real estate brokerage Archives - The Phoenix Real Estate Guy

Thompson’s Realty is 4 Today!

February 27, 2012 By Jay Thompson

Happy… Birthday? Brokerageversary? to Thompson’s Realty!

Four years ago today, Francy and I opened the doors to Thompson’s Realty. The grand plan then included hiring one other agent and making a go at what at that time was a horrific national real estate meltdown in one of the hardest hit marketplaces on the planet.

Fast forward four years and here we sit with thirty-two agents and 47 straight months of profitability.

It’s been a pretty wild ride!

A wild ride that wouldn’t be possible without three distinct groups of people…

Our Clients

Without clients, there would be no home sales. Our clients are our lifeblood, and we can not thank them enough for entrusting us to help them buy, sell or manage their properties. You have our undying gratitude.

Our Agents

Obviously I am rather biased, but biased or not there is one simple fact: we have not only great agents, but terrific human beings working at Thompson’s Realty. It is a pleasure to work with such a dedicated group of professionals. I often say we won’t hire anyone with just a license and a pulse, and that is true. But it truly is the pulse, the heartbeat, of these fantastic people that make our brokerage work.

My Wife

Ask any Thompson’s Realty agent that has been around for longer than a week or so who really runs the show and they will immediately say, “Francy”. And they are right. I may be the “face” of the brokerage, but Francy is the brains, brawn, heart and soul of Thompson’s Realty. Without all she does we would be an utter and complete failure. I love her with all me heart and truly marvel at all she does. She is, in a word, amazing.

What’s Next?

Who knows! We’ll keep doing what we do — serving clients, working with the best damn group of real estate agents on the planet, and see what happens!

Photo Credit: the.serial.chiller on Flickr. CC Licensed.

This could be the beginning of the end for small brokerages

February 22, 2012 By Jay Thompson

“This could be the beginning of the end for small brokerages.”

Or not.

The quote comes from a comment in the Inman News story published yesterday, Howard Hanna invests $1M-plus to enhance real estate listings.

That commenter is not alone.

Notorious Rob Hahn wrote this piece, Some Thoughts on Zillow’s 2011 Results and Howard Hanna (In Which I Declare Peace In Our Time). As always, Rob writes thought-provoking copy. In his piece he announces “The Next Battle Line”…

So that announcement by Howard Hanna, together with Zillow’s quarterly report, delineates the next battle line: the big dogs vs. the little independents.

On Howard Hanna (the fourth largest real estate brokerage in the country) paying Zillow $1M for a “partnership”, Rob went on to say in a Facebook Group:

Trick is, try getting that rate if you only have 50 agents or so.
Get big people. That era is upon us.

An aside to Rob and the many others quoting this $1 million dollar deal, please note that Inman reported the price was “$1M-plus” and went on to quote the President of Howard Hanna saying:

… the Pittsburgh-based brokerage is making a “seven-figure investment” in separate agreements with the two national portals… (my emphasis).

“Seven figures” could mean $1,000,000 or a penny under $10 million. So let’s not be calling the deal closed at $1M… But, I get the point. The big dogs can write seven-figure checks.

Thompson’s Realty is clearly not a “big dog”. We are a “little independent”. And while I could physically write a seven figure check, it wouldn’t be worth the paper it was printed on.

Is the small broker doomed?

Granted, I am quite biased, but I think the answer is a resounding NO.

Here’s why…

Take a look around the real estate brokerage landscape. There is carnage everywhere. Realogy (think Century 21, Coldwell-Banker, Better Homes and Gardens Real Estate, Sotheby’s, et al) lost $28 million in Q3 2011. That’s over $300 grand a day, every day, for three months. The Phoenix franchise of Realty Executives filed Chapter 11 reorganization in May 2011 (and successfully emerged from that in Oct 2011). Way back in December 2007 RE/MAX 2000 closed 13 offices in the Phoenix area. In February 2009, Century 21 Town & Country (10 offices in Michigan) filed Chapter 11. Yesterday, Grubb & Ellis Company, a large commercial real estate services firm, announced they were selling most of their assets in bankruptcy proceedings.

Many brokerages, big and small alike, are and have been struggling. Some, of various flavors and size, are flourishing.

I suspect it has been this way since time immemorial.

Here is my response to Rob’s, “Get big people. That era is upon us.” comment:

I am also far from convinced that “getting big” is the answer. My brokerage will be 4 years old next week. And we’ve been profitable for 47 of the 48 months we’ve been open. I’d ask my old C21 broker what he thought of that, but he had to shut his office down. Maybe I should ask Realty Execs? Oh, wait, they filed bankruptcy. I know, the big Re/Max office in town! No, gosh darn it, they shuttered their doors too…

Big might get you better deals with certain service providers, but it certainly doesn’t ensure profitability….

(Nota bene: Realty Exec’s did not shutter their doors. They filed (and emerged from) Chapter 11 reorganization. My FB comment might read they closed along with my old C21 office and the RE/MAX offices. Apologies as that wasn’t the case and was poor writing on my part.)

Rob then asked me, “… so going Big is not the answer. What is your strategy for surviving and dominating?” “Dominating” was later clarified to mean, “annual growth of 10% or more”.

A fair question. How have we managed to survive and grow? Francy and I opened a real estate brokerage in the middle of the worst real estate market downturn in recent memory in one of the hardest hit markets on the planet. And we’ve been profitable and are growing. I’m rather proud of that; but it’s not because I am some genius business wizard. There is no secret sauce, the formula is actually pretty simple:

Hire kick-ass agents.
Ruthlessly cut overhead costs.

It’s business 101 folks. Profit = Revenue – Cost. (Yes, I know you learned in Accounting class that it’s more complicated than that. I took 6 hours of college accounting too. This is the gist of it however.)

From that simplified formula, if you want more profit, you increase your revenue and/or reduce your cost.

Want to increase your real estate brokerage revenue? Hire agents that sell homes. Sure, you could sock your agents with all sorts of fees too — that will increase revenue to the brokerage. Desk fees + transaction fees + E&O fees + technology fees + whatever fee you desire or think you can get away with = more revenue. It also = annoyed agents who spend more time looking for a new brokerage than they do selling homes.

Yep, you can lower your agent’s commission splits too. Or raise your cap. That will raise your revenue but also tends to lead to agent dissent.

Here’s a thought… Try making your agents happy. Happy workers are productive workers.

Andrew Oswald, a professor of economics at Warwick Business School and a leading authority on the relationship between economics and mental health, led a team of economists that did a study confirming that happy workers are more productive. Why it takes a study to discover something fundamentally obvious is a story for another day.

“We find that human happiness has large and positive causal effects on productivity,” the team said. “Positive emotions appear to invigorate human beings, while negative emotions have the opposite effect.”

Well duh. But thanks for the verification.

We do what we can to keep Thompson’s Realty agents happy. We let our agents run their business like the entrepreneurs they are. We don’t impose a bunch of polices, procedures and additional forms on them. We pay them immediately as opposed to holding their checks while they “complete a file” that requires some ridiculous broker-mandated form to be submitted in triplicate. We give them leads at no additional cost. We have aggressive splits and low caps. In short, we treat them like human beings — like we would want to be treated — not like pieces of property.

Again, it’s not rocket science.

The other half of the profit formula is cost. Lower cost = increased profit. Want to lower your cost in a real estate brokerage? Lose the fancy office with flat screen monitors, Corinthian leather couches and an espresso machine. Your agents are going to be in the field anyway, selling houses. Provide oversight, be available, help them grow their business. Remember, when their business grows, so does your profit.

So there you have our “strategy for surviving and dominating.” Is it scalable? Could I grow Thompson’s Realty to 500 agents? Maybe, maybe not. Personally I have zero desire to run a 500+ agent brokerage. That’s mostly because I’m selfish. I want to know all my agents. I want to be available for them all the time. I want a “family atmosphere” where our agents cooperate with each other, not compete against each other. I think we’d lose all of that if we grew too large. I am not convinced that size matters…

I say the little independent can go toe-to-toe with the big dogs.

And win.

Photo Credit: Jeff Moss on Flickr. CC Licensed.

Hat Tip to Michael McClure for the C21 Town & Country link

On Flat Fee “MLS Only” Real Estate Brokerage

January 27, 2012 By Jay Thompson

This hit the email inbox today. It happens on a quasi-regular basis…

Hello,
We are selling our loft by owner and we see it is listed on your website, but that it hardly has any pictures – and certainly not the types of pictures that would attract buyers. Is there any chance you could replace the main picture on your website’s listing and perhaps add more pictures? I’m attaching some photos of the loft. We like the first photo the best.
Thanks,
John and Jane Doe

(Names obviously changed. My emphasis in bold)

Here is what is going on.

John and Jane have “listed” their home for sale with what is typically called a “Flat Fee” or “MLS Only” real estate brokerage. For some set fee (typically $250 – $500 or thereabouts) a real estate broker will enter home sale data into the Multiple Listing Service (MLS). Some also provide a for sale sign, maybe a lock box. Services vary.

What these types of brokerages will not do though is represent you in a real estate transaction, according to the information furnished by The Property Buying Company. No marketing, no advice, no negotiations, no handling of offers. No nothing other than putting your data into the MLS. Everything else in on the sellers. There will even be notes in the MLS to buyer agents that all offers must be presented directly to the sellers. A prudent buyer agent will ask the sellers to sign an “Unrepresented Seller” addendum should their clients decide to make an offer.

When listings go into the MLS, they are shared across real estate websites via an “IDX feed” (Internet Data eXchange). Basically the MLS data — verbiage and photos — are fed to other local (and national) listing sites for display.

Sites like this one.

So what John and Jane are seeing when they see their home “listed on this site” is the MLS data their flat fee agent entered into the MLS.

I can not change that data. Only the agent (or their broker) that entered the listing into the MLS can change the data. This makes perfect sense if you think about it. There is no reason for me to be able to change the data. It’s not my data. And you don’t want different variations of the same listing spread across hundreds / thousands of web sites.

There is nothing I can do to help John and Jane better present their listing. That’s their agent’s job.

But they don’t really have an agent…

Why Would You Use a Flat Fee MLS Only Broker?

Ostensibly, to save money. Let’s face it, real estate commissions are not cheap. Typically, homes are listed at 5 – 6% commission, with that amount typically being split 50/50 between the listing brokerage, and the brokerage representing the buyer. (Of note, I emphasis typically. Real estate commissions are not fixed and are negotiable.)

So, for example purposes only, let’s say John and Jane list their home with a full service brokerage and negotiate a 6% commission — with 3% going to the listing agent and 3% to the buyers agent. If they sell their home for $150,000, then they would have to pay a total commission of $9,000; $4,500 goes to the buyer’s brokerage, and $4,500 to the listing brokerage. That is not an insignificant amount of money.

The vast majority of flat fee MLS Only users understand that they still have to offer a commission to a buyer’s broker. Without that, it would be difficult to attract buyer’s agents. After all, real estate agents are people too (really!) and few people have the means to work for free.

So the sellers utilizing a MLS Only brokerage can, in theory, save 3% (or so) on commissions. They don’t pay any commission to the MLS Only broker.

Okfine.

But those considering using an MLS Only brokerage should consider a few things other than just the “savings”.

Their time. You’ll be doing legwork an agent normally does. Argue all you want that real estate agents don’t earn their commission. But don’t tell me you won’t have to spend some time doing things (like emailing some broker a bunch of pictures hoping he can change your “listing,” among other things). Time is money.
Their knowledge. It is readily apparent that John and Jane had no clue about how IDX works. Let’s hope for their sake they have more of a clue about all the required disclosures, the legal ramifications of failure to complete those disclosures properly, contractual date-sensitive clauses, and the legal and financial ramifications of failing to meet those dates.
Their ability to negotiate with a buyer’s agent. Not to sound crass, but if I am presenting a buyer’s offer to an unrepresented seller, I am going to do my best to eviscerate them at the negotiating table (in a polite fashion, naturally). That’s what my buyer pays me for.
Knowing who is inside your home when you are not. Some MLS Only brokerages will provide a lockbox so buyer agents can access the home. What they may not provide is the report saying who was in your home and when they were there. And if you think putting “call for an appointment to show” into the listing will prevent agents from walking into your home uninvited, think again.
There’s more. I think you get the idea…

I’m not slamming MLS Only brokerages

I am on the record countless times saying that there are many different brokerage models out there, and for the most part, they all serve a purpose (just don’t get me started on the “hire anyone with a license and a pulse” model. That serves no purpose other than lining some broker’s pocket). Different models promote innovation and competition, and both of those are good for agents, brokers, and home buyers and sellers. If you have the means to sell your home yourself, go for it. Nothing wrong with saving yourself some coin. Personally (and professionally) I don’t think you will actually save all that much money, and there is certainly a price tag on saving yourself a lot of hassle and possibly placing yourself at legal and financial risk.

I will freely admit that I’ve been noodling this article all day, trying to come up with a truly valid reason for using an MLS Only brokerage.

And I can’t.

Momentarily I thought to myself, “Well, if a homeowner is on the hairy edge from an equity perspective, where saving even a few hundred dollars is the difference in not having to short sell, maybe MLS Only makes sense.

Maybe. On the other hand, maybe if you are that close to the edge of entering the short sale abyss what you need more than ever is professional representation…

Help me out here. Drop me a comment with a solid argument for using a MLS Only brokerage. As in a tangible benefit over using a full service brokerage. Surely there is one and I’m just not thinking of it…

Disclosure: As the Broker / Co-owner of a full service real estate brokerage, I am quite aware of my bias toward full service. I did my best to present this information as impartially as I could.

Photo Credit: Money. By 401K on Flickr. CC Licensed.

The tPREG Manifesto

December 28, 2011 By Jay Thompson

When Jay and Francy Thompson ran The Phoenix Real Estate Guy, they developed a manifesto. While Dean and Shar worked for the Thompson’s they embraced what they were doing. Going forward, all of us at the Phoenix Real Estate Guy will carry on with what they started.

Manifesto: man·i·fes·to noun \ËŒma-nÉ™-Ëˆfes-(ËŒ)tÅ\ : a written statement declaring publicly the intentions, motives, or views of its issuer.

Spend any length of time in the real estate industry and you will hear buzz words like “Unique Selling Proposition,” “Value Add,” and the like tossed about as real estate brokerages volley back and forth in usually futile attempts to differentiate themselves from each other in their on-going quest to hire more real estate agents.

One does not have to look very far to find all sorts of claims and promises from real estate agents and brokers about how they, and only they, can offer agents the key to wealth and fame.

To that, all we can say is…. hogwash.

Why is it that you rarely hear from real estate brokerages about what they can provide home buyers and sellers?

Because as previously mentioned here, there are many brokerages out there that can make money even if their agents never sell a home. In fact, some brokerages would prefer having their agents never sell a home.

It drives us freaking insane.

As Jay Thompson pondered all the… nonsense… that happens in this industry, it occurred to him that he have never made the effort to put in writing (at least in one central place) what his agents values in their business. This is what we promise to provide for our clients, potential clients, and even our competitors.

What Jay needed to pen is our manifesto.

And here it is…

The Phoenix Real Estate Guy Manifesto

Preamble

Phoenix Real Estate Guy (TPREG) agents have one primary purpose, one unified goal, one main philosophy in all of our business operations — to provide our clients unparalleled customer service. That may sound trite or clichÃ©, but it is real. We run our business based on the belief that we can do something different in real estate. Everything we do, from the hiring of agents and staff, to the implementation of procedures and processes in our business is ultimately done for the express purpose of providing all of our clients, with exemplary service.

In the real estate industry, we have four main groups of people they have to interact with. Below are our promises to each of those groups.

For Our Clients

You will be treated with the utmost respect by your agent.
You will be told the truth, always. Even if it hurts.
You will be our primary focus and concern.
No one will ever try to talk you into doing anything that you are uncomfortable with, or that you do not completely understand.
You will never be obligated to continue using any service we provide.
We will make every effort humanly possible to ensure your real estate goals are achieved.
Your agent will be experienced and professional.

For Our Prospective Clients

You will never be hounded or harassed to “get the sale” (or for any other reason).
We will attempt to answer any questions you may have.
You will be respected as if you were already one of our most valued clients.

For Our Real Estate Team Members

You will be always be treated with the utmost respect.
We will endeavor to provide you with tools you need to be successful.
We will provide you a work environment of cooperation, not competition.
You will be paid accurately and immediately.
You will have 24x7x365 access to us and our office staff.

For Our “Competitors” and Ancillary Service Providers

We will treat you like we expect to be treated.
We will work together with you to achieve a successful transaction closing.
We will immediately pay commissions due.

Those are our promises. And we plan on keeping them. Always. Unconditionally. Forever.

A Peek Inside One Real Estate Brokerage Model

December 21, 2011 By Jay Thompson

Disclosure: I need to be careful here and not get myself sued or slapped with a Code of Ethics violation. Hence the complete lack of individual and company names. Any exchanges that have taken place via email, Facebook, or smoke signal have been paraphrased. What follows is simply my thoughts on a prevalent real estate brokerage model. I’m not singling out anyone, so please don’t ask. Trust me when I say there are a LOT of real estate brokerages that utilize a business model similar to what I’m about to discuss. There are countless variations, but you’ll get the gist of it…

Also, let me make it perfectly clear from the get-go that Thompson’s Realty does not subscribe to this particular brokerage model.

The Hire Anyone With a License and a Pulse Model of Real Estate Brokerage

I was approached yesterday by someone I have never heard of. They are a multi-state “virtual” real estate brokerage considering expansion into Arizona. They were looking for help in “driving their name” within the area.

Why they were asking me, the owner of a small independent real estate brokerage, to help them increase their name recognition is beyond me. So I expressed my confusion to them. After all, why would I want to drive clients and real estate agents away from my brokerage and toward some other brokerage? That just does not compute. It’s been awhile since I was in college, but I’m pretty sure in Business 101 the professor said something about not handing your business over to someone else. Or maybe they didn’t say that outright because basic common sense would dictate that it is a bad idea to send your clients, potential customers and employees to a direct competitor.

Their response to my, “I’m completely confused” email made these points:

We are a virtual brokerage. (So? As are we. What this has to do with anything, I have no idea.)
We aren’t interested in clients.
We’re in the agent hiring business.
Our model isn’t based on agent production.

So what we have here is what I not-so-fondly refer to is the brokerage model of hiring anyone with a real estate sales license and a pulse. If you have a license and can fog a mirror, you can work there.

Sadly, this is nothing new. It’s been around for ages. Brokerages charge their agents monthly fees, regardless of whether they sell a home or not. In fact, I’ve had brokers that run their business like this tell me, “I prefer it if my agents don’t sell anything. It reduces my liability.”

Think about that.

A real estate brokerage that isn’t interested in clients, and doesn’t care about the productivity of their agents. In fact, they may prefer if their agent never sells anything.

If you are a real estate agent, why in the world would you want to hang your license there?

If you are a home buyer or seller, why in the world would you chose an agent from that brokerage? If you are currently using an agent, DOES your agent work for a brokerage like this — a brokerage that isn’t interested in you? Do you even know whether they do or not?

It boggles the mind. (Well, at least my mind.)

I understand the model. The math is simple. In this most recent exchange, the aspiring brokerage has a commission plan that charges their agents a flat fee of $200 per month. That’s $200/month whether they do five transactions, or zero.

$200/month times 100 agents = $20,000/month = $240,000 annually. Sure, there are some expenses, but as this is a virtual brokerage, they don’t have the single biggest expense traditional brokerages incur — office space and its associated overhead.

Hire 500 agents and you can gross a cool $1.2 million a year.

All without having an agent help a single home buyer or seller…

I understand it, I just don’t get it.

Maybe the reason it works, and is so prevalent, is that real estate buyers and sellers aren’t even aware of the practice. Or maybe they are aware and they just don’t care.

Not being aware makes sense. Real estate brokerage practices are often shrouded in mystery (maybe when a business person readily admits that they don’t care about clients, they would rather people not know that?). Not caring though, makes no sense. I’m firmly on the record saying that consumers pick agents, not brokerages. It is the agent that matters most to the home buyer or seller.

But the brokerage still plays a role in the real estate transaction. They (should) play a huge role in hiring good agents. One would think the typical home buyer / seller would rather have a good agent working in a good support system. That’s not to say that there aren’t some terrific agents found in License and a Pulse brokerages. Of course there are.

Which begs the question, why would an agent work in a brokerage that doesn’t care about clients, or their agents productivity. Why work in a brokerage that, “is in the agent hiring business”?

I suppose if one needs zero broker support, then all that matters to the agent is low out of pocket expense. But that only works if you place no value in working with a group of like-minded professionals and finding that can actually help improve your business.That works until consumers come to realize that maybe their agents brokerage affiliation does make a difference.

I’m just not sure that day will ever come.

Raising the Bar

I’m a member of a very active Facebook group that consists of real estate brokers and agents who would like to “raise the bar” in real estate. There are a lot of discussions in that group about licensing requirements, broker / agent actions and expectations, and other things that could be done within the real estate industrial complex to raise the bar in real estate. To change public perception of real estate agents. To ensure professionalism within our industry.

Sure, it’s stupidly simple to get a real estate license. If you live in Arizona, you can pay a “real estate school” for 90 hours of classes (some have 10 day licensing courses), take a couple of relatively simple exams, write more checks to Realtor associations, MLS’s, brokerages and the like and start a real estate career. Yep, 10 days and several hundred dollars from now you too can sell someone a home. In and of itself, the absurdly simple licensing requirements place “the bar” pretty damn low.

But raising the bar is going to take a whole heck of a lot more than making getting a license harder. It’s not easy, at all, to get a license to practice law or medicine. Or be a CPA. Of that, there is little debate.

My contention however is that the reason doctors, lawyers and CPA’s are considered professionals is not just because those licenses are difficult to obtain.

It’s what is done with those licenses that sets the bar. It’s what is done inside law firms, and hospitals, and accounting firms and offices that set the bar in those professions.

How many professional firms are out there that for all practical purposes proclaim in public that they aren’t interested in clients and don’t care if the doctors, lawyers and CPAs do any business? Is there a hospital out there that wants less liability and prefers if their doctors don’t see patients?

I think not. And if there was, I sure would want to know about them so I could ensure I never used their services.

If the bar is to be raised in real estate, it has to start with the brokers. Stop hiring anyone with a license and a pulse. Get out of the “agent hiring business.” Hire good, professional, ethical agents. There are plenty of agents out there that fit that criteria.

Sadly, I can’t see this happening in my lifetime. Hopefully I’m wrong, but I see no indication that I am.

Photo Credit: brykmantra on Flickr. CC Licensed.