Editor’s note: Inman News is exploring the future of the real estate industry in an ongoing series of news stories and reader contributions. Visit Inman.com/Roadmap to learn how to participate in this editorial project, titled "Roadmap to Recovery."
SAN FRANCISCO — The housing bust and technological change don’t have to spell doom for the traditional real estate brokerage model, but companies that thrive will do so by boosting their presence in the virtual world while cutting costs associated with their brick-and-mortar operations.
That’s the perspective of Sherry Chris, president and CEO of Better Homes and Gardens Real Estate LLC, Realogy Corp.’s ambitious bet on the traditional brokerage model.
Speaking Monday in San Francisco at the The Fisher Center for Real Estate and Urban Economics annual Real Estate and Economics Symposium, Chris talked about the factors that make some brokerages vulnerable during the downturn and what others are doing to profit from change.
Chris emphasized her own company’s extensive presence in the world of online social media, portraying Better Homes and Gardens Real Estate as a brokerage that’s equipped to compete in the changing landscape.
Better Homes and Gardens’ company blog and the company’s presence on social networking sites like Facebook, Twitter, YouTube and Flickr generate leads from real estate agents and brokers who want to become part of the Better Homes and Gardens brand, Chris said.
But the Internet and online social media is also becoming the preferred method of reaching consumers. Chris said social media will "rule" because of heavy adoption by 18- to 34-year-old "echo boomers."
"That means ‘bye-bye’ to real estate TV advertising," she said.
In the last six months, Better Homes and Gardens has grown to 40 offices with nearly 1,000 agents and will open in Northern California next week, Chris said.
Launching the Better Homes and Gardens brand in the worst national housing market in her 30 years in the business presents challenges, she said, but those are challenges faced by all in the industry.
"One thing we did early on is ask, ‘If you were going to build the real estate company of the future, what would it look like?’ " Chris said.
If it’s difficult to make the traditional brokerage model a profitable one today, that’s largely because companies have too much office space per agent and "an aging sales force that won’t go away," Chris said.
"The age of the agent continues to increase, while the consumer age is decreasing," she said. While Chris said she’d hoped that the ranks of the 1.2 million real estate agents "roaming the streets" would thin during the downturn, for the most part that hasn’t happened yet.
"What they are doing is not giving up their licenses, but getting part-time jobs, and that is not a good thing for the industry," Chris said.
The most vulnerable brokerages are those with high fixed costs such as office space, and those with "empty desks, or agents who don’t cover their desk costs," Chris said.
Large and small companies alike built "huge office spaces," Chris said, providing as much as 100 square feet per agent. "The biggest problem brokers are now facing is how to get out of that fixed cost that is so high."
Chris cited Chicago-based @properties as an example of a brokerage that has broken with tradition, providing only about 10 square feet of office space per agent.
Relationships still matter, Chris said, but agents don’t need an office to build them. The agent of the future will be an adviser, a consultant and a negotiator — and agents will do much of their work online or face-to-face with clients in the field.
"Agents don’t want to sit in an office — they need to be completely mobile, out there doing their work" in the field, Chris said.
Another mistake made by many brokers is to focus on the revenue per agent, Chris said, when the more important figure is net profit per agent.
Brokerages that thrive will do so because they will continue to have strong recruiting efforts to bring in top agents and brokers, and be ready for "unforeseen walkovers" from competitors, Chris said. Companies that know their competitors’ vulnerabilities and can access the capital needed to acquire or merge with rivals also stand to gain.
Brokerages with affiliated settlement services and mortgage businesses have an edge over those that don’t, she said.
While companies like Redfin, ZipRealty and FSBO.com may have once been seen as threats to the traditional brokerage model, that’s no longer the case, Chris said.
In shifting its business model closer to that of a traditional brokerage, for example, Chris said Redfin is now "technology-based, but (the company is) not changing the industry."
Chris noted that brokerage fees, after declining from the traditional 6 percent during the housing boom, have remained stable at about 5.1 percent for the past three years.
"I like to think that in times like these, agents earn their commissions by going above and beyond the call of duty to get the property sold," Chris said.
Leslie Appleton-Young, vice president and chief economist for the California Association of Realtors, said that when times get tough, commissions tend to go up. Sellers may feel that anyone can sell a home in a boom market, but seek out the top agents for their neighborhood and pay them during a slowdown, Appleton-Young said.
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