Steve Baird on what it takes to survive the brokerage apocalypse

In a Q&A, the Baird & Warner CEO talks Compass, housing discrimination and what makes Chicago homebuyers unique

Chicago /
Aug.August 13, 2018 10:00 AM

Steve Baird in his Downtown office

To a company that’s been around for 164 years, what looks to others like an existential crisis is just more sand in the hourglass.

That was the message Steve Baird kept coming back to during an hour-long sitdown with The Real Deal. The CEO of Baird & Warner lends his company’s longevity to its adaptability, having morphed from a commercial brokerage to a land developer to one of the largest home sellers in the Chicago region, transacting more than 21,000 units for almost $7 billion in 2017.

Baird, who represents the fifth generation of the family-owned company, explained why he thinks his brokerage is uniquely suited to outlast the barrage of venture capital money and transformational technology that’s prompted some to wonder if the profession is on its way to being obsolete.

The CEO also ticked off the perceived strengths and weaknesses of his competitors, including Compass, whose recent expansion into Chicago he said might not be all it’s purported to be. And he opened up about @properties, in part by responding to its lawsuit against his company.

He waded through a wide pool of other topics, including the qualities that make Chicago homebuyers unique and why his father’s support for housing nondiscrimination laws in the 1960s got him blackballed from the National Association of Realtors.

It’s hard to think of any company, in any industry, that’s been around as long as yours. How did it get started?

We started in 1855, and we’ve been doing work all over the Chicago metropolitan area in various capacities for all those years. We view the Chicago metropolitan market as one market, and we’ve done all sorts of work on the commercial and residential side. We started with a commercial transaction right around here [Downtown] somewhere back when there would have been 35,000 or 40,000 people living here. My great-great grandfather, Lyman Baird, came here from New Haven, [Connecticut] and he was essentially representing East Coast interests investing in what was, at that time, the Wild West. And Chicago became the fastest-growing city in the United States in the late 1800s because it was a gateway to the West, and it was a transportation hub, and a lot of the same things that are characteristic of it today.

You said in a marketing video that you see Chicago as “the center of the universe physically, metaphysically, morally and ethically.” What did you mean?

Well, this is just sort of my own personal philosophy, and I’m obviously a very Chicago person, but physically it’s very simple — it’s one of the only places where you can get on a plane and be in two thirds of the country in two hours. And I think politically the Midwest is more balanced — you have polarities on the West Coast and the East Coast, and in Chicago I just think people are more centered and down-to-earth. It’s just sort of a Midwestern ethic. I often talk about how I love being in the middle of the country, because I can look to the West Coast and see where we’re going, and I look to the East Coast and see where we’ve been. Here, I think people are just more grounded.

Does that apply to the brokerage industry as well?

Sure. Right now is a perfect example. The last few years we’ve lagged the rest of the country in terms of price appreciation, even though our activity level is still pretty good. Now those markets on the coasts are starting to struggle with that, but we’re the same. We’ve been 2-3 percent price appreciation over the last three or four years. What’s happened in California and a lot of the East Coast is that their markets are off, primarily because they ran their prices up too high. So the last couple years people would look at us and say, “Chicago is low,” and now they look at us and say we’ve got a healthier market. And I think it goes back to what I was saying before, that people here are a little more grounded, and they went through a downturn, so they’re not as exuberant as they were before. So for example, we have situations in certain price ranges where we have bidding wars, and we’ll see people drop out of auctions when it gets to a certain price, instead of bidding up on a property. It’s not like in 2005, when you had this market frenzy. I think that’s a core of the way people approach their life financially here. They’re not politically conservative, but they’re conservative in the way they approach their life.

So people in Chicago are more resistant to undue speculation?

Well, they’re not as flamboyant, they’re not as willing to let things go. They have both feet on the ground, they don’t to crazy stuff. I mean, you go to California, and people are just doing crazy shit out there. In California people will go far out doing something and then they’ll come back, because that’s too far. Here, they just sort of stay in the reasonable range. I think that’s true of people generally, and that’s reflected in their homebuying.

You’re in the fifth generation of owning this company. Can you talk about some of the biggest ways the industry has changed in all these years, as well as some of the biggest changes you’ve personally observed during your career?

Boy, just everything has changed. But it’s an evolution, and it’s evolved away from things we don’t even recognize today. For example, in the early ‘60s when my dad was running things, the real estate industry believed you could sell to whoever you wanted to. So if you were gay, or black, or whatever, and they didn’t like the way you looked, they didn’t have to sell to you. Today, we don’t even think about that. Today, the law is, if I put my house on the market and I have a ready, willing and able buyer who wants to buy it for that price, I have two choices: I can sell it to that person, or I have to take it off the market. I can’t say “I don’t like you” for whatever reason. And the laws have evolved in other ways — we’ve evolved away from only representing sellers. When I started in this business, all agents were either a selling agent or a sub-agent of the seller who worked with the buyer. So things that have evolved more toward meeting the demands of the consumer in a general sense. Today that’s manifest by the Internet, and manifest by new ways to communicate, and all sorts of technology, and that’s going to continue to evolve. I still think the real estate transaction is way too complicated. There’s too much paper, and most buyers and sellers do not really understand what’s going on in most of the transaction. So I think in that sense, we’re still behind the times.

We wrote a cover story a few months ago on “the death of the brokerage,” examining all the new direct-to-consumer technology that poses a threat to traditional brokerages like Baird & Warner. What do you see as the industry’s biggest threats, and how are you staying ahead of them?

The first thing I’ll tell you is that a lot of these newer companies don’t understand what drives the business. When the market turned down in ‘08, we were obviously dealing with major losses and thinking about how we’re going to deal with this, and the thought occurs to you:
Are we going to have to go out of business? There was a lot of soul-searching, just like there was with a lot of lot of companies at that time. Lots of businesses were fundamentally changed, interestingly not as fundamentally by the downturn as by the internet. So what did I learn? One of the things I learned is that this business is fundamentally about people. Real estate and the information around real estate is what we sell, but the successful people and the successful companies have good people who are really good at relating to buyers and sellers. We track the percentage of people who buy using real estate agents, and that number has never gone below 90 percent. So many other businesses today are going direct-to-consumer, so why are we different? It’s because [homebuyers] want someone to help interpret the data. They like the social interaction of somebody helping them. They need someone to be a counselor between them and their spouse. They want somebody to do negotiation. The agency relationship is something people don’t talk about that much, but if you or I as a buyer and seller have to sit down at the table, we’re going to have a much harder time coming to an agreement than if we have representatives doing it, because we have all this emotion tied up in it. There have been many many companies that have tried to go around that agent relationship, with a long history of being unsuccessful. Now I always look at this and wonder, is that at some point going to change? I don’t know, but I don’t see anything leading me to believe that’s going to change.

So if you think about it that way, how do you then define these competitors who come in from the outside? Let’s take Zillow as one example. I think Zillow is selling products to agents and they’ve been having success in that, but I think they’re smart enough not to cross over into that threshold where they’d have to manage people. I know, because I manage 2,400 agents in 29 locations. The magnitude of being able to do that on a national basis — look at Coldwell Banker. Coldwell Banker came in and bought all these companies 20 years ago, and since that time they’ve been on a slow fade, because I don’t think they realized how hard it is to manage a group of people who can be attendant to the specific issues in every marketplace. And that marketplace can be Chicago, or that marketplace can be Lincoln Park. You know, what are the kind of people there? What do we pay them? Those are all those issues that I deal with. I was in Oak Park yesterday, and Oak Park is very different from the city. It’s a unique community, and you have to market yourself differently. It’s very hard figure out how to do that when you’re sitting in Parsippany, New Jersey.

That’s why these big companies, when they try to do this — Compass is a perfect example. They’re coming out of New York, they’re claiming to have all this fancy technology, they have a boatload of money, but they have no experience. They have some experience managing in New York, but New York is probably the most unique marketplace — New York is New York. So are they going to be able to manage in Chicago, in Seattle, in wherever they are? I know from running a pretty big company that when you get bigger, it becomes harder when you’re managing all those pieces. It’s an exponential progression.

Compass has only been in Chicago a few months, but do you have a sense of how their presence has already impacted the atmosphere around home sales?

Over the years we’ve competed with big companies, small companies, national companies, local companies. They’ve come and gone. We’ve been here for a long, long time, so competition is not new to us. The most dominant player in the marketplace used to be Re/Max. They revolutionized the business. They actually came in with a new business model that completely changed the industry, but now they’re fading away. So then it was Coldwell Banker, and we’ll see what these [Compass] guys do. But there are two things I look at when a competitor comes in. One is whether their business model is fundamentally different than what’s already here. And the Compass business model is not fundamentally different. Their website is better, their technology is a little better, their marketing is a little better, but they’re running a traditional brokerage business with a little shinier version of whatever that is. Let’s look at them in three years and see if they can hire, maintain, manage and help people be productive. Right now, they’re so new, you don’t know.

The second part is, where are the people coming from? They’re just pulling people from elsewhere, although we’ve lost very few people to them. So from my perspective, they’re just re-adjusting the chairs. Those same people who were at Berkshire, Coldwell Banker or wherever, they’re now at Compass. They’re the same people that I was competing with before. Their biggest factor right now is that they have got exponentially more money than anyone has had before. But money is only going to take you so far, because money will eventually demand a return, and this is a low-return business. It doesn’t have really sexy returns, like private equity. And private money is ruthless.

As long as we’re talking about competitors, tell me about @properties. Where do you see their place in the marketplace, and what advantages does Baird & Warner have over them? Were you surprised by their lawsuit?

Well, the lawsuit is that they claim we misrepresented ourselves in an advertisement, and this has to do with how we think about our business. We made a strategic decision, which is actually used by many other companies around the country, to report all of our sales, not just our home sales. And that’s not really a unique thing. Procter & Gamble doesn’t just report their sales of toothpaste — they report their sales of all products. So we report all the volume of all of our businesses. So they took exception to that, and said “That’s not what the multiple listing says,” and we said “That’s correct, because this is our mortgage business and our title business.” I think it’s a frivolous lawsuit, it’s not going to go anywhere, but we have to defend ourselves, so we will. [@properties] to me, is two smart guys who have come in and built a good business. But they have done it, ironically, by doing exactly what Compass is doing right now, which is pulling people from other companies. Not us, interestingly — we have lost very few people to @Properties. But an enormous amount of people came from Berkshire and Coldwell Banker to build that company, and they’ve done a really good job. They are excellent marketers, and that’s really where their strength is. And I think actually, ironically, that they’re the most susceptible to Compass, because Compass is a newer version of what they were before. They came into the market and said “We’re cooler, hipper, flashier” — and one of the most brilliant things about them to me is their symbol, that “at” symbol. So they’ve been a good competitor of ours. Right now we do more transactions than they do, but they do more volume than we do because they operate in higher-price markets. So for me, the question with them is, what is their long-term strategy? I’ve seen lots of companies build themselves, but are they now going to want to continue to manage themselves? Or are they going to sell?

So you talked about how New York is this totally different arena —

You didn’t even ask me about two other competitors, who have been growing faster than either one of those companies.

Tell me.

Redfin and Keller Williams. To me, Keller Williams is just the latest version of Re/Max, a little different spin on the same idea. A franchise operation, sort of like what Mary Kay cosmetics would do, where you get people to buy your products and then you get a part of their product. Anybody you recruit to Keller Williams, you get a percentage of their business. I think the proper term is multi-level marketing.

And the other one is Redfin, and Redfin is a little more interesting because they actually have a different model. They play on the one-to-one relationship of the client. So for example, if you call me up at Baird & Warner and say you want to see a property at 2 o’clock, I’ll say, “I’ve got something else at 2, can we do it on Friday” or whatever, and we work it out. At Redfin, they don’t do that. If I’m not available at 2 o’clock, they go with someone else. So if you’re a buyer or a seller at Redfin, you can work with five or six different agents, and they’re all employed, so there’s no commission. It’s a different model. It’s unclear whether it’s going to be successful or not.

I was starting to ask before whether you think Chicago is a less competitive or less cut-throat environment for brokerage than other cities, specifically New York. From what you said earlier, it sounded like you see people around here as generally more genteel.

I think Chicago is a very competitive market, because it’s a sophisticated urban market. The same thing with New York. In less sophisticated, smaller markets, I don’t think the competition is as hard or as cutthroat. It’s as much as urban thing as anything. If you’re in Cincinnati, there aren’t as many companies, the average sales price is lower, there’s a whole bunch of things that don’t create as good a dynamic as here. I think our market is one of the most competitive markets out there for agents and companies competing with each other.

Just because of how large this metro is?

Well, Coldwell Banker is the largest company here, and they now have 15 percent of the market. You go to Minneapolis, and two companies [Edina and Coldwell Banker] have something like 70 percent of the market. It’s a less sophisticated market, and that just shows you the level of competition here. The same thing if you go to New York City — nobody dominates that market, because it’s so competitive.

Your father was known for his progressive stand on federal housing laws in the 1960s relative to the rest of the industry, and that seems like a real point of pride for this company. There’s a lot of talk about what kind of social responsibility property developers have, but what responsibility do you think brokerages have to make the city a fairer and more equitable place to live?

This is a family philosophy that comes from my father. We have always believed that there’s a right way of doing things, and the right way rarely has to do with money. My father didn’t think of himself as a social crusader, he just felt that making properties available to everyone was the right way to do things. And when NAR at the time had asked him to study the issue, he formed a committee with people around the country and said we should have open occupancy. And NAR came back and said, “No, we don’t think we should do this.” And he said, “If you take that position, I’m going to resign.” And he did. So there was always this ongoing joke with me and my dad that we’ve never been to an NAR convention.

There’s a right way to do things, and it has to do with how you treat your customers and how you treat your employees, and that’s why we’ve been winning top workplace awards six years in a row. I’m also a believer that we are successful because of Chicago, and so it’s our responsibility to support the community and give back to the community. That’s why we have our Good Will Network, and donated $1 million and blah blah blah. We don’t do that because we get the publicity of it. What I care about is that we earned our business by being in those communities, so we should give some of that back. And that’s a philosophy that’s related to the family and how we’ve personally done things. And it’s not anything fancy, it’s just treating people fairly, being honest — you know, I view ethical training as a given. There shouldn’t be any discussion about operating in the market ethically. That should be a given.

So do you think those fair housing laws and ordinances are sufficiently enforced today? Clearly there’s been a lot of progress, but what’s left?

I think there’s been a lot of progress, but we’re not anywhere near where we should be. And what’s hard about it now is that it’s kind of quiet discrimination.

Like what?

Before, it was much more blatant, like, “We don’t want any blacks in this community.” Now it’s much more subtle. Also, there’s a whole lot more categories. Now it’s transgender and discrimination against gays and women and all sorts of things. So have we made progress? Yes. But we’re not there, and there’s still a lot more to do. I mean, we live in an incredibly segregated city. And one of the things we’re trying to figure out is how do we get into the Hispanic community and the black community? And I don’t want to just do it by going and opening an office there. How do I do that where we are a part of that community and sensitive to that community? That’s one of the subtleties I’m talking about. To equitably serve, and bring what we’ve learned about the business, and help people be successful there without going in and saying, “Hey, that’s the big white company that’s coming down here to take business from us.” That’s not my idea. The idea is, how do we go down there and help them make housing fairer and open more access to people and all that sort of stuff. You know, one of the things we’re thinking about today is changing our Good Will Network. It’s been focused on housing [for] women, and now we’re wondering if we should focus on helping people learn financial literacy around buying a house.

I want to finish up here by giving you some time to talk about the future of Baird & Warner, what the sixth generation of this company might look like. What’s the next stage in its evolution?

There is the short-term part of that, where we’re trying to do what we call One Company, which is thinking about how to integrate and make every transaction simpler for the consumer. And there are a lot of parts to that. There’s a technology part, there’s a systems part, there’s a service part, a potential bundling of services.

In terms of the long term, the company evolves from generation to generation, so the way we’re situated in businesses today is very different from my father and my grandfather. And what that mix of businesses will be, I don’t know. We will go where we feel the best opportunities are, based on our asset base and what we’re good at, and we’ll evolve into it. We weren’t in the residential sales business in a major way until the 1920s. We were in commercial management for 100 years, and we got out of the business. We were in the land development business, all these different businesses from one time or another. Title, from our perspective is a relatively new business. It’s about 12 years old. For a lot of people that’s an old business, but for us, that’s new. Now we’re in the residential mortgage business, and we’ve been in that business for 20-something years. So 40 years from now, are we going to be just a mortgage company, or just a title company? I don’t know.

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