Brokering. through. the. Bust. By Chris Ryan. 24 January/February

Transcription

1 Brokering through Bust the By Chris Ryan 24 January/February

2 Has economic climate change made smaller and mid-sized brokerages an endangered species? The now-all-too-familiar phrase greatest economic crisis since the Great Depression is so often repeated that one would think we would all have become desensitized to it by now. Instead, almost two years on, it continues to create an all-out assault on the senses, day after day, especially for brokers, owners and managers. For Managers, Brokers and Owners 2010 January/February 25

3 I definitely believe that brokerages that are willing to leave the comfort zone of business as usual have the most profound opportunity for capturing mind share and market share like never before. Ken Baris, CRB, CRS, president and bro ker, Jordan Baris REALTORS, Inc., West Orange, N.J. Across all sectors, you hear people s stories of job loss, drastically reduced income or having to close their businesses. You see shuttered office space practically begging to be leased. You can almost smell the fear and lack of confidence across many industries, not just real estate. Though things are finally starting to improve, at least on the residential side, some in real estate are crossing their fingers and hoping for the best. The brokerages with a more optimistic albeit realistic outlook are making their own luck as they act locally to plant new sustainable economic territory in I definitely believe that brokerages that are willing to leave the comfort zone of business as usual have the most profound opportunity for capturing mind share and market share like never before, says Ken Baris, CRB, CRS, president and broker with Jordan Baris REALTORS, Inc., a mid-sized, two-office, 200-employee independent brokerage headquartered in West Orange, N.J. Any broker just thinking, I gotta get through this, they re in trouble. The people saying, Let me take a minute, sit back, figure out the situation, come up with a plan and get creative will do well. So what constitutes a good plan? What are successful brokers like Baris doing? The biggest change we made was absolutely understanding how to budget for this new economy, says Sandy Green, CRB, president of Reece & Nichols Alliance, Inc., a regional franchise in Overland Park, Kan. Frankly, a lot of small brokerages would talk the talk about budgeting and now they have learned to walk the walk. They have become very good at managing their finances. Every one of our franchisees will be stronger because of it. At Reece & Nichols Alliance, Green s team makes use of a specific budgeting tool, called a profit-planning budget. It focuses on several key elements, the first of which was to conduct a study that included combining past area sales statistics with U.S. Census Bureau data. Steve Murray from Real Trends came out with a statistic that we brought back and actually checked in most of our marketplaces and it was mostly right on, Green says. For example, if 5% of single-family homes would sell in a normal market, Green s team would budget for 4.25% to 4.5% to account for the recession. But that was just the first step. Using ZIP codes and counties where each of Reece & Nichols Alliance s offices is located, they pulled the most current housing unit numbers from They then looked at those numbers and cross-checked them against total sales of single-family housing units in their MLS over the past 12 months. Based on that information, they looked at what percentage each office had on that day, then figured out what they needed to cover expenses and plan for growth. Along with sales and census data, Green looked at agent production per year in written units of sales. 26 January/February

4 vision new If an office had 24 written units per agent in the previous 12 months, we would use that function in our profit planning, and that then gave us total number of units we could expect out of that office for the year, she explains. Additionally, they calculated net company dollar on an average sales price for each office. If their average sale price was $125,000 and they paid out an average of 65%, that gave them 35% to operate their company, Green says. That gave us a number to focus on. Because of its success, Green says her team relies heavily on the profit-planning budget model each year. They also make sure that their seasonality factors are appropriate. For example, they ll see how many sales are written during a specific month and how many actually close in that same month. If you write a sale in the first part of December, you probably won t close in December, she says. Maybe 10% will close in that first month, 30% to 40% in the next month, etc. We really monitor that number because it helps to predict cash flow. Next, it s on to expenses. They examine fixed monthly expenses and have trimmed aggressively using savvy negotiation with some of their vendors to save money while avoiding cutting back on client service. We have learned to negotiate nearly every single fixed expense, Green says. For example, they took a close look at one cost that is absolutely enormous in some smaller markets: telephone service. They examined how many lines they actually needed and whether they could get away with using fewer by increasing the number of data lines and investigating voice over Internet protocol (VOIP) options for bridging the resulting gap in phone service. We take a look at every line item in their chart of accounts to make sure we weren t overspending for office size, she says. In many cases, brokers move to new locations in order to open the office of the future a smaller space per agent than offices of the past that more resembles a Starbucks than a cubicle farm and costs a lot less to lease and operate. The office of the future will have fewer hard costs and may have multiple ports for agents to bring in their laptops, she explains. We re seeing we need more small conference rooms and more technology with either projection equipment or flat-screen TVs and less square footage overall for the agents. The whole key, she says, is to get agents involved in the planning so they know that their brokers are acting in their best interests, too, not just taking away office space for no reason. Baris agrees. I don t think you need offices on every corner we ve proven that, he says. There are firms with many more offices but fewer associates than us. Like Green s vision of the office of the future, Baris believes in ultimately creating additional offices that provide limited services in a small but plush environment for associates to conduct business. It s also essential for brokers to create an online For Managers, Brokers and Owners 2010 January/February 27

5 onque To really conquer the market, you need to conquer technology. The biggest key for a brokerage is to understand, embrace and use technology when it makes sense. Ken Baris, CRB, CRS environment for associates who want to function virtually, he says. But to have maximum success, you have to be able to provide both the environment for associates who want to be in the office as well as for those who want to function virtually which speaks to another issue: commissions. Agents are very intelligent people, Green says. They wouldn t be entrepreneurs if they weren t. We treat them like business partners, not employees. Part of that philosophy is helping them understand that maintaining a level of commitment to them on commission rates despite the huge drop in the number of transactions 17% to 20% at the beginning of last year for Green s offices means that something needs to change. A few years ago, many brokers were making more than they ever thought they would, Baris says. Two years ago, they said, Why am I not making more? I m making a lot but spending a lot. The year is not panning out the way I thought it would. Last year, a lot of those brokers lost significant amounts of money and had to regroup. So what does that broker do today? Do they continue down the same path and lose money each month for the privilege of staying in business? Do they sell It s hard to sell a business that s losing money, Baris adds or do they close their doors? All three are highly unappealing options, he says. Our suggestion is, and it s a discussion we re having with different brokers, is to join us, eliminate the overhead and have the back office functions handled. That means no more leases, no more copier payments, technology costs, insurance, personnel, association memberships, advertising, marketing or anything else reining in fixed costs. As a mid-sized firm, we operate with no debt, which provides leverage in this marketplace, Baris continues. When I was younger, I would say to my dad, Why aren t we leasing equipment? He said, You ll understand someday. Today is the day that I totally understand. With that thinking, Baris has turned his focus inward. What we re doing is capitalizing more than we ever have before on the biggest strength an organization has: our people, he says. And not just managers. Associates, administrative staff and managers are all invested in reshaping the organization. Part of that reshaping takes place in weekly process planning meetings where a team of 20 people within the organization have come up with a list of more than 150 initiatives they thought would be important to undertake to improve the company. Through that time-consuming process, they chiseled away at that list to come up with three primary areas on which they would focus their efforts: onboarding, business planning and client engagement. We re seeing more inexperienced agents joining our company because they see a vibrancy, Baris explains. This is a time when many associates are looking around. If the onboarding process is superb, we can provide a great experience and ensure their time frame to success is as short as possible. The next area Baris is focusing on is business planning. 28 January/February

6 red We have created a unique business plan template to make it practical and fun for associates to know what they are going to do every day for success, he says. In other words: accountability. We looked and didn t see anything out there that we thought was practical like going through 15 pages of expenses or knocking on 3,000 doors, he says. Instead, they intensely examined and boiled their process down to the most basic and important things associates needed to do to ensure their success. Our listings literally went up instantly, he says. Because we created focus. Third, Baris and his team looked at client engagement. We really took a lot of time to think about what the decision-making process is for someone to invite a REALTOR into their home or to choose to discuss the purchase or selling of a property and then decide who will they ultimately work with? he says. We have greatly refined our approach in this area. Part of that refined approach is to conduct client surveys at different steps in the home buying or selling process. Instead of guessing, we re asking, he says. We re also providing additional support for associates for when they go on a listing presentation. Getting the company You have to be persistent, and you have to be positive. Sandy Green, CRB involved, unlike before, gives us the ability to ask questions, which is multifaceted in its benefit. Baris also attributes his ability to still grow in this market in part to his philosophy on technology. To really conquer the market, you need to conquer technology, he explains. The biggest key for a brokerage is to understand, embrace and use technology when it makes sense, meaning: It s going to eliminate a step you re already taking, provide something you can t yet offer and make you significantly more money than it will cost you without taking a whole lot of your time. One technology trap to avoid, he adds, is to turn a brokerage s associates into technologists. Technology should be in the background; the associates should be on the front line with prospective clients, he says. By adding technology improvements and his three-point plan into an already successful model, Baris is optimistic about his firm in particular and for brokers, owners and managers in general. Very clearly, this is our time, and I think we ll grow in this market, he says. Having spoken with friends in the industry with similar companies, the savvy operators who didn t get burdened with too much debt will grow. Green shares Baris s enthusiastic but sober outlook. Never, never, never give up, she says, laughing. That s the approach today. You have to be persistent, and you have to be positive. For Managers, Brokers and Owners 2010 January/February 29