Above, RE/MAX President and CEO Nick Bailey. Photo by AJ Canaria.
In these challenging times, it’s more important than ever to be laser-focused and razor-sharp when deciding how to proceed. With the likelihood of high mortgage rates and limited inventory continuing into 2024, making the correct decisions on cost-cutting, while simultaneously establishing new revenue streams, can and will separate which brokerages charge ahead when the housing market’s arrow eventually points skyward.
In the first of two panel discussions at RISMedia’s recent CEO & Leadership Exchange, in Washington, D.C., real estate leaders, in a session titled, “Power Pivots: Lessons in Change Management,” detailed the how and why of major changes they’ve implemented at their firms, discussing how they managed the change both internally and externally to maximize the benefit.
Next, in a session titled, “Getting to Profitability: Smart Measures for Tough Times,” leading brokers outlined specific strategies they’ve implemented to safeguard profitability in a tight market.
In Power Pivots, RE/MAX President and CEO Nick Bailey kicked off the broad-ranging discussion focusing not on the macro machinations that drive real estate businesses as big and influential as his company, but instead on the human element.
“(Ego) was the only reason that a couple of the companies that had also done similar types of acquisitions (to RE/MAX) didn’t get it right,” Bailey said.
With the panel mostly sticking to the topics of tech adoption, acquisitions and growth during change, the theme of people, and how important these less tangible or quantifiable elements truly are to successful pivots, came up over and over.
Kimberly Harris Campbell, president of the southeast and DMV region for Compass, cited a recent study that found people are very often the reason companies fail to successfully execute major shifts.
“They fall apart because of the people issues, because of the culture, the people management,” Campbell explained. “So I really tried to figure out what’s a framework that I can apply to every change scenario, whether it’s significant like an acquisition or a merger, or whether it’s insignificant, like changing our snack policy in our office.”
The importance of having that human element is so important that Campbell said she hires people based on their abilities and comfortability with change management—creating a foundation that will allow successful pivoting whenever it needs to happen.
Rick Haase, president of United Real Estate, echoed much of this. With his company having executed nine major acquisitions in the last four years, he urged audience members not to underestimate just how many resources need to be dedicated to address the specifics of people-focused change in an M&A scenario.
“The first acquisition we did…there was a whole nine month period of time that I spent with everybody who was going to touch that acquisition,” Haase said. “I spent time talking to them about how people support themselves in times of change and who are the change agents and the pragmatists and the skeptics and the traditionalists and how to navigate those kinds of resistances that show up in all those personalities.”
Not expecting to have major shifts in your company just magically work themselves out is one thing. But even with the energy and commitment to work with and understand all the complex personalities, needs, expectations and ambitions of the people involved in a pivot, there is a need for structure.
Steven Fase, president of Berkshire Hathaway HomeServices Michigan Real Estate, brought the discussion back full circle, arguing that systems, technology and infrastructure are key to addressing the human element in a change situation.
Fase joked that his father, who ran the business before he did, couldn’t spell the word “systems.”
“We had no systems. We were a company that bought companies. That’s what we did. That’s how we grew,” he said.
While not trying to directly force change to culture or people with systems, Fase said he has had tremendous success in scaling training, agent support and technology proactively rather than reactively, so those things are already in place as he pursues partnerships or acquisitions based on a culture match.
“I want to find a company with great leaders that are just fun to work with that believe in who we are and follow the same culture,” he said.
Nuts and bolts
Of course there are more tangible, more pragmatic ways to assess change and pivots, looking at the kind of strategy the big real estate companies adhere to in their attempts to grow and gain marketshare. Often, shiny new objects in the tech world attract an undue amount of attention, with Bailey admitting that RE/MAX had tried out acquisitions of tech that simply weren’t working out.
“As a brokerage or a brand, we have to deliver something that’s going to keep doing one of two things: make an agent more efficient, or the consumer experience even better,” he said. “We decided to announce the sunsetting of some of our tech that we bought, and we’re going to do it differently.”
Those kinds of decisions are hard to make, Bailey added, but they have to be made without an ego, without letting the very human fallacy of throwing good money after bad.
Campbell pointed to something that is both more quantifiable than personalities or culture, but not quite as tangible as the dollar cost of an acquisition.
“You have to have the right skills in place,” she said. “If you don’t have the right skills, it’s going to affect the quality of your change effort. And you have to have resources, which goes hand-in-hand with skills, so you don’t have frustration with people saying, ‘Wait a second, we’re trying to do all this work, but we don’t have enough people to get it done.’”
How to assess those needed skills and resources depends on the scenario, but having that framework, Campbell argued, was just as necessary a prerequisite as having infrastructure or capital to pull off a “power pivot.”
Another tangible is breakage. Haase said after all the experience his company has built with acquisitions, he was able to plan with stunning confidence for that possibility.
“One of the first board meetings that I was in, we talked about (breakage),” Haase described. “And one of the partners of the firm said, ‘What are you planning for breakage?’ And I said, ‘Well, we’re not.’ We haven’t lost a single agent because of the change. Not one.”
Whether that is realistic for every company in every acquisition seems unlikely, but aspiring to bring over every agent in a change is certainly a worthy goal.
Fase flipped the concept around, saying that he looks at companies who have failed to implement effective change management as potentially being good targets for acquisition. Some of these used to be very successful, with core values and skills that are still worth adding, he said.
Part of change management is being there to offer the chance for another company to pivot.
“They weren’t actually making changes, so those great companies aren’t as strong as they were,” Fase said. “So I think that…is going to be very important if you want to be able to retain marketshare.”
Staying profitable in tough times
In the second session, “Getting to Profitability: Smart Measures for Tough Times,” moderator Bess Freedman, CEO of Brown Harris Stevens, directed a lively session during which panelists agreed that the market is likely to remain difficult for the next 18 months to two years. Panelists suggested strategies such as leveraging brand affiliations, focusing on what can be controlled and investing in training for agents. They also highlighted the importance of maintaining office culture and listening to agents’ needs, discussed the rise of mega teams and the potential for growth in this area and warned against making too many cuts that could change the culture and environment of a company.
Freedman asked the panelists what advice and ideas they had for these challenging times. Charlie Oppler, managing partner and CEO of Prominent Properties Sotheby’s International Realty, stressed fortifying relationships to bring new talent aboard or keep the heavy hitters.
“When you’re looking at adding quality agents to your organization, it’s people that you’ve had conversations with for five or 10 years,” he said. “If you think about an agent, when they’re not as busy as they used to be is when they’re unhappy and starting to look around.
“At the same time, there is the re-recruiting of your own agents because they’re unhappy that the market’s down 25% in units. The other part that you have to be aware of are the compensation models. You have to know what everybody’s doing out there because if somebody thinks they can make an extra 1% – 2%, they’re looking to move, but they’re not looking at how they’re growing their business. So I think it’s the relationships and knowing who the agents are that you want.”
Chris Kelly, executive vice president of HomeServices of America, lamented that during the last major real estate sales downturn there was money to be made in mortgage refinancing, but that’s not an option with the high rates today. So brokerages must look closely at other ways to get leaner.
“We used to say things like, ‘I’ll lose a dollar on this hand to make $3 over here,’” he explained. “But this time, that life raft is not there. It has made all of us look at our brokerages a little more honestly. It needs to stand on its own two feet. There are things all of us can look at and say, what should we be doing? Oftentimes, the decisions you make in a down market would’ve been good decisions in a regular market. Two years ago you had the luxury of not making the decisions. Right now, for a lot of us, it’s office space—or it might be technology adoption and what you’re spending on it. All of our models are different, but just take an honest look at your business right now.”
Ways to maintain staff morale when clients, listings and sales are hard to come by was also addressed. Unlike most jobs, with paychecks being issued every two weeks, most real estate agents only collect after closings. It can lead to stressful times.
“That’s a tough one,” admitted Anthony Lamacchia, broker/owner/CEO of Lamacchia Realty. “Those in it for a long time seem to look at it like, oh, this happens, it’ll pass. Those that are within the last several years are much more grumpy. They’ve only experienced a market that is going up. So we’re trying to talk to them, to pull them into training, to get them involved in things and make sure that when we have events they’re here. But there are definitely challenges with agents feeling good right now. There’s no question about that. They have more time to complain.”
Kelly put a positive spin on what agents can do in hard times.
“Sometimes we start wallowing in what we read in the headlines,” he said. “But even at a down market of four million home sales this year in the U.S., that’s still 11,000 a day being sold. Human nature is if you’re drawing circles, the inner circle is what you can control and influence. The next circle you can’t control, but we spend time in that outer circle thinking about rates and things we have no control over. People must focus on what they can control or influence.“I can control how many calls I make. I can control how many appointments I make, and how many things I deliver to my clients.”
Oppler agreed, sharing that his company has established an events team to host as many events as possible to keep agents engaged, but cautioned that reality dictates that the top revenue producers need to get the most focus.
“We really focus on the top half of our agents, the ones producing most, instead of the third and fourth quadrants, though some of those agents have really suffered. If we were all honest, we’d probably get rid of the fourth quadrant, but for whatever reasons, we all keep them. But as we all know, it’s that top tier that requires the most attention, and we’re looking at that top half from office to office to make sure they are the ones we’re engaged with first.”
Laura O’Connor, president and COO of JPAR® – Real Estate, trumpeted her company’s new program designed to at least make sure employees had superior health benefits even if their earnings were lower than past years.
“We are rolling out a whole health initiative that gives about $20,000 in value to every single agent,” she noted. “We are making sure they have accidental death and disability insurance and life insurance and prescription benefits and access to affordable vision and dental and other health benefits. We know that when they can take care of their health and their wellness, and that their families will be taken care of if something happens to them, it’s the right thing to do, especially coming out of the last few years that we’ve had.”
Freedman then shifted the conversation to the power of partnerships, asking the senior executives if they thought they could deliver high value. O’Connor was first to respond.
“With efficiencies of scale, we can afford to buy package services in a way that somebody who’s just 50 agents on their own probably can’t, but that only works well if it’s a two-way street,” she said. “So if we’re not listening to the boots on the ground, to what’s happening in Colorado and El Paso and all of our different markets across the U.S., then we don’t know what we need to be preparing for. It is the agent and the owner at the market level that understands what we need to be prepared for. If you’re having really good communication and active listening, then there’s tremendous value in having that affiliation.”
Oppler opined that the best agents see themselves as practically independent contractors, but affiliations still play a role in their success, and of course more so for the rank and file.
“If you look at the top agents, we’re all convinced that they don’t see value in brands, they see value in themselves,” he said. “I think the Sotheby’s brand, obviously, because we’ve been affiliated with them since 2009, has opened a lot of doors for us. And from 2009 to 2013, we opened five offices and acquired five buildings, even though everybody was afraid of the market. I was taught a long time ago that when everybody runs away, it’s the time to grow, but you have to have the support on the back end from your brand. Plus, from a marketing side, it’s helped us because there’s a lot of things that our marketing team works with on the corporate side, so we don’t have to reinvent the wheel each time.”
Finally, when Freedman encouraged predictions on what 2024 will bring, panelists were pretty much in lockstep, saying that while things will stay about the same as they are now until rates and inventory become more favorable, there are still opportunities for hard workers and creative thinkers.
Oppler: “The market we have now is the market we’re going to see for a couple of years. Inventory is going to stay a challenge. Interest rates, even if they come down a little bit, there are so many people with 3% mortgages that are going to be locked into their houses for a long time until they decide to either retire or relocate. But there are going to be opportunities for us to grow. You’re going to have agents continuously battling, and that opens doors, especially for some of the top agents who are looking for what they think is a better situation. And they’ll define that, not us. They’re going to tell you what they want.”
Kelly: “We’re in this world right now where good news is bad news. I saw Goldman Sachs saying they downgraded the chance of the U.S. recession from 20% to 15%. And I found myself thinking that until the rest of the world catches up to where we’re at in real estate, nothing changes. I think next year looks a lot like 2023. But there’s freedom in that, too, freedom in not thinking there’s something magic around the corner. So buckle up and drill down on the things that you’re already doing that are making you great. Everyone seems to think maybe there’s code words within what the Fed is saying, and I don’t think they’re coding anything. I think they’re telling us.”
O’Connor: We’re seeing consolidation at the brokerage level and the M&A space, and certainly on the technology side, but we haven’t talked a lot about the rise of mega teams and the fact that powerful team leaders will be taking advantage of this and bringing in less-experienced agents and nurturing them. Companies that are well equipped and welcoming to large teams will see significant growth. Of our newly affiliated owners, 65% of them came from underrepresented leadership groups. We want to be part of this growth. And we know that starts with empowering leaders that come from underrepresented groups so that they can provide their insights. So we’re excited about some of those opportunity areas for next year.”
Lamacchia: “The absolute earliest I see us starting to come out of this as a market is 18 months. But what a lot of people need to do is just accept it and figure out how to go on offense. We can sit around and whine or figure out a way, because there’s just massive amounts of opportunity more than ever. Calls I make to owners, they’re like, ‘yeah, let’s get together, when do you want to?’ This person two years ago barely wanted to say hi to me. So I don’t know why everybody’s not on the phone to that extent.”
Asked for her perspective, Freedman stressed that it was vital for agents, now more than ever, to be around coworkers as much as possible.
“I think it is really important in this environment to go into the office,” she said. “Office culture matters greatly, going in, seeing your colleagues, talking to your manager, finding out what’s going on with open houses and seeing people connecting. You need each other. And I think culture is built not on a Zoom, but in the office. People have been working enough from home. It’s time to get out of your PJs and get into the office.”
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