FOR BROKERS: Business Strategies

BY G.M. FILISKO

Business Strategies

Keeping pace Independent real estate companies typically have two great strategic advantages over their regionally or nationally branded competitors: name recognition as a homegrown brokerage and a longtime, loyal clientele.

But those advantages can erode against the deep-pocketed resources of big companies if independents aren’t vigilant about branding and strategic networking, brokers of successful independents say.

Structuring support staff and technology to keep sales associates in the field selling rather than grappling with non-value-added issues is also key, because independent brokers have little margin of error when big powerhouses are spending lavishly to pull in customers.

Here’s how five independents keep their edge against bigger competitors in branding, networking, technology, and retaining support staff.

Support staff: hire a marketing director

Bringing on board someone who works directly with associates to market their properties and build their personal brand has been crucial to the success of Matthew Borland’s company, Zephyr Real Estate in San Francisco, because it puts expert advice in sales associates’ hands, he says.

“The marketing director acts as a consultant to our associates and has been instrumental in transforming their marketing,” says managing broker Borland, CRB, e-PRO®. “He helps our associates identify their niche and come up with a marketing plan within their budget to brand themselves.”

The director also oversees companywide marketing training, which creates a forum for answering associates’ questions, such as “I’ve got this high-end listing. Where should I market it?” or “I have an opportunity to advertise here. Is that a good idea?”

Borland says independent brokers must decide whether to bring such expertise in-house, as he did, at a cost of from $70,000 to $120,000 annually, or help match their associates with outside consultants. He estimates that salespeople would have to invest between $5,000 and $10,000 for the same consultation and branding advice, in addition to shouldering the cost of the artwork for marketing materials, if they worked with an outside marketing expert on their own. Borland chose to bring the person in-house, finding it to be a good retention tool.

Networking: partner nationally—and globally

To expand referral sources for clients and leads for its sales associates, four-year-old Nest Seekers International in New York City is building relationships, alliances, and partnerships with brokers locally and around the world, says Eddie Shapiro, president and CEO of the company.

In addition to joining global networks such as the International Real Estate Federation (FIABCI), Shapiro travels the world making contact with real estate brokerages that he believes share his company’s philosophy of providing high-end service and investing in professional marketing. “It’s amazing how cooperative brokers are,” he says. “Working with brokers in other countries is a lot easier today than it was 10 years ago, because everyone recognizes globalization is here.”

Big Reno, Nev., independent Dickson Realty has built a referral network around its membership in Leading Real Estate Companies of the World (formerly known as RELO), which Reed Simmons, CRB, broker-owner of the 365-associate company, credits with generating significant business.

Simmons didn't disclose the annual cost of belonging to the network or the number of transactions the network generates for Dickson, but he says the system is a lifeline for the company. Under the fee structure of Leading Real Estate Companies, brokers’ costs vary based on the number of referrals they send and the number they receive. The more referrals a company sends, the larger its share of the per-transaction referral fee (the other share goes to the network). That income helps offset the cost of belonging to the network, which has an annual subscription fee plus whatever per-transaction fees the company pays out for referrals it receives that go to closing. “The more referrals we send out, the less expensive it is for us when we receive one that ends up as a closed transaction,” Simmons says.

About 650 local and regional independent brokerages, representing some 120,000 sales associates in the United States and in 24 other countries, are in the network, according to Leading Real Estate Companies of the World.

Brand yourself early and often

Regardless of the strength of their competitors, independents can play in the big leagues by using big-league branding strategies. Successful independents stay in the forefront of consumers’ mind by focusing on both old and new media.

- Premium positioning on Internet search engines. Simmons pays the extra money necessary—an average of between $20,000 and $30,000 annually, he says—for the best online placement. “It may wind up being the most important thing we do,” he says. “Customers will be using the Internet more and more for finding a broker.”

- Distribution of a company-specific listings magazine. “Last year [Dickson Magazine] came out three times,” Simmons says. “We’re trying to decide whether to print it more often; we likely will.” Simmons didn’t give a figure on what the magazine costs, but it comes out of the company’s annual advertising budget, which is about $250,000.

- Blanket approach. Whaler’s Realty Inc. in Lahaina, Hawaii, maintains a Web site, advertises in print and on television and radio, and buys billboard space visible from the top-grossing restaurants on Maui. Bob Cartwright, CRB, principal broker, says his company spends from $100,000 to $150,000 annually on marketing, which includes its Web site. “We do everything in the way of advertising that you can do,” he says.

But Whaler’s strongest branding comes from its three office locations. “The majority of our business is from people who come to Maui and say, ‘It’s so beautiful; I’ve got to have a place here,’ ” says Cartwright. “So we put our offices in high-traffic, high-visibility retail locations as opposed to some business plans that locate offices in nondescript or industrial areas to keep their overhead low.”

Cartwright’s main office is on a Maui beach in the heart of a shopping village that features a whaling museum and restaurants. “We’ve been in business in this location, called Whaler’s Village, for 30 years,” he says. “It’s a destination location, with tourists coming here to shop or have a meal.”

Arm associates with tech tools

Zephyr, in San Francisco, upgraded its computer system in 2004 to put transaction and administrative tools into its associates’ hands, freeing up their time and taking some strain off their pocketbook.

“Before we put in our new system, our associates would buy their own contact management and direct mail systems or subscribe to their own fax system,” says company head Borland. “We need to keep up with the Joneses and provide these tools to our associates [gratis], whether they use them or not,” because recruits today expect them.

The new tools help his associates shine in customers’ eyes by reducing the nuisance factor some communications create. Among other things, with the system’s new transaction tools, associates can compress and upload hefty disclosure packages and other documents and send them to consumers “securely from the brokerage’s system and without clogging customers’ e-mail boxes,” Borland says.

Implementing the new functions wasn’t complicated because Zephyr contracts with a local technology company to manage and oversee the brokerage’s computer system and provide consulting when Borland or others have questions about technology options. Because of the scope of the contract, Borland doesn’t look at the amount of money he’s spent on the new system in isolation from the rest of the services the company provides, so he can’t put a dollar figure on it.

Although his systems are customized, Borland says any broker can do something similar with one of the many turnkey programs on the market.

Pass along experience

With 50 years in the business, Senter, REALTORS®, helps maintain its edge by harvesting its institutional knowledge.

A majority of its associates have been with the company for five to 15 years, giving Senter a bank of ideas to pass along to new affiliates. “We’ve been able to collect training materials and develop our own curriculum over the years,” says Steve Stovall, ABR®, CRB, vice president of the Abilene, Texas–based company.

The large number of veterans also creates mentoring opportunities. “The experienced associates mentor the newer associates,” says Stovall. “They want to see the new associates succeed because the newbies will help them sell their listings.”

Stovall says longtime relationships he’s developed, through years of sharing ideas with other Texas independents, have also helped his company stay ahead. “We’ve formed relationships and bonds,” he says, “and whenever there’s some question I need advice on, I can call those brokers and say, ‘I’m having this problem. Let’s talk about it.’”

Independent companies rightly rely on their local roots to help them stand out in their market. By providing branding, technology, and marketing help for their associates—and maintaining strong networks—they can keep that edge even against competitors with national or regional muscle.

Survival strategies:

The joint venture approach

Independent real estate companies can magnify their competitive strength by setting up joint ventures with an ancillary service provider, such as a mortgage broker. When you structure such a partnership, though, be careful to keep an eye on federal referral law restrictions.

Although it’s been around more than 30 years, the federal Real Estate Settlement Procedures Act (RESPA)—which governs what is and isn’t allowable when referring business between companies in a real estate transaction—has enough complexities that understanding it remains a challenge.

Violating RESPA, even unwittingly, can trigger an enforcement action by the U.S. Department of Housing and Urban Development, which oversees the law and has stepped up its oversight in recent years.

“HUD has been on the warpath,” RESPA specialist Phillip Schulman told brokers and associates during the 2006 REALTORS® Midyear Legislative Meetings & Trade Expo in May.

The housing agency has beefed up its enforcement staff and is dishing out steep fines to joint ventures that don’t comply, he said.

RESPA prohibits brokerages and associates from receiving any payment (or other thing of value, such as golf tournament tickets) for referring a consumer to a lender or other service provider. It also prohibits paying someone other than another broker for receiving a referral. Special provisions govern referrals in joint ventures and other types of relationships known as affiliated business arrangements.

Under these provisions, real estate practitioners who have set up companies in partnership with lenders or other settlement service providers may receive a return equal to their investment in those companies. (Thus, if you own 10 percent of an affiliated company, you may receive 10 percent of its profits.) However, you still can’t receive a fee for referring a customer to that affiliated business.

Other rules require you to demonstrate that the affiliate is more than just a vehicle for creating hidden referral fees. HUD considers several factors in deciding if the business meets its test. For example, HUD looks at whether the joint venture has its own office space and one or more paid employees who work exclusively for the joint venture. Also, the partners’ profits can’t be tied in any way to the number of customers they refer to the business.

In addition, all consumers that your associates refer to the joint venture must be told of your company’s ownership interest, given an estimate of how much they’ll be charged for services, and told that they aren’t required to use the company’s services.

Robert Moline, CEO of HomeServices of Nebraska Inc., in Lincoln, says a joint venture isn’t easy money but can really pay off if you choose to partner with a company that’s respected and provides great customer service. “We aren’t just real estate brokerages anymore,” he said. “We’re all moving in the direction of home service companies. Consumers are telling us they want one-stop shopping.”