approximately $165 million in cash interest payments in 2022 to service our corporate indebtedness, assuming a constant interest rate of 1.85% for variable rate debt, including payments on our interest rate swaps and excluding the make-whole premium paid in connection with the redemption in full of the 9.375% Senior Notes and 7.625% Senior Secured Second Lien Notes.
After giving effect to the refinancing transactions that took place in the first quarter of 2022, we had $2,710 million of fixed rate debt with a weighted average interest rate of 4.6%.
At December 31, 2021, our variable interest rate debt includes amounts outstanding under our Term Loan A Facility of $232 million. The interest rate on the outstanding amounts under our Term Loan A Facility at December 31, 2021 was 1.85% which is based on adjusted LIBOR plus an additional margin subject to adjustment based on our current senior secured leverage ratio.
No principal payments, with the exception of amortization payments on the Extended Term Loan A of $10 million, are due in 2022. The next debt maturity relates to our $407 million 4.875% Senior Notes which are due in June 2023. See Note 9, "Short and Long-Term Debt", and Note 19, "Subsequent Events", to the Consolidated Financial Statements for additional information.
Taxes. While we have historically utilized net operating losses to offset the majority of our federal and state income tax payments, we utilized substantially all of our remaining net operating losses during 2021 and therefore expect to be a full cash taxpayer in 2022 and future years.
Leases. As of December 31, 2021, we approximate $642 million of future lease payments with $157 million due in 2022. See Note 3, "Leases", to the Consolidated Financial Statements for additional information regarding our lease obligations.
Purchase Commitments. As of December 31, 2021, we had $82 million related to purchase commitments due in 2022 and $298 million thereafter, approximately 75% of which relates to the minimum licensing fees we are required to pay to the owners of the two brands we do not own under 50 year license agreements. See Note 14, "Commitments and Contingencies", to the Consolidated Financial Statements for additional information regarding our purchase obligations.
Joint Ventures. We have multiple unconsolidated joint ventures, including Guaranteed Rate Affinity (our mortgage origination joint venture) as well as our RealSure and Real Estate Auction joint ventures. Equity in earnings or losses related to the financial results of unconsolidated joint ventures are recorded on the equity in earnings line (and, accordingly impact Operating EBITDA), but are not reported as revenue. We have undertaken various commitments as a result of those arrangements, including the investment or advancement of additional funds in certain instances, if required. We also may, from time to time, elect to make additional investments in existing and future unconsolidated joint ventures. See Note 2, "Summary of Significant Accounting Policies-Investments", to the Consolidated Financial Statements for additional information regarding our unconsolidated joint ventures.
Upon the close of the title insurance underwriter transactions described herein, we will receive proceeds of $210 million (prior to tax and closing adjustments) and will have a 30% non-controlling equity interest in the resulting joint venture (which will indirectly own Title Resources). Accordingly, we will no longer consolidate the results of the title insurance underwriter in our financial statements and our share of earnings from the title insurance underwriter will be correspondingly reduced. Moreover, cash held as statutory reserves by the title insurance underwriter (approximately $150 million at December 31, 2021) will no longer be included in our Consolidated Balance Sheets as cash and cash equivalents.
Historically, operating results and revenues for all of our businesses have been strongest in the second and third quarters of the calendar year. Although industry seasonality experienced volatility in 2020 and 2021, we believe that the industry will begin to realign with historical seasonality patterns in 2022. A significant portion of the expenses we incur in our real estate brokerage operations are related to marketing activities and commissions and therefore, are variable. However, many of our other expenses, such as interest payments, facilities costs and certain personnel-related costs, are fixed and cannot be reduced during the seasonal fluctuations in the business. Consequently, our need to borrow under the Revolving Credit Facility and corresponding debt balances are generally at their highest levels at or around the end of the first quarter of every year.
If the recovery of the residential real estate market were to materially slow or reverse itself, if the economy as a whole does not improve or if the broader real estate industry were to experience a significant downturn, our business, financial condition and liquidity may be materially adversely affected, including our ability to access capital, grow our business and return capital to stockholders.
We believe that we will continue to meet our cash flow needs during the next twelve months, through the sources outlined above. Additionally, we may seek additional financing to fund future growth or refinance our existing indebtedness through the debt capital markets, but we cannot be assured that such financing will be available on favorable terms, or at all. Over the longer-term, to the extent these sources of liquidity are insufficient to meet our needs, we may also conduct additional private or public offerings of debt or our common stock or dispose of certain assets.
Cash Flows
Year ended December 31, 2021 vs. Year ended December 31, 2020
At December 31, 2021, we had $743 million of cash, cash equivalents and restricted cash, an increase of $220 million compared to the balance of $523 million at December 31, 2020. The following table summarizes our cash flows for the years ended December 31, 2021 and 2020:
Year Ended December 31,
2021 2020 Change
Cash provided by (used in):
Operating activities $ 643 $ 748 $ (105)
Investing activities (147) (90) (57)
Financing activities (275) (402) 127
Effects of change in exchange rates on cash, cash equivalents and restricted cash (1) 1 (2)
Net change in cash, cash equivalents and restricted cash $ 220 $ 257 $ (37)
For the year ended December 31, 2021, $105 million less cash was provided by operating activities compared to the same period in 2020 principally due to:
•$203 million more cash used for accounts payable, accrued expenses and other liabilities;
•$56 million less cash provided by the net change in relocation and trade receivables;
•$50 million less cash from dividends received primarily from Guaranteed Rate Affinity;
•$39 million more cash used for other assets primarily due to payments to agents and other receivables, as well as sales incentives to franchisees; and
•$8 million more cash used for other operating activities,
partially offset by $251 million more cash provided by operating results.
For the year ended December 31, 2021, we used $57 million more cash for investing activities compared to the same period in 2020 primarily due to:
•$34 million more cash used for investments in unconsolidated entities;
•$25 million more cash used for acquisition related payments;
•$8 million less of cash proceeds from the sale of business; and
•$6 million more cash used for property and equipment additions,
partially offset by $16 million less cash used for other investing activities.
For the year ended December 31, 2021, $275 million of cash was used in financing activities compared to $402 million of cash used during the same period in 2020. For the year ended December 31, 2021, $275 million of cash was used as follows:
•$234 million of net cash paid as a result of the pay downs of outstanding borrowings under the Term Loan B Facility and Non-extended Term Loan A in the second and third quarters of 2021 and the purchase of exchangeable note hedges in the second quarter of 2021 in connection with the issuance of the Exchangeable Senior Notes;
•$34 million of other financing payments primarily related to finance leases and contracts;
•$10 million of quarterly amortization payments on the term loan facilities; and
•$9 million of tax payments related to net share settlement for stock-based compensation,
partially offset by $12 million net increase in securitization borrowings.
For the year ended December 31, 2020, $402 million of cash was used in financing activities as follows:
•$190 million repayment of borrowings under the Revolving Credit Facility;
•$99 million net decrease in securitization borrowings;
•$43 million of quarterly amortization payments on the term loan facilities;
•$43 million of other financing payments primarily related to finance leases;
•$22 million of cash paid primarily as a result of the refinancing transactions in the second quarter of 2020; and
•$5 million of tax payments related to net share settlement for stock-based compensation.
Year ended December 31, 2020 vs. Year ended December 31, 2019
At December 31, 2020, we had $523 million of cash, cash equivalents and restricted cash, an increase of $257 million compared to the balance of $266 million at December 31, 2019. The following table summarizes our cash flows for the years ended December 31, 2020 and 2019:
Year Ended December 31,
2020 2019 Change
Cash provided by (used in):
Operating activities $ 748 $ 371 $ 377
Investing activities (90) (128) 38
Financing activities (402) (215) (187)
Effects of change in exchange rates on cash, cash equivalents and restricted cash 1 - 1
Net change in cash, cash equivalents and restricted cash $ 257 $ 28 $ 229
For the year ended December 31, 2020, $377 million more cash was provided by operating activities compared to the same period in 2019 principally due to:
•$242 million less cash used for accounts payable, accrued expenses and other liabilities;
•$98 million more cash from dividends received primarily from Guaranteed Rate Affinity;
•$35 million more cash provided by operating results;
•$25 million less cash used for other assets; and
•$9 million more cash provided by the net change in relocation and trade receivables,
partially offset by $32 million more cash used for other operating activities.
For the year ended December 31, 2020, we used $38 million less cash for investing activities compared to the same period in 2019 primarily due to:
•$24 million less cash used for property and equipment additions;
•$23 million more cash provided from the sale of business; and
•$7 million less cash used for investments in unconsolidated entities,
partially offset by $16 million more cash used for other investing activities primarily due to the reinvestment of certificates of deposit.
For the year ended December 31, 2020, $402 million of cash was used in financing activities compared to $215 million of cash used during the same period in 2019. For the year ended December 31, 2020, $402 million of cash was used as follows:
•$190 million repayment of borrowings under the Revolving Credit Facility;
•$99 million net decrease in securitization borrowings;
•$43 million of quarterly amortization payments on the term loan facilities;
•$43 million of other financing payments primarily related to finance leases;
•$22 million of cash paid primarily as a result of the refinancing transactions in the second quarter of 2020; and
•$5 million of tax payments related to net share settlement for stock-based compensation.
For the year ended December 31, 2019, $215 million of cash was used as follows:
•$80 million repayment of borrowings under the Revolving Credit Facility;
•$31 million of dividend payments;
•$30 million of quarterly amortization payments on the term loan facilities;
•$26 million net decrease in securitization borrowings;
•$25 million of other financing payments primarily related to finance leases;
•$20 million for the repurchase of our common stock; and
•$6 million of tax payments related to net share settlement for stock-based compensation,
partially offset by $3 million of net cash received as a result of the refinancing transactions in 2019.
Financial Obligations
Pro Forma Indebtedness Table
The following table sets forth the Company's borrowing arrangements as of December 31, 2021 on a pro forma basis giving effect to the refinancing transactions that took place in the first quarter of 2022, including the issuance in the aggregate of $1,000 million of 5.25% Senior Notes due 2030 and the net proceeds of which, together with cash on hand, were used to pay down in full both the outstanding $550 million of 9.375% Senior Notes due 2027 and $550 million of 7.625% Senior Secured Second Lien Notes due 2025:
Interest Rate Expiration Date Principal Amount
Senior Secured Credit Facility (Revolving Credit Facility)
(1) (1) $ -
Term Loan A Facility (1) (1) 232
Senior Notes (2) 5.25% April 2030 1,000
Senior Notes 4.875% June 2023 407
Senior Notes 5.75% January 2029 900
Exchangeable Senior Notes 0.25% June 2026 403
Senior Notes (3) 9.375% April 2027 -
Senior Secured Second Lien Notes (3) 7.625% June 2025 -
Total Short-Term & Long-Term Debt $ 2,942
Securitization obligations:
Apple Ridge Funding LLC June 2022 116
Cartus Financing Limited September 2022 2
Total Securitization Obligations $ 118
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(1)See Note 9, "Short and Long-Term Debt", to the Consolidated Financial Statements, for additional information related to the Senior Secured Credit Facility and Term Loan A Facility. These facilities were not impacted by the refinancing transactions that took place in the first quarter of 2022.
(2)On January 10, 2022, the Company issued $1,000 million aggregate principal amount of 5.25% Senior Notes due 2030. The 5.25% Senior Notes are unsecured senior obligations of Realogy Group that mature on April 15, 2030. Interest is payable semiannually on April 15 and October 15, commencing on April 15, 2022.
(3)The Company used the net proceeds from the issuance, together with cash on hand, to redeem in full both the outstanding $550 million of 9.375% Senior Notes due 2027 and $550 million of 7.625% Senior Secured Second Lien Notes due 2025, each at a redemption price of 100% plus the applicable "make whole" premium together with accrued interest to the redemption date on both such notes.
See Note 9, "Short and Long-Term Debt", to the Consolidated Financial Statements, for additional information on the Company's indebtedness as of December 31, 2021, and Note 19, "Subsequent Events", to the Consolidated Financial Statements, for additional information with respect to these refinancing transactions.
LIBOR Transition
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers’ Association member banks entered into settlements with certain regulators and law enforcement agencies with respect to the alleged manipulation of LIBOR, and LIBOR and other "benchmark" rates are subject to ongoing national and international regulatory scrutiny and reform. The cessation date for submission and publication of rates for certain tenors of LIBOR has since been extended by the ICE Benchmark Administration until mid-2023. In response to concerns regarding the future of LIBOR, the United States Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities: the Secured Overnight Financing Rate, or "SOFR." We are unable to predict whether SOFR will attain market traction as a LIBOR replacement or the impact of other reforms, whether currently enacted or enacted in the future. Any new benchmark rate, including SOFR, will likely not replicate LIBOR exactly and if future rates based upon a successor rate are higher than LIBOR rates as currently determined, it could result in an increase in
the cost of our variable rate indebtedness and may have a material adverse effect on our financial condition and results of operations.
Our primary interest rate exposure is interest rate fluctuations, specifically with respect to LIBOR, due to its impact on our variable rate borrowings under the Senior Secured Credit Facility (for our Revolving Credit Facility) and the Term Loan A Facility. As of December 31, 2021, we had interest rate swaps based on LIBOR with a notional value of $1,000 million to manage a portion of our exposure to changes in interest rates associated with our variable rate borrowings.
Covenants under the Senior Secured Credit Facility, Term Loan A Facility and Indentures
The Senior Secured Credit Agreement, Term Loan A Agreement and the indentures governing the Unsecured Notes contain various covenants that limit (subject to certain exceptions) Realogy Group’s ability to, among other things:
•incur or guarantee additional debt or issue disqualified stock or preferred stock;
•pay dividends or make distributions to Realogy Group’s stockholders, including Realogy Holdings;
•repurchase or redeem capital stock;
•make loans, investments or acquisitions;
•incur restrictions on the ability of certain of Realogy Group's subsidiaries to pay dividends or to make other payments to Realogy Group;
•enter into transactions with affiliates;
•create liens;
•merge or consolidate with other companies or transfer all or substantially all of Realogy Group's and its material subsidiaries' assets;
•transfer or sell assets, including capital stock of subsidiaries; and
•prepay, redeem or repurchase subordinated indebtedness.
As a result of the covenants to which we remain subject, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs. In addition, the Senior Secured Credit Agreement and Term Loan A Agreement require us to maintain a senior secured leverage ratio.
Senior Secured Leverage Ratio applicable to our Senior Secured Credit Facility and Term Loan A Facility
The senior secured leverage ratio is tested quarterly and may not exceed 4.75 to 1.00. The senior secured leverage ratio is measured by dividing Realogy Group's total senior secured net debt by the trailing twelve-month EBITDA calculated on a Pro Forma Basis, as those terms are defined in the Senior Secured Credit Agreement. Total senior secured net debt does not include the 7.625% Senior Secured Second Lien Notes, our unsecured indebtedness, including the Unsecured Notes and Exchangeable Senior Notes, or the securitization obligations. EBITDA calculated on a Pro Forma Basis, as defined in the Senior Secured Credit Agreement, includes adjustments to EBITDA for restructuring, retention and disposition costs, former parent legacy cost (benefit) items, net, loss (gain) on the early extinguishment of debt, non-cash charges and incremental securitization interest costs, as well as pro forma cost savings for restructuring initiatives, the pro forma effect of business optimization initiatives and the pro forma effect of acquisitions and new franchisees, in each case calculated as of the beginning of the twelve-month period. The Company was in compliance with the senior secured leverage ratio covenant at December 31, 2021.
See Note 9, "Short and Long-Term Debt-Unsecured Notes" and "-Senior Secured Second Lien Notes", to the Consolidated Financial Statements for additional information.
Non-GAAP Financial Measures
The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of "non-GAAP financial measures," such as Operating EBITDA. These measures are derived on the basis of methodologies other than in accordance with GAAP.
Operating EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations), income taxes, and other items that are not core to the operating activities of the Company such as restructuring charges, former parent legacy items, gains
or losses on the early extinguishment of debt, impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets. Operating EBITDA is our primary non-GAAP measure.
We present Operating EBITDA because we believe it is useful as a supplemental measure in evaluating the performance of our operating businesses and provides greater transparency into our results of operations. Our management, including our chief operating decision maker, uses Operating EBITDA as a factor in evaluating the performance of our business. Operating EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with GAAP.
We believe Operating EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expense), taxation, the age and book depreciation of facilities (affecting relative depreciation expense) and the amortization of intangibles, as well as other items that are not core to the operating activities of the Company such as restructuring charges, gains or losses on the early extinguishment of debt, former parent legacy items, impairments, gains or losses on discontinued operations and gains or losses on the sale of investments or other assets, which may vary for different companies for reasons unrelated to operating performance. We further believe that Operating EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Operating EBITDA measure when reporting their results.
Operating EBITDA has limitations as an analytical tool, and you should not consider Operating EBITDA either in isolation or as a substitute for analyzing our results as reported under GAAP. Some of these limitations are:
•this measure does not reflect changes in, or cash required for, our working capital needs;
•this measure does not reflect our interest expense (except for interest related to our securitization obligations), or the cash requirements necessary to service interest or principal payments on our debt;
•this measure does not reflect our income tax expense or the cash requirements to pay our taxes;
•this measure does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and this measure does not reflect any cash requirements for such replacements; and
•other companies may calculate this measure differently so they may not be comparable.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States ("GAAP") requires us to make significant estimates and assumptions that affect the reported amounts in the consolidated financial statements and related notes. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We use our best judgment when measuring these estimates and routinely review our accounting policies and assumptions. However, actual results could differ from our estimates and assumptions and any such differences could be material to our consolidated financial statements. We consider the following critical accounting estimates to involve subjective and complex judgments that could potentially affect reported results. Refer to Note 2, "Summary of Significant Accounting Policies", of the consolidated financial statements for a discussion of all our significant accounting policies.
Impairment of goodwill and other indefinite-lived intangible assets
Goodwill and other indefinite-lived intangible assets are subject to an impairment assessment annually as of October 1, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The impairment assessment is performed at the reporting unit level which includes Realogy Brokerage Group, franchise services (reported within the Realogy Franchise Group reportable segment), Realogy Title Group and Realogy Leads Group (includes lead generation and Cartus Relocation Services and reported within the Realogy Franchise Group reportable segment). This assessment compares the carrying value of each reporting unit and the carrying value of each other indefinite lived intangible asset to their respective fair values and, when appropriate the carrying value is reduced to fair value and an impairment charge is recorded on a separate line in the Consolidated Statements of Operations for the excess.
In testing goodwill, the fair value of each reporting unit is estimated using the income approach, a discounted cash flow method. For the other indefinite lived intangible assets, fair value is estimated using the relief from royalty method.
Management utilizes long-term cash flow forecasts and the Company's annual operating plans adjusted for terminal value assumptions. The fair value of the Company's reporting units and other indefinite lived intangible assets are determined utilizing the best estimate of future revenues, operating expenses including commission expense, market and general economic conditions, trends in the industry, as well as assumptions that management believes marketplace participants would utilize. These assumptions include discount rates based on the Company's best estimate of the weighted average cost of capital, long-term growth rates based on the Company's best estimate of terminal growth rates, and trademark royalty rates which are determined by reviewing similar trademark agreements with third parties.
Although management believes that assumptions are reasonable, actual results may vary significantly. These impairment assessments involve the use of accounting estimates and assumptions, changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions. Furthermore, significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, a decrease in our business results, growth rates that fall below our assumptions, divestitures, and a sustained decline in our stock price and market capitalization may have a negative effect on the fair values and key valuation assumptions. Such changes could result in changes to our estimates of our fair value and a material impairment of goodwill or other indefinite-lived intangible assets. To address this uncertainty, a sensitivity analysis is performed on key estimates and assumptions.
Based upon the impairment analysis performed in the fourth quarter of 2021, there was no impairment of goodwill or other indefinite-lived intangible assets for the year ended December 31, 2021. Management evaluated the effect of lowering the estimated fair value for each of the reporting units by 10% and determined that no impairment of goodwill would have been recognized under this evaluation for 2021.
Income taxes
Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Our provision for income taxes is based on domestic and international statutory income tax rates in the jurisdictions in which we operate. Significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances, including the estimation of valuation allowances and the evaluation of tax positions.
Net deferred tax assets and liabilities are primarily comprised of temporary differences, net operating loss carryforwards and tax credit carryforwards that are available to reduce taxable income in future periods. The determination of the amount of valuation allowance to be provided on deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, and (3) the impact of tax planning strategies.
Significant judgment is required in determining income tax provisions and in evaluating tax positions. We establish additional reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the authoritative guidance and this guidance determines when a tax position is more likely than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, the Company and its subsidiaries are examined by various federal, state and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.
Recently Issued Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies", to the Consolidated Financial Statements for a discussion of recently issued FASB accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
We are exposed to market risk from changes in interest rates primarily through our senior secured debt. At December 31, 2021, our primary interest rate exposure was to interest rate fluctuations, specifically LIBOR, due to its impact on our variable rate borrowings of our Revolving Credit Facility under the Senior Secured Credit Facility and the Term Loan A Facility. Given that our borrowings under the Senior Secured Credit Facility and Term Loan A Facility are generally based upon LIBOR, this rate (or any replacement rate) will be the Company's primary market risk exposure for the
foreseeable future. We do not have significant exposure to foreign currency risk nor do we expect to have significant exposure to foreign currency risk in the foreseeable future.
We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on earnings, fair values and cash flows based on a hypothetical change (increase and decrease) in interest rates. We exclude the fair values of relocation receivables and advances and securitization borrowings from our sensitivity analysis because we believe the interest rate risk on these assets and liabilities is mitigated as the rate we earn on relocation receivables and advances and the rate we incur on our securitization borrowings are based on similar variable indices.
At December 31, 2021, we had variable interest rate debt outstanding under our Term Loan A Facility of $232 million, which excludes $118 million of securitization obligations. The interest rate on the outstanding amounts under our Term Loan A Facility at December 31, 2021 was 1.85% which is based on adjusted LIBOR plus an additional margin subject to adjustment based on the current senior secured leverage ratio. Based on the December 31, 2021 senior secured leverage ratio, the LIBOR margin was 1.75%. At December 31, 2021, the one-month LIBOR rate was 0.10%; therefore, we have estimated that a 0.25% increase in LIBOR would have an approximately $1 million impact on our annual interest expense.
As of December 31, 2021, we had interest rate swaps with a notional value of $1,000 million to manage a portion of our exposure to changes in interest rates associated with our $232 million of variable rate borrowings. Our interest rate swaps were as follows:
Notional Value (in millions) Commencement Date Expiration Date
$450 November 2017 November 2022
$400 August 2020 August 2025
$150 November 2022 November 2027
The swaps help protect our outstanding variable rate borrowings from future interest rate volatility. The fixed interest rates on the swaps range from 2.07% to 3.11%. The Company had a liability of $46 million and $81 million for the fair value of the interest rate swaps at December 31, 2021 and 2020, respectively. The fair value of these interest rate swaps is subject to movements in LIBOR and will fluctuate in future periods. We have estimated that a 0.25% increase in the LIBOR yield curve would increase the fair value of our interest rate swaps by $6 million and would decrease interest expense. While these results may be used as a benchmark, they should not be viewed as a forecast of future results.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
See "Index to Financial Statements" on page.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Controls and Procedures for Realogy Holdings Corp.
(a)Realogy Holdings Corp. ("Realogy Holdings") maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its filings under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Realogy Holdings' management, including the Chief Executive Officer and the Chief Financial Officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
(b)As of the end of the period covered by this Annual Report on Form 10-K, Realogy Holdings has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Realogy Holdings' disclosure controls and procedures are effective at the "reasonable assurance" level.
(c)There has not been any change in Realogy Holdings' internal control over financial reporting during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting for Realogy Holdings Corp.
Realogy Holdings' management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Realogy Holdings' internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Realogy Holdings' internal control over financial reporting includes those policies and procedures that:
i.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Realogy Holdings' assets;
ii.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Realogy Holdings' management and directors; and
iii.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Realogy Holdings' assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Realogy Holdings' internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on this assessment, management determined that Realogy Holdings maintained effective internal control over financial reporting as of December 31, 2021.
Auditor Report on the Effectiveness of Realogy Holdings Corp.’s Internal Control Over Financial Reporting
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the effectiveness of Realogy Holdings' internal control over financial reporting, which is included within their audit opinion on page.
* * *
Controls and Procedures for Realogy Group LLC
(a)Realogy Group LLC ("Realogy Group") maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its filings under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Realogy Group's management, including the Chief Executive Officer and the Chief Financial Officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
(b)As of the end of the period covered by this Annual Report on Form 10-K, Realogy Group has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Realogy Group's disclosure controls and procedures are effective at the "reasonable assurance" level.
(c)There has not been any change in Realogy Group's internal control over financial reporting during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting for Realogy Group LLC
Realogy Group’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Realogy Group’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Realogy Group’s internal control over financial reporting includes those policies and procedures that:
(i)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Realogy Group’s assets;
(ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Realogy Group’s management and directors; and
(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Realogy Group’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Realogy Group’s internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on this assessment, management determined that Realogy Group maintained effective internal control over financial reporting as of December 31, 2021.
Auditor Report on the Effectiveness of Realogy Group LLC's Internal Control Over Financial Reporting
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the effectiveness of Realogy Group's internal control over financial reporting, which is included within their audit opinion on page.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
On February 24, 2022, the Compensation Committee of the Board of Directors (the “Committee”) of the Company granted a discretionary cash-based bonus award to Ms. Wasser in recognition of her meaningful contributions to the Company's strong performance in 2021, as described in more detail below. The payment of bonus awards is not part of the regular executive compensation program of the Company and such payments are only granted by the Committee in recognition of extraordinary performance achievements.
In granting a bonus payment in the amount of $300,000 to Ms. Wasser, the Committee took into account her active role in substantially all critical aspects of our business, including, during 2021: execution against strategic initiatives and transactions such as our RealSure and Real Estate Auction joint ventures and the planned sale of our title insurance underwriter (and formation of a title insurance underwriting joint venture) as well as the expansion of other key offerings like the RealVitalize® program; advancement of Realogy's strategic policy objectives and efforts to build collaborative and effective relationships with industry organizations; enhancements to the Company’s enterprise data governance program; and her continued leadership during the ongoing COVID-19 crisis with respect to employee, agent and franchisee health and safety. In making this award, the Committee also considered the criticality of Ms. Wasser’s role at Realogy.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Identification of Directors
The information required by this item is included in the Proxy Statement under the caption "Proposal 1: Election of Directors" and is incorporated by reference to this report.
Identification of Executive Officers
The information relating to executive officers required by this item is included herein in Part I under the caption “Information about our Executive Officers.”
Code of Ethics
The information required by this item is included in the Proxy Statement under the caption "Code of Business Conduct and Ethics" and is incorporated by reference to this Annual Report.
Corporate Governance
The information required by this item is included in the Proxy Statement under the caption "Governance of the Company" and is incorporated by reference to this Annual Report.
Delinquent Section 16(a) Reports
The information required by this item is included in the Proxy Statement under the caption "Delinquent Section 16(a) Reports" and is incorporated by reference to this Annual Report.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required by this item is included in the Proxy Statement under the captions "Governance of the Company-Compensation of Independent Directors," "Governance of the Company-Committees of the Board" and "Executive Compensation" and is incorporated by reference to this Annual Report.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about shares of our common stock that may be issued upon the exercise of options, that may vest pursuant to awards of restricted stock units, performance stock units or that may be issued under deferred stock units under all of our existing equity compensation plans as of December 31, 2021.
Plan Category Number of Securities to be Issued Upon Exercise or Vesting of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by stockholders
9,293,375 (1) $25.27 (2) 4,425,250 (3)
Equity compensation plan not approved by stockholders
261,234 (4) $32.80 -
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(1)Consists of 2,743,049 outstanding options, 2,034,502 stock-settled restricted stock units, 4,338,332 performance stock units and 177,492 deferred stock units issuable. The amount set forth in the table assumes maximum payout under the unvested performance share unit awards. The number of shares, if any, to be issued pursuant to unvested performance stock unit awards will be determined based upon the extent to which the performance goals are achieved.
(2)The weighted average remaining term of outstanding options is 3.7 years. The other outstanding awards do not have exercise prices and are accordingly excluded from this column.
(3)Consists of shares available for future grant.
(4)Consists of options granted to Mr. Schneider on October 23, 2017 as an inducement material to his entry into employment with us, which were approved by our Compensation Committee and disclosed in a press release. Under applicable NYSE Listing Rules, inducement grants are not subject to security holder approval. The terms of this award are materially consistent with the terms of awards made under the Amended and Restated 2018 Long-Term Incentive Plan. The options expire ten years from the grant date and vest over a four-year period, in equal annual installments on each anniversary date of the grant date.
See Note 13, "Stock-Based Compensation", in the Consolidated Financial Statements for additional information on the Amended and Restated 2018 Long-Term Incentive Plan.
The remaining information required by this item is included in the Proxy Statement under the caption "Governance of the Company-Ownership of Our Common Stock" and is incorporated by reference to this Annual Report.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is included in the Proxy Statement under the captions "Governance of the Company-Director Independence Criteria and -Determination of Director Independence and -Related Person Transactions" and is incorporated by reference to this Annual Report.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
The information required by this item is included in the Proxy Statement under the captions "Disclosure About Fees" and "Pre-Approval of Audit and Non-Audit Services" under the section entitled "Proposal 3: Ratification of the Appointment of the Independent Registered Public Accounting Firm" and is incorporated by reference to this Annual Report.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statements and Schedules.
(A)(1) and (2) Financial Statements
The consolidated financial statements of the registrants listed in the "Index to Financial Statements" on page together with the reports of PricewaterhouseCoopers LLP (PCAOB ID 238), independent auditors, are filed as part of this Annual Report.
(A)(3) Exhibits
See Index to Exhibits.
The agreements included or incorporated by reference as exhibits to this Annual Report contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Annual Report not misleading.
(A)(4) Consolidated Financial Statement Schedules
Schedule II-Valuation and Qualifying Accounts for the years ended December 31, 2021, 2020 and 2019:
(in millions) Additions
Description Balance at
Beginning of
Period Charged to
Costs and
Expenses Charged to
Other
Accounts Deductions Balance at
End of
Period
Allowance for doubtful accounts (a)
Year ended December 31, 2021
$ 13 $ 2 $ - $ (4) $ 11
Year ended December 31, 2020
11 9 - (7) 13
Year ended December 31, 2019
9 5 - (3) 11
Deferred tax asset valuation allowance
Year ended December 31, 2021
$ 21 $ (1) $ - $ - $ 20
Year ended December 31, 2020
17 4 - - 21
Year ended December 31, 2019
18 (1) - - 17
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(a)The deduction column represents uncollectible accounts written off, net of recoveries from Trade Receivables, in the Consolidated Balance Sheets.