Brokers trade Hermès for H & M

Not too long ago, New York City real estate brokers were fixtures at upscale restaurants and, frequently, the buyers of the flashy homes they marketed. Nowadays, many are trading Hermès for H & M and scaling back their lavish lifestyles.

And while most brokers are euphoric that a tough winter has yielded to a recent flurry of sales and rental transactions, industry insiders say the current uptick is raising false hope that business might return to levels seen in recent years. In reality, those days — along with the easy cash and flexible schedules that went with them — are long gone, and unlikely to return anytime soon. With mortgages still difficult to obtain and unemployment rising, experts say the uptick is temporary, the result of pent-up demand after the winter doldrums.

“You have to work harder today to make the same or less money than you had before,” said Barak Dunayer, president of Barak Realty. “You just have to roll up your sleeves and get your hands dirty. If it means you can’t go to the Hamptons on the weekends, so be it.”

Flush times

At the height of the boom, becoming a real estate agent in the city was viewed as a shortcut to a hefty paycheck, often with little experience or training required. A new agent could expect to make $50,000 to $60,000 in their first year, and then double that by the second year, Dunayer said.

Among more seasoned agents, average yearly take-home pay ranged from $120,000 to $200,000, he said, with top producers making much more. In 2003, Michael Shvo, the then-top-grossing broker at Prudential Douglas Elliman, reportedly netted over $300 million in sales. With a 3 percent commission for each deal, that’s a lot of cash, and Shvo accordingly became known for his Brioni suits and condos at the Grand Millennium, 15 Broad Street and the Time Warner Center.

Meanwhile, in March, the New York Times reported that superbroker Dolly Lenz, who for years had dined at Four Seasons on East 52nd Street several times a week, had virtually stopped coming in.

High sale prices helped even mediocre agents take home a fat paycheck, sometimes by doing only a few deals a year.

“There were a lot of agents who would just get lucky and get a $1.5 million deal,” said Claudia Saez-Fromm, the COO of residential brokerage Mark David & Company.

As brokers began leading the lifestyles that matched their high incomes, lawyers and MBAs began eschewing more traditional career paths to become real estate agents, said Nikki Field, a senior vice president at Sotheby’s International Realty.

“These people had extraordinary backgrounds,” she said. “But there was more money to be made here. They looked at those income averages and saw real estate as a strong means of income.”

Sales stop

That all came to a halt when Lehman Brothers collapsed last September. With sales transactions down by half, agents saw a sudden drop in their incomes, since most are paid almost entirely by commission.

Yearly pay for an average agent, once in the six figures, sank to $60,000 or $70,000, said Dunayer.

The pain was not evenly spread, either, with top agents continuing to do deals while less established agents struggled.

“Twenty percent of brokers do 90 percent of the transactions,” Field said. “If volume is down 70 percent, that’s a very small pie to carve.”

During the worst of times this winter, some brokers simply stopped doing any deals at all, resulting in an exodus of agents from the field.

“You have agents who had barely a deal for six months,” said Saez-Fromm, noting that several agents at her company who stopped producing have left the industry. “We no longer have them working here.”

The loss of income has come as a cruel surprise to many brokers, who were used to their wealth increasing every year as they gained experience and expanded their networks.

Hal Lehrman, the principal broker at Brooklyn Properties, said during the two decades he’s been in real estate his transaction volume has grown 10 to 20 percent annually. Not so this year.

“Two months ago, I was living in fear and anxiety,” said Lehrman, who was an actor before becoming a real estate agent. “Being a starving actor is acceptable. But being a starving real estate broker is terrible.”

With the expectation that their incomes would continue to rise, many brokers didn’t save enough cash to survive the slowdown, Field noted. “They were living from commission to commission, and if they didn’t put enough away during the good times, they don’t have enough to make it,” she said.

Formerly flush agents were forced to rely on their spouses for survival, or find other ways to cut back.

Christine Toes, a vice president at the Corcoran Group, said that when she bought her one-bedroom apartment in 2007, “I thought I was making a conservative estimate by assuming my income would stay the same.”

But Toes, who was used to doing one or two sales a month, made only four deals between October and early May of this year, she said.

Though her group was able to bolster its earnings by doing rentals, things got so dire that she put her apartment on the market for less than the purchase price.

“We were probably down 30 percent — that was better than a lot of people,” she said. “But if you’re down 30 or 40 percent for six months, you’re like, ‘Oh my gosh, I can’t afford my apartment anymore.’ It was a little scary.”

She’d found a buyer and was about to send out the contract when she decided instead to rent out the apartment for six weeks while she waited for commission checks.

But then something curious happened: Transactions started picking up. Toes said she has done 10 sales in the past two months.

Return to riches

Many brokers are reporting a similar trend, and Elliman’s market report found that there were 28 percent more closed sales in the second quarter of 2009 than in the previous quarter. Similarly, June saw a surge in rental activity, market reports found, with nearly 50 percent of the quarter’s rental transactions in that month.

As a result, agents are hoping the good times have returned.

“This last month, we’ve been like the old days,” Lehrman said. “My agents are making money and we’re selling a lot of properties.”

But the surge is deceptive. What many agents don’t realize, experts say, is that the increase in activity doesn’t necessarily indicate a market turnaround. Rather, it’s likely the result of the normal springtime uptick combined with pent-up demand from such a slow winter.

That’s evidenced by the fact that in the second quarter, sales dropped a record 50.3 percent from the same period of last year, while rental transactions fell 58.3 percent year-on-year, Elliman’s report found.

“It felt more exaggerated because there was such a dearth of activity before it that we played catch-up in a short period of time,” said Jonathan Miller, president of appraisal firm Miller Samuel, who prepares Elliman’s market reports.

Miller noted that rising unemployment and hard-to-secure mortgages mean the market is unlikely to fully recover anytime soon.

“The increase in activity is due to seasonality and at this point is not evidence of a turnaround,” he told The Real Deal. Adding to the confusion, some agents are even starting to approach their pre-downturn incomes, thanks to the springtime surge. But making that happen is unmistakably more difficult and less glamorous than it used to be.

Saez-Fromm said her company’s saving grace has been the rental market. But apartments are renting for less: The average brokers’ fee for a rental at her company is $3,000, down from $4,500.

That means a broker who is used to doing four deals a month now has to do six in order to make the same amount of money.

Meanwhile, each deal takes longer, thanks to finicky buyers and mortgage difficulties. That means long hours, nights and holidays, a hard pill to swallow for some agents accustomed to spending summer weekends in the country.

“There’s a lot more work behind getting a deal done,” said David Behin, an executive vice president at the Developers Group, a brokerage that just merged with another firm, the Real Estate Group New York. “You’re literally working your tail off. At some point, it comes out of the amount of sleep you get.”

Behin said he held a well-attended open house on the Sunday of July 4th weekend last month.

In addition, brokers’ day-to-day activities are now much less alluring than they were during the boom. Because sending out flyers and other marketing materials is now too expensive for many agents, Dunayer said, they must rely on tactics such as “warm-calling” contacts to look for leads.

Dunayer recommends that his agents make a list of 150 contacts and call at least five of them a day, asking if they or anyone they know is looking to buy, sell or rent a home.

How do brokers maintain their seemingly eternal optimism in the face of harder work and smaller paychecks?

“Maybe it just feels so good to come out of what we came out of,” Lehrman said. “It feels like we’re not wasting our time anymore.”