The quote comes from a comment in the Inman News story published yesterday, Howard Hanna invests $1M-plus to enhance real estate listings.
That commenter is not alone.
Notorious Rob Hahn wrote this piece, Some Thoughts on Zillow’s 2011 Results and Howard Hanna (In Which I Declare Peace In Our Time). As always, Rob writes thought-provoking copy. In his piece he announces “The Next Battle Line”…
So that announcement by Howard Hanna, together with Zillow’s quarterly report, delineates the next battle line: the big dogs vs. the little independents.
On Howard Hanna (the fourth largest real estate brokerage in the country) paying Zillow $1M for a “partnership”, Rob went on to say in a Facebook Group:
Trick is, try getting that rate if you only have 50 agents or so.
Get big people. That era is upon us.
An aside to Rob and the many others quoting this $1 million dollar deal, please note that Inman reported the price was “$1M-plus” and went on to quote the President of Howard Hanna saying:
… the Pittsburgh-based brokerage is making a “seven-figure investment” in separate agreements with the two national portals… (my emphasis).
“Seven figures” could mean $1,000,000 or a penny under $10 million. So let’s not be calling the deal closed at $1M… But, I get the point. The big dogs can write seven-figure checks.
Thompson’s Realty is clearly not a “big dog”. We are a “little independent”. And while I could physically write a seven figure check, it wouldn’t be worth the paper it was printed on.
Is the small broker doomed?
Granted, I am quite biased, but I think the answer is a resounding NO.
Take a look around the real estate brokerage landscape. There is carnage everywhere. Realogy (think Century 21, Coldwell-Banker, Better Homes and Gardens Real Estate, Sotheby’s, et al) lost $28 million in Q3 2011. That’s over $300 grand a day, every day, for three months. The Phoenix franchise of Realty Executives filed Chapter 11 reorganization in May 2011 (and successfully emerged from that in Oct 2011). Way back in December 2007 RE/MAX 2000 closed 13 offices in the Phoenix area. In February 2009, Century 21 Town & Country (10 offices in Michigan) filed Chapter 11. Yesterday, Grubb & Ellis Company, a large commercial real estate services firm, announced they were selling most of their assets in bankruptcy proceedings.
Many brokerages, big and small alike, are and have been struggling. Some, of various flavors and size, are flourishing.
I suspect it has been this way since time immemorial.
Here is my response to Rob’s, “Get big people. That era is upon us.” comment:
I am also far from convinced that “getting big” is the answer. My brokerage will be 4 years old next week. And we’ve been profitable for 47 of the 48 months we’ve been open. I’d ask my old C21 broker what he thought of that, but he had to shut his office down. Maybe I should ask Realty Execs? Oh, wait, they filed bankruptcy. I know, the big Re/Max office in town! No, gosh darn it, they shuttered their doors too…
Big might get you better deals with certain service providers, but it certainly doesn’t ensure profitability….
(Nota bene: Realty Exec’s did not shutter their doors. They filed (and emerged from) Chapter 11 reorganization. My FB comment might read they closed along with my old C21 office and the RE/MAX offices. Apologies as that wasn’t the case and was poor writing on my part.)
Rob then asked me, “… so going Big is not the answer. What is your strategy for surviving and dominating?” “Dominating” was later clarified to mean, “annual growth of 10% or more”.
A fair question. How have we managed to survive and grow? Francy and I opened a real estate brokerage in the middle of the worst real estate market downturn in recent memory in one of the hardest hit markets on the planet. And we’ve been profitable and are growing. I’m rather proud of that; but it’s not because I am some genius business wizard. There is no secret sauce, the formula is actually pretty simple:
- Hire kick-ass agents.
- Ruthlessly cut overhead costs.
It’s business 101 folks. Profit = Revenue – Cost. (Yes, I know you learned in Accounting class that it’s more complicated than that. I took 6 hours of college accounting too. This is the gist of it however.)
From that simplified formula, if you want more profit, you increase your revenue and/or reduce your cost.
Want to increase your real estate brokerage revenue? Hire agents that sell homes. Sure, you could sock your agents with all sorts of fees too — that will increase revenue to the brokerage. Desk fees + transaction fees + E&O fees + technology fees + whatever fee you desire or think you can get away with = more revenue. It also = annoyed agents who spend more time looking for a new brokerage than they do selling homes.
Yep, you can lower your agent’s commission splits too. Or raise your cap. That will raise your revenue but also tends to lead to agent dissent.
Here’s a thought… Try making your agents happy. Happy workers are productive workers.
Andrew Oswald, a professor of economics at Warwick Business School and a leading authority on the relationship between economics and mental health, led a team of economists that did a study confirming that happy workers are more productive. Why it takes a study to discover something fundamentally obvious is a story for another day.
“We find that human happiness has large and positive causal effects on productivity,” the team said. “Positive emotions appear to invigorate human beings, while negative emotions have the opposite effect.”
Well duh. But thanks for the verification.
We do what we can to keep Thompson’s Realty agents happy. We let our agents run their business like the entrepreneurs they are. We don’t impose a bunch of polices, procedures and additional forms on them. We pay them immediately as opposed to holding their checks while they “complete a file” that requires some ridiculous broker-mandated form to be submitted in triplicate. We give them leads at no additional cost. We have aggressive splits and low caps. In short, we treat them like human beings — like we would want to be treated — not like pieces of property.
Again, it’s not rocket science.
The other half of the profit formula is cost. Lower cost = increased profit. Want to lower your cost in a real estate brokerage? Lose the fancy office with flat screen monitors, Corinthian leather couches and an espresso machine. Your agents are going to be in the field anyway, selling houses. Provide oversight, be available, help them grow their business. Remember, when their business grows, so does your profit.
So there you have our “strategy for surviving and dominating.” Is it scalable? Could I grow Thompson’s Realty to 500 agents? Maybe, maybe not. Personally I have zero desire to run a 500+ agent brokerage. That’s mostly because I’m selfish. I want to know all my agents. I want to be available for them all the time. I want a “family atmosphere” where our agents cooperate with each other, not compete against each other. I think we’d lose all of that if we grew too large. I am not convinced that size matters…
I say the little independent can go toe-to-toe with the big dogs.
Photo Credit: Jeff Moss on Flickr. CC Licensed.
Hat Tip to Michael McClure for the C21 Town & Country link