The Real Deal New York

Brokers feel the squeeze

Rapidly contracting market sharpens competition

December 31, 2008
By Catherine Curan

National real estate trends are catching up to the New York market, and that means residential brokerages will likely be slashing employment costs by 15 to 20 percent this year, heralding a plunge in the number of agents.

“If [brokerages] expect to be strong enough to get through this, that’s what they are going to be doing,” said Steve Murray, editor of Castle Rock, Colo.-based residential real estate research firm Real Trends. The National Association of Realtors listed the number of agents at 1.34 million at the end of 2007, and Murray said that had fallen to 1.1 million by December.

“It would not surprise us to drop clear back down to 900,000 this year,” he said.

In the city, the winnowing process has already begun, with very different consequences for top and bottom producers. High-grossing agents may become even more sought after, as every deal matters more. That could lead to poaching and jumping between firms. Some companies, including Fillmore Real Estate, are dangling better commission deals as a lure in a fiercely competitive market.

New or underperforming agents face a bleak future. Brokerages have already shuttered branch offices, tied compensation to stringent performance goals, and cut headcount through layoffs and attrition. That should continue as 2009 unfolds.

While the New York market held up for a while as the national scene crashed and burned, that’s no longer the case. Among the many grim statistics was November’s 20 to 30 percent decline in unit sales, Murray said. He predicts two very flat years for new construction, existing home, co-op and condo sales.

“We are going to see some falloff with new agents who are not going to be able to afford to work in this profession unless they
have great reserves, [while] better agents and the ones who built up
a book of business will survive,” said Paul Purcell, former president of Douglas Elliman and co-founder of brokerage Charles Rutenberg Realty.

It’s too soon to say whether top producers’ top-flight commission splits will be rolled back from 70 percent or above. Representatives at Elliman, Corcoran, Halstead and Brown Harris Stevens declined to comment on a potential shift.

One of Elliman’s top brokers, Jacky Teplitzky, told The Real Deal that her commission structure and perks were unchanged despite a 30 percent decline in deal volume for 2008 from the previous year. After Elliman nixed its usual lavish holiday bash to save money, Teplitzky said she planned to host a holiday party for staffers at her home. She was, however, shifting compensation for some of the agents on her team to a performance-based model.

“I’m doing it by production. Before, it was a set number; now, it’s going to be this amount until you reach this production, and this amount when you surpass it,” said Teplitzky.

Although commission splits are among the biggest checks a brokerage firm writes, industry insiders say other cuts — such as advertising and reduced perks like messenger services — will come first. Targeting commission splits would alienate top brokers without necessarily boosting a company’s revenue.

“If there’s no business, it doesn’t matter if you change their splits,” said Purcell.

High commission splits are serving as lures for disenchanted agents considering moving to other firms. Fillmore Real Estate CEO John Reinhardt now lets producers reach a 70/30 split faster than in the past. Reinhardt is also adapting his template and discussing compensation deals individually.

Reinhardt said he was hearing from more high-producing agents than during flush times. On a single December day, he hired a dozen experienced agents despite closing down three branch offices last year.

“There’s a shuffling going on,” said Reinhardt. “The ones that are off are questioning their affiliation with existing brokerages more than they normally would, saying, ‘It can’t be me, it’s probably my company,’ [so] their ears are open and more interested in hearing what other companies are offering.”

Top agents can expect to be wooed, but less experienced ones will likely find fewer job opportunities. As Corcoran and Edward Lee Cave officials denied online reports they were shuttering offices, other firms finished 2008 with fewer branch offices. Fillmore shut three Brooklyn locations — in Williamsburg, Park Slope and Flatbush — between May and November, saving about $50,000 a month. Brooklyn rental specialist Standard Living shut down its Williamsburg office in December, cutting several part-time jobs. The company’s roster has fallen to 10 full-time staffers from a peak of 40 agents last summer.

“We had to consolidate to save money,” said owner Andre Campodonico. “Everyone here now is a veteran.”

All agents, from veterans to newbies, face closer scrutiny and have to produce. In November, Reinhardt instituted a new policy to ensure agents close more deals. Agents now receive text messages to their mobile phones after a customer makes an e-mail inquiry on Fillmore’s Web site — and have 15 minutes to respond before the lead passes to a rival. “The industry norm is one to three days to never,” said Reinhardt. “We need to be more productive.”

Fillmore is offering more training sessions to help both veteran and less experienced agents. Reinhardt said cost savings from closing underperforming offices are helping offset a $150,000 increase in annual training costs. Classes are free for brokers, and underperformers have a window of three to six months to master necessary skills. “We will work on challenges, and if they can’t do it, then we’ll replace them with other agents,” said Reinhardt.

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