- In luxury real estate markets, a more financial marketing approach can work well for clients who see their real estate purchases as assets.
- Custom coaching by top managers can help your agents enhance their differences and maximize their skill set.
In 2007, Mike Shapiro was a market maker and trader at the Chicago Board of Options Exchange, but when his wife Tara — the no. 1 Coldwell Banker Realtor in Chicago at the time — got sick and then recovered, the couple decided to live the next chapter of their lives in Orange County’s Newport Beach, where they owned a second home.
He then formed a venture capital group with a friend, and one of the deals brought to him was the HÔM Real Estate Group, which he committed to recapitalizing in March 2008. Later, he connected HÔM with Sotheby’s International Realty (HÔM SIR), the exclusive coastal and desert Southern California representative of Sotheby’s International Realty.
Now the chairman and CEO of HÔM SIR, Shapiro sits at the top of Orange Country’s luxury real estate market, retaining a $2 billion listing inventory, but he’s never fully left his investment roots. To this day, his background influences the way he diligently trains his agents, his unique lens of the real estate market and how treats his real estate dealings.
Luxury real estate as an investment
As he got to know Orange County’s coastal luxury real estate market nearly a decade ago, the former trader recognized that people who owned property in places such as Newport Beach, Aspen and South Florida treated their real estate as an investment, not a shelter.
They saw their real estate purchases more as potential retirement income and assets that contributed to their net worth.
Because of this, Shapiro focused his agent training on marketing to buyers the way Merrill Lynch or Goldman Sachs managers were marketing to their clients.
The goal was to be very professional and financially oriented.
Shapiro wanted his agents to have an understanding of why prices were going up and down, what outside forces were at play and how to create value and to be capable of explaining financial data and trends to homebuyers and sellers, providing them with all the data they might need to make a wise investment decision.
Correlation between real estate and finance
With the help of his economist, Shapiro likes to draw parallels between financial markets and his real estate markets.
In one of his recent market reports, he discussed how certain Southern California housing markets were mirroring the Dow Jones Industrial Average (DJIA).
The DJIA “represents the top equities in the U.S. and HÔM SIR represents the top residential real estate in the U.S. with the greatest intrinsic value,” he says in the report. And the performance of home sales in HÔM SIR’s coastal markets approximates the same pattern as the DJIA, argues Shaprio and his team.
The primary differences between the two are the degree of decline and the recovery times, says Shapiro. This means that HÔM SIR’s coastal markets, while more resistant to sharp downturns, generally take longer than the DJIA to recover.
See additional graphs and the entire market study here.
Communication about what is happening in the world is important, says Shapiro. “Markets are living, breathing things, and people are the ones generating movement, using algorithms, studying human behavior … we say it’s a critical piece of the way you look at the markets … we talk about it in meetings. What is happening in the marketplace — we distribute that information.”
His unorthodox financial approach might lead you to expect the chairman to recruit former bankers or corporate types as agents, but that hasn’t been the case. While recruiting over the years, he has found that corporate executives don’t really work that well as real estate professionals.
“We’ve had some corporate people come in and the conversion has been difficult for them, especially if they come from high ranking corporate roles,” he says. “They can’t get the jibe of selling themselves [and] their services as well as doing their fiduciary duty,” he says.
The majority of his agents have been in real estate or sales since the beginning of their careers. His wife Tara is one of his top agents, breaking records in the Balboa/Newport Peninsula markets.
Tripling business for Sotheby’s in the last five years
In November 2011, Shapiro joined forces with Sotheby’s International Realty (SIR) as its affiliate for Orange County and Palm Springs. SIR had been pursuing the HÔM group, which claims to have been the fastest growing luxury market brand in the western United States.
It was a good move that connected Shapiro with SIR’s networking events, such as the Global Networking Event (GNE), which will be held this September in Las Vegas. It also provides a lot of interlinks with top agents around the world.
“Since affiliating with Sotheby’s, we’ve literally tripled the business in five years,” says Shapiro, who has also developed three profitable financial divisions for HÔM: escrow, lending and title services.
The CEO credits the strong growth to the evolution of both brands: “My vision, as well as the Sotheby’s branding evolution, have converged to help our success,” he says.
The company’s upward trajectory can also be credited to the rise of attractive cities such as Newport Beach and Laguna Beach, which have kept Orange County “on the map” for American and international buyers in the last 10 years.
Conquering a tough market
Orange County is generally perceived by big brokerages as a hard market to crack; top performing HÔM Sotheby’s agent Shane Stanfield spends more than $2 million a year in marketing just to stay competitive.
Shapiro attributes this to his markets’ high density and transaction value: “That’s why it’s hard — it’s more expensive and there’s higher demand.”
Shapiro says there is a huge need for new housing, and land is so brutally expensive that he knows of someone who tore down an $11 million house so they could get the land and build their own $8 million house on it.
Like most brokerage owners with some longevity, Shapiro has agents who are dealing with generations of homeowners. He can think of two heirs to large fortunes in their early 30s whose “starter homes” will be quite impressive.
The custom coaching difference
To remain valuable to rarefied clientele, Shapiro is offering additional coaching to his 400 agents.
He is a big believer in the custom coaching business, so he and his CFO, Karen Weinberg, will be personally working with everyone. They want to tailor coaching to focus on using social media and understanding the nuances of transactions and contract negotiations, among other things.
“It will run the full gamut,” says Shapiro. “I don’t believe in coaching which says the more contacts you have, the more successful you are. I’d rather do it a lot smarter: What kind of contacts do you have and want? How are you communicating with them? What is your skill set?
“We try to enhance that, use that and market that a little more successfully, rather than inundating clients with phone calls and door knocking, for instance.”
Shapiro thinks agents should be involved in an ongoing education process that covers what they are selling, their services, the platform and themselves.
They should be asking themselves what they are doing to enhance their appeal to clients and how clients are responding to them, says Shapiro. “The more differences you have, the more you succeed. Otherwise you are competing on price.”
A new generation of Realtors
Shapiro is heartened by the new Realtors that have joined the firm in the past few years: “This generation of new Realtors, 25 to 30 years old … they are really on it. They are hard working and really smart.”
They are closing $10 million to $15 million in sales volume in a relatively short period of time, he says.
He believes in supervising new agents closely: “I manage some of them,” he adds. “Nobody can just come in and go out there and do. I watch them carefully, work with them and teach them. I always say to them, “You are paid for your creativity.”
The majority of his agents enjoy a commission split of 80/20 or 85/15. The commission splits range from a 60 to 90 percent split, and to have a 90 percent commission split, the agent should have a gross commissionable income (GCI) in excess of $2 million a year.
Plans for growth
When starting out in that first year from March 2008 to 2009, the former market trader scooped up some top producers in Orange County: “I went after top agents, invested in their business [and] came up with a formula [for] how to give marketing to clients. I decided if I could attract top talent at that moment in history, I could accelerate and push out the messaging of top agents.”
Those agents “had nowhere to go but up,” he says.
After growing from 36 associates and $200 million in sales to 400 associates and over $2.5 billion in sales in 2016, Shapiro is shooting for $3 billion this year.
He remains clear on his focus: “I think that brokers need to make money in the main brokerage business. If you choose to differentiate on price, that’s not a good idea. We have maintained our retention of commission dollars by providing services and the ability to perform.”
Even for small brokerages, it’s important to network correctly in their markets, he adds.
In July, Shapiro is opening an art gallery style office in Newport Beach on the ground floor of a new luxury office building, 520 Newport Center Drive. The plan is to hold client events there.
“An economist will speak about housing finance; an art curator will speak about art,” says Shapiro. It’s a great way to talk to the clients and the agents simultaneously without directly mentioning homebuying, he adds.
“What we are doing differently is incorporating information resources as part of our service,” says the chairman.
A lot of tenants in the building will be wealth management advisers, so it’s the ideal space to be in.
The Newport Beach-headquartered firm currently has 11 offices in cities including Laguna Beach, Huntington Beach, Balboa Island and four offices in Palm Springs.
May was “over the top” in terms of production, and June is looking the same after a strange beginning to the year, says Shapiro. “I see a good 2017 and 2018 with some corrections and no massive price spikes.”