The brand landscape of the luxury real estate market has changed much in the past few years — and loyalties have changed, too.
This big-money market segment is not such a lonely place — a range of luxury networks are engaged in a high-stakes competition to be the best partner to brokerage firms seeking to reach the world’s wealthiest home buyers and sellers. The expanded field has led some brokers to shop around for the best fit, in some cases abandoning longtime allegiances.
In 2004, major real estate franchisor Cendant Corp., made waves in the luxury market when it announced the purchase of licensing rights to the Sotheby’s real estate brand and plans to launch a real estate franchise network. Previously, brokerage companies could pay a licensing fee to use the Sotheby’s name when marketing luxury properties. The change to a Sotheby’s franchise model created a rift, with some Sotheby’s affiliates aligning with other luxury networks and some choosing to sign on as franchisees.
Later that year, a Seattle-based company announced the launch of an exclusive network of luxury real estate professionals called the Board of Regents. That organization provides marketing and branding services for its members and allows members to market properties at its LuxuryRealEstate.com Web site. The LuxuryRealEstate.com network includes about 1,300 firms and 115,000 agents, with properties in 108 countries.
The following year, RELO, a 40-year-old real estate network that includes some large independent luxury brokerages, set up a luxury brand of its own to serve members. The group’s Luxury Portfolio marketing network has 200 affiliates that represent properties in 43 states and 15 countries. RELO, now known as Leading Real Estate Companies of the World, has a total of about 700 member companies with 5,000 offices and 145,000 sales associates in the U.S. and 35 other nations.
Michael Saunders, chairman of the board for Leading Real Estate Companies of the World and founder of Michael Saunders & Co. in Sarasota, Fla., was one of the defectors from the Sotheby’s franchise model. She ended a 25-year affiliation with the Sotheby’s brand after the franchise network was announced, and she affiliated with Christie’s Great Estates, another luxury marketing network that gained some membership with the Sotheby’s transformation.
Under Realogy, a real estate company spun-off from Cendant, the Sotheby’s franchise network and company-owned brokerage network has grown substantially, both nationally and internationally. The company announced this week the opening of a new franchise office in Singapore. The Sotheby’s International Realty network has about 8,000 sales associates in 400 offices in the U.S. and about 26 other countries and territories.
Paul Boomsma, executive vice president for the Luxury Portfolio brand who formerly worked for a Chicago real estate firm that was a Sotheby’s affiliate, said that independent brokers continue to lead the luxury market. “The independent brokers continue to sell more of the luxury properties than any of the franchises do.” Boomsma also said that “many of our members were originally with Sotheby’s” prior to the change to a franchise model, and some members use the Christie’s affiliation to market luxury properties.
“The model that Sotheby’s had 3 1/2 years ago didn’t work — that’s why Sotheby’s came to us,” said Michael Good, president and CEO for Sotheby’s International Realty Affiliates LLC.
About 22 former affiliates of the former Sotheby’s marketing network joined the franchise system, Good said, and there are now more than 100 Sotheby’s franchise affiliates in the country. Some of the companies that have signed on as franchises had formerly used the Christie’s Great Estates brand, he said. “They were looking for more of a franchise relationship.”
Some critics have said that the franchise model for Sotheby’s has the potential to dilute the luxury status of the brand, as all low-cost properties handled by a franchise office would also carry the Sotheby’s name.
Good said that there is a strict qualification process for companies seeking to join the franchise network, though he also acknowledged that the company is examining whether there are some properties handled by Sotheby’s offices that may not fit the luxury mold. For example, the Wall Street Journal earlier this month called attention to a $34,000 trailer in Goleta, Calif., and $38,000 double-wide manufactured home in Idaho that were marketed by Sotheby’s franchises.
“We’ve gone through an exhaustive search of our Web site and there are a few properties we don’t think represent the brand effectively. In most cases it’s a property that the broker themselves was not necessarily aware of,” Good said.
“We are having internal conversations with our own constituents on how to determine how they limit the properties that they take, but they are independent companies and they have the right today to market the properties that they feel are needed to be marketed by their company in their location.”
He added, “We focus on making sure we approve quality firms. We qualify them based on their current penetration of the luxury marketplace they serve.” The goal is to help ensure that affiliates are the luxury brokers in their marketplaces, Good said, and to allow those affiliates to be “open to marketing properties that they believe are in their best interest in their local community. The model is working wonderfully.”
Mary Worrall, a second-generation real estate professional who has owned a real estate brokerage company on the Hawaiian isle of Oahu for about 35 years, used the Sotheby’s name to help market luxury properties for about a decade, but initially decided not to participate in the franchise network.
“I had some concerns. Number one, I didn’t like the idea that they were such a big company because the original brand had very strong, personal relationships — I felt like I could talk to the people involved. I was concerned as to how the (Sotheby’s) auction house and clients of the auction house would continue to play in with the Sotheby’s franchise. I had a number of concerns — lots of concerns. So we went with another brand for a year,” Worrall said.
She joined the Christie’s Great Estates luxury marketing network for a year, but she found she wanted more than a marketing arm and saw a need to reach out more toward the Asian market, which has been a big market for Hawaiian real estate.
“I went back to Sotheby’s at that point. Most of my concerns seemed to dissipate. It became clear that some of the things I was concerned about were going to work out for the better,” she said, adding that she has been impressed by Sotheby’s growth in Asian markets such as Japan.
Also, she said, “Despite the growth it seems to have been able to stay a relatively personal organization,” and there are still ties between the franchise real estate network and the auction house.
As for the issue of using the Sotheby’s name in handling all types of properties — whether or not they are luxury properties — Worrall said that’s not a big issue. “An $18 million listing — you certainly don’t market the same way as something that is $500,000 or $600,000,” she said. “We’ve always handled many ranges of properties.”
Worrall said that her attachment to the Sotheby’s brand has brought in clients that the company might not otherwise have reached. “We’re just getting more calls — we’re getting called because we’re the Sotheby’s affiliate,” she said.
In addition to owning the exclusive Sotheby’s franchise for Oahu, Worrall also shares a separate exclusive franchise on Maui with her brother.
Christie’s Great Estates, which is similar to the former Sotheby’s marketing model, typically does not market homes under $1 million, and the average price of homes enrolled in the company’s marketing program is $5.4 million, said Kay Coughlin, president and CEO for Christie’s Great Estates.
“Only those real estate firms with proven records of success in luxury sales and who exemplify our traditional values of integrity and service to their clients are invited to be an affiliate.”
Christie’s Great Estates was founded in 1987 as Great Estates and acquired by Christie’s in 1995.
The number of Christie’s real estate affiliates “has steadily increased every year,” and the network now includes 144 affiliates in 36 countries, of which 95 affiliates are based in the United States.
Christie’s, like Sotheby’s and other luxury brands, has worked to beef up its Web presence and increase its international reach, according to Coughlin, while also maintaining its print marketing campaigns.
Sotheby’s, for example, this month announced a new Web-tool that allows users to search for luxury homes according to lifestyle, such as “aquatic activities,” “safaris” and “wine countries,” and Luxury Portfolio translates property searches into eight languages and offers property values in 22 currencies.
“Sotheby’s has been a competitor of Christie’s for centuries, but since the sale of Sotheby’s International Realty the real estate (network) is not as significant a competitor as they once were,” Coughlin said. Like Sotheby’s International Realty, Christie’s is connected to an auction house.
Christie’s reportedly raised pricing after the Sotheby’s move to a franchise model, though Coughlin said that fee structure “is a fair one and is calculated based on the affiliate’s luxury sales transactions.”
Larry Knapp, president of Alain Pinel Realtors, a luxury real estate firm in Northern California, said that the brokerage company was a member of Great Estates “since the founding of our firm in 1990.”
“When they raised their prices beyond what we believed was their true value we made the decision to move to another luxury home system,” Knapp said. He said several former and existing members of the Christie’s network are also part of the Luxury Portfolio group.
“Luxury Portfolio has worked well for us and we see no notable difference between now and when we belonged to Christie’s,” he said.
Luxury Portfolio typically considers luxury homes to be those priced at $1 million or higher, though Alain Pinel sets the minimum at $2 million for properties it lists through Luxury Portfolio.
Knapp said that the size and scope of the network is definitely important in marketing luxury properties. “I think what the sellers want, the clients want, is the realistic expectation that you are connected outside of your area to other people who are experienced in the luxury home market and are likely to run into potential buyers for luxury properties,” he said.
Tim Murray, regional manager for Alain Pinel in the San Francisco and North Bay areas of California, participates in the Regents group, which he said “is by far the most exclusive luxury group in the world,” and has proven useful in networking with other luxury agents. “It is a way to not only share information. It establishes these incredibly strong ties,” he said.