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8 Broker Challengers
(Including the solutions you're craving!)

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Lead generation, hiring quality sales associates, maintaining profitability—typical challenges when you own or manage a brokerage. Here are some common issues and some thoughtful solutions.

Fighting to maintain your company’s profitability? Facing consumers who demand that your agents lower commissions? If you’re like most brokers, you’re dealing with these challenges and many others.

We can help. We talked to brokers and experts about what they consider the biggest challenges for brokers in the next several years and what they consider to be the best ways to solve them. Here’s their wisdom and advice.

Challenge 1: Everyone wants a piece of your pie.
There isn’t a broker in the country who isn’t trying to maintain profitability in the face of demands from consumers to lower their commissions and from agents to raise theirs.

“There’s a ‘scissors’ effect,” says Linda Sherrer, president and CEO of Prudential Network Realty in Jacksonville. “Consumers are trying to lower commissions, agents’ commissions are higher and the broker’s caught in the middle. No matter what company, what part of the country, that’s the biggest outcry from brokers,” she says.

Phil Wood, CEO of John R. Wood, Realtors® in Naples, says he’s facing the pressure from sales associates, and he’s willing to give a little more. “We can afford to pay agents what they want if we deliver a lot of services and grow enough,” he says. “Although our margin might be lower, we’ve got enough profit in the long run.”

Wood also says paying sales associates more is smart business. “Profitability is important, but if we don’t make quite as much as the broker down the street, that’s OK,” he says. “We want to see our personnel have a good family life and income, and when that happens, it’s a win-win. They stay with us longer and are more productive.”

On the consumer side, the explosion of the number of real estate practitioners combined with fewer listings over the past 10 years has led to “a whole lot more people chasing a smaller piece of business, so you’re going to get price competition,” says Steve Murray, president of REAL Trends, an industry research company in Denver. “The lack of measurable differentiation among brokers and agents leaves most with little to compete on except price,” he says. Pressure from consumers has also come, Murray says, because of the “much greater availability of discount brokerage alternatives than there ever has been before,” he says.

“From our studies,” Murray says, “we know that consumers are starting to resist the price of the commission, not the percentage. It’s one thing to pay a $12,000-$13,000 commission on a $200,000 home, but in a lot of markets, the commission is $35,000-$50,000, and those numbers get people’s attention.”

Wood says a key way to address consumers’ demands for lower commissions is to educate them about your value. “A lot of online companies put out the message that they can help consumers find a property, which can result in paying less to real estate agents,” he says. “Finding the property is only a tenth of the way there. The rest is holding the transaction together. We’ve not done a very good job of communicating to customers that we do a lot more than find properties.”

Challenge 2: It’s challenging to adjust to a normal market.
Right up there with the commission crunch is adjusting to markets that are slowing after years of frenzy. “What we’re seeing now is a market that’s normalizing,” says Alex Perriello, president and CEO of the Realogy Franchise Group in Parsippany, N.J. “As the market changes, agents and brokers need to change their strategy because most agents who’ve been in the business for the last 10 years have seen the market only one way, and that’s up.”

Mike Pappas, president of The Keyes Co./Realtors in Miami, says newer sales associates need training to help them transition to today’s market. “For the last four years, we had a real estate market on steroids, and you didn’t need skill to sell,” he says. “Now, we’re communicating more aggressively with associates and going back to the fundamentals because this market requires a new set of negotiation skills. Before, it was speed, and we took orders from customers, and now, it’s managing clients and offering expertise in things like managing the listing and positioning the property properly.”

Perriello agrees. “When agents deal with sellers, they have to be far more prepared with facts and figures about the reality of the market to help sellers make intelligent, informed decisions on pricing and how to prepare the house for sale,” he says. “Agents need to be more informative, consultative and reality based.”

Market changes are “very healthy,” says Sherrer. “Companies like ours live to see this happen because it makes everybody stretch and be better.”

Challenge 3: Brokerages need to tighten their belts.
Intertwined with a changing market is the issue of rising costs. Murray says that as time on market increases, brokers will have higher advertising and carrying costs, which will chip away at profitability.

That’s true, says Wood, and he’s reining in costs, including marketing expenses. He says newspapers produce less than 10 percent of sales for the industry, so his company is working to reduce its newspaper advertising while increasing its presence on the Internet.

“Personnel and facilities are also becoming very costly to us,” he says. “The cost to build or rent a new office is extremely high.” That’s led to the company expanding its “cyber-agent” program so that about 40 percent of the company’s sales associates now work out of their homes.

In response to these rising costs, many brokers are focusing on increasing revenue from mortgage, title and other nonbrokerage services. “That’s not the end answer,” advises Murray. “You’re not going to be able to say, ‘We’re going to get more mortgage and title business, and that’ll fix the problem.’ You have to fix the whole business.”

Fixing the whole business requires that brokers learn to say no, he says. “One word brokers never use is no. You’ve got to decide what kind of business you’re going to run. What will you stand for in terms of service, culture and other things? Then, you need to say, ‘No, we won’t provide a full set of services at a discount price. No, we won’t give agents higher splits on top of more service. No, increased advertising isn’t the answer to every problem.’”

“You’re going to have to run a financially tight ship by saying no,” says Murray.

Challenge 4: You’ve got to know what type of business you’ll operate.
Tied in with tightening your belt is a more fundamental issue. Before you can decide where to best put your endangered resources, you must determine what type of business you’ll operate.

“A lot of brokers have gone through fluctuations [in their identity],” says Sherrer. “There are so many different business models, and you need to sort out the profile of the consumer you’re going to work with and how your business model answers that consumer.”

Her company has done just that. “We’re 17 years old, and we took a hard look at ourselves and asked what our true business model is,” she says. “We decided we’re extremely full service, so if consumers want only someone who can stick a sign in the yard, we’re not that company.”

Challenge 5: Keep quality sales associates on board.
Where would you be tomorrow if your top sales associates left your company today? In hot water, no doubt. That’s why brokers say another challenge is holding onto their best associates.

“Our assets walk out the door every night,” says Sherrer. “You have to be very mindful of the people who brought you to the dance, so to speak. They helped you get where you are.”

Being mindful includes reminding them what you do for them, she says. It’s normal, when markets change and income is harder to sustain, for sales associates to ask whether the problem is something they’re doing or their company’s doing. “They assess things,” says Sherrer, “and you have to show them your value and that you appreciate them.”

For instance, Sherrer has an advisory group of sales associates from each office whose input she values. “Recently, they started saying, ‘We need back-to-basics training and advice on how to address this market,’” she says. “Within two weeks, we had our trainers doing workshops office to office, and we’ve had resounding applause from that. They know we’re listening.”

Challenge 6: Lay the groundwork for growth.
Bringing great leaders into your company is another challenge, says Pappas. “Your organization is only as good as your leadership team,” he says. “You’ve got to have the structure and organization for growth by hiring the right people as part of your leadership team.”

“Brokers tend to think they can do it all,” he says, “but you’ve got to delegate, or you’ll spend all your time putting out fires and never getting into a proactive thinking mode.”

Pappas says his company wouldn’t have been able to grow if he hadn’t made the tough decision to hire people to do things his former management team didn’t have the time or expertise to handle.

“We were doing everything with our family, and we definitely would have tapped out,” he says. “We’ve added a chief financial officer, another marketing director, an information technology director and regional managers. Once you start delegating, it’s easier to clearly define your goals and manage expectations.”

The toughest part of expanding your management team, says Pappas, is dealing with the responsibility it brings. “If you bring on all those people, you’d better deliver,” he says. “I feel more responsible for the business than I ever did.”

Challenge 7: Capture online leads.
“In researching online lead-generation firms like RealEstate.com, ZipRealty.com and HouseValues.com, we’ve seen national close rates in the single-digit range, typically around 4 to 6 percent,” says Murray. “Those brokers who actively work the leads, however, are reporting close rates of 15 to 20 percent.”
 
Based on REAL Trends research, Murray says, the leads themselves aren’t lacking, but the brokers and associates working them are. “The broker who allocates a certain amount of personnel and resources to setting up, managing and diligently working those leads will see the more profitable 15 to 20 percent capture rate,” he says. “The lack of capture rate from Internet inquiries lies not in the fact that these are junk leads, but in the fact that the brokerage industry as a whole has yet to build the proper infrastructure for servicing those leads.”

Enter a new wave of technology, companies whose mission is to help brokers and associates make better use of leads coming at them from various online sources. Introduced in January 2005, the National Association of Realtors’ Messenger service (which is free to members) uses voice synthesis to convert consumer queries received from real estate Web sites into voice messages, which are then sent to a subscribing member’s cell phone based on geographic information. NAR members may download the software at no charge.

Other options include Most Home Corp.’s ClientBuilder, which helps brokers attract more traffic to their Web sites, then tracks the leads generated from the time of capture up until closing; Wolfnet Technologies’ lead-management and -tracking system; BirdView’s BirdTalk centralized lead-management platform; Reply! Inc.’s lead-validation program (which reviews, qualifies and validates all leads); and Katabat’s lead-generation, lead-management and Web site solutions.

Challenge 8: Manage the transaction online.
Online transaction-management systems are electronic applications accessed through the Internet that help brokers and sales associates manage the information and communications that comprise a real estate transaction. Such systems were defined in a 2005 Clareity report on the state of the transaction-management industry as “an online platform and tool that supports (the following) basic functions as they relate to residential real estate brokerage transactions:

  • task to-do tracking and
  • management,
  • digital document management,
  • participant setup and security,
  • communication, notification
  • and logging,
  • service ordering and
  • transaction management
  • (searching and reporting).”

Brokers and sales associates have been watching these systems for some time, but many have been reluctant to implement them if only because transaction-management companies have been frantically trying to integrate title companies, MLS systems, back-end accounting and other functions into the programs. It’s all starting to come together. “2005 was pretty instrumental in that a lot of the moving parts of the transaction have started to come together,” says Mike Lancaster, executive vice president of sales/client management for First American Residential Group in Irvine, Calif. “Integration is happening with back-end accounting systems and front-end lead-management systems. If you look back five or six years ago, it seemed like it would be an easy thing to bring to adoption, but it’s been a slow evolution.”

Despite these tough challenges, Murray is optimistic about the future. “There are opportunities for brokers,” he says. “I believe the best days of the industry are still ahead of us, not behind us.”

G.M. Filisko is a Chicago-based freelance writer.