It’s no secret that every residential broker and firm in the city
worth their commission check has been hunkering down and strategizing
about how to deal with the new market conditions.
But now brokerages throughout the city — from the large corporate
Manhattan-based firms to the small independent firms in the far reaches
of the outer boroughs — are actually beginning to put those new
strategies into effect.
Some are laying off employees or nixing holiday parties. Others are
cutting budgets for advertising properties in print. And at least one
firm is closing some of its satellite offices. Meanwhile, brokers who
once worked exclusively in sales are taking on rentals to supplement
their shrinking incomes.
The principals, founders and heads of several major residential firms told The Real Deal
in this month’s Q & A that they expect the brokerage work force in
the city to shrink by anywhere from 10 to 30 percent during the
downturn.
They say that brokers who “puff up prices” in order to win
exclusives from sellers will be left in the dust and that brokers who
entered the industry just a few years ago when deals were falling from
the sky will have a harder time surviving than those who have lived
through past bear markets and have more sophisticated skills in
negotiating and shepherding tough deals.
One principal at a midsized firm said he expects New York City
brokerages with national parent companies to suffer more because they
are more exposed to the downturn more severely affecting the rest of
the country. And while company heads said they don’t see their brokers
turning to second jobs now, one joked, “Ask me again in January or
February.”
Here’s more on what the experts had to say about strategies for
surviving the downturn and on their predictions for what’s to come in
2009.
David Schlamm CEO/founder, City Connections Realty
What are you seeing in terms of layoffs and how much do you expect the city’s brokerage workforce to shrink by?
We are not planning any layoffs right now, but I do believe that
[the number of] brokers working will be reduced significantly starting
at the end of the fourth quarter or in the first quarter of 2009.
Which brokers do you think will have the toughest time surviving this downturn?
The brokers in business since 2004-05 came in during one of the
hottest periods and it was the easiest time to make money. They will
have the toughest time if they don’t totally change how they think and
do business. I [think] the up-and-coming areas will be hit hardest so
brokers in those areas will suffer more, specifically in Long Island
City or parts of Brooklyn.
What is the biggest mistake that you’re seeing brokers make right now?
Feeling sorry for themselves and not being proactive, both in my company and throughout the industry.
Has your brokerage closed any offices? Do you plan to consolidate operations in any way?
We have one very large office with 6,400 square feet. I had plans
to open two or three more offices, but I’m putting that on hold until I
feel we have hit the bottom. There are a few firms that have multiple
storefront locations that are going to get hurt during this downturn.
How are brokers coping with the decline in deals? Are they
working longer or fewer hours? Are any of them taking second jobs to
make up for the lack of deals?
While I believe some may be hiding their heads in the sand and
working fewer hours, those people will eventually end up leaving the
business. In general, good brokers know they have to do it full time or
not go to work, especially in a challenging time. So [they are not
taking second jobs] yet. But ask me again in January or February.
Are you seeing more brokers who were exclusively working on sales now also take on rentals?
I haven’t seen the switch so much here, but I have seen a huge
increase in the amount of inquiries on our exclusive rental listings by
the major sales firms in Manhattan.
Barbara Fox president, Fox Residential Group
Which brokers do you think will have the toughest time surviving this downturn?
Experienced brokers who have weathered prior downturns will know
how to keep their business alive. I worry about those who, though
successful, have had it too easy during the good times. Many brokers
never understood how to really work for a deal — for instance, the need
to learn sophisticated negotiating techniques. Those are the brokers
who will have to relearn their profession.
What are the biggest mistakes you’re seeing brokers make?
Not readjusting their strategy of doing business; not aggressively
pursuing new ideas and creating innovative strategies to generate
business; not being creative in finding buyers for the properties they
are representing; and not being honest with their sellers with regard
to pricing. Brokers got into bad habits over the past several years
doing anything and everything to win exclusives, including giving bad
pricing advice. Now it’s the sellers’ turn to wake up to reality and
understand that things aren’t going to be improving over the next
months. So if they’re serious about selling, they’re going to have to
be more flexible in negotiations.
What kinds of changes are you seeing brokerages make when it comes to spending?
Fewer and fewer people are looking to the print media for real
estate ads. Sellers like to see their property in print, but it pulls
in little business relative to the money spent by the firms. It’s
certainly one way to cut major costs.
What is the impact on competition -between brokerages now that there are fewer deals?
The fierce competition is on hold now. Brokers are working together more to accomplish their goals.
Neil Binder principal, Bellmarc Realty
What are the biggest mistakes you’re seeing brokers make today?
Catering to sellers and puffing sales prices in order to induce sellers to give them an exclusive.
Are companies eliminating services yet? Are they changing the allotment of -advertising money they’d normally give to brokers?
We have cut down our advertising a little. Firms that are very
large, that have affiliations to national companies are subject to the
severe downturn that is occurring nationally. Some of those are
severely affected by the parent companies like NRT or Realogy — they
own a number [of firms] in New York. If they are doing poorly in other
markets, a firm in New York City may have to suffer the consequences.
What’s the overall scene and mood like today in the brokerage
world? Are brokers working longer or fewer hours? Are they taking
second jobs?
We see our sales people coming in and working very hard. They may
be frustrated by not being able to accommodate buyers and sellers, but
they have to make a living so they’re really working hard. I’m sure
there are some who are working second jobs, but I never talk to my
sales people about it. They would not tell me and I don’t ask. I
imagine there are some people who have to put bread on the table and
they will do what they have to do.
Are you seeing more brokers who were exclusively working on sales now also take on rentals?
I’d say a larger percentage [of our work] is rentals now because a
lot of buyers are not interested in buying in the current market. The
sales people go where opportunities lie and we are seeing that rentals
are a large component of our business. We are predominantly a sales
operation, but rentals have doubled in the last year. I don’t know if
the rental market has gotten broader or whether we’re eating into it.
Kirk Henckels director of private brokerage, Stribling
What are you seeing in terms of layoffs and how much do you expect the city’s brokerage workforce to shrink by?
We are not planning any layoffs, only minor cuts in advertising, so
we are in an advantageous position relative to the larger firms. I have
seen some pretty dramatic cuts in advertising at other companies. I
think it’s greater than 10 percent. I imagine there will be some cuts
in staff levels as well. In terms of the number of brokers, I have a
feeling the wheat will be separating from the chaff. [Still], I think
our industry will fare better than Wall Street.
Have brokerages started eliminating services at all?
It seems to me that it is the really big ones and the really small
ones [that are eliminating services]. The really big because of a lack
of flexibility and the really small because they don’t necessarily have
the financial strength. So far in Manhattan, I have not seen any major
decrease in services. In our business the first thing that is adjusted
is advertising; that is the most flexible of the major overhead items.
Some have cut back and all firms will cut back — it’s a question of to
what degree.
What’s the overall scene and mood like today in the brokerage world?
It’s a little like the stock market. One day you hear about a big
deal being made, the next there are no sales. It’s erratic … There is
not enough empirical data yet to know what this new market is.
How are brokers coping with the decline in deals? Are they working longer or fewer hours?
I have seen it become much more professional — it isn’t a second
income anymore. The people that have established themselves will work
harder. We all have to work harder. You don’t find many part-time
brokers anymore. The competition is too stiff.
Are you seeing more brokers who were working on sales now also take on rentals?
Brokers sell whatever they can and luxury rentals have gotten to a
level where those commissions can’t be ignored. I would -expect a
high-end broker to take a high-end rental and be more inclined to do so
than before for obvious reasons. There is only so much to go around so
traditional rental brokers may have a little more competition from the
sales side.
What is the impact on competition between brokerages now that there are fewer deals?
I think certainly the competition for buyers has intensified more
so than the competition for sellers. Competition has -increased for
buyers, but it hasn’t gotten ugly and I don’t expect it to. Pricing in
this market is extremely tricky because for sellers, the negotiating
factor has changed so dramatically. Prior to the financial [crisis] the
negotiating factor was a mere 2 to 3 percent, whereas buyers now expect
more flexibility on the part of sellers and the market has not been
redefined yet.
John Reinhardt CEO, Fillmore
How much do you expect the city’s brokerage workforce to shrink by?
The real estate community has gone down and we are expecting
another 10 to 15 percent drop in the number of brokers a year from now.
Which brokers do you think will have the toughest time surviving this downturn?
I don’t think it’s specific to geography in the outer boroughs. We
are doing well in the outer boroughs. The smaller brokers are worried
about going out of business — they can’t pay bills so that is
attracting smaller brokers to our firm. I think it will happen in
Manhattan as well as other areas. There will be a flight to quality.
With the exception of niche markets, there will be a real movement of
agents.
What are the biggest mistakes you’re seeing brokers make in this down market?
Over-advertising in classified print mediums …We have cut
advertising expenses in the last two years and the number of new
customers is up 30 percent.
Has your brokerage closed any offices? Do you plan to consolidate operations in any way?
We have closed three local neighborhood offices five minutes from
each other. We have kept the team merged into [the] closest office, but
since some are leaving, there is room for the better-qualified agents.
We were able to recognize that as times get a little bit tougher we
have to work with fewer offices and can retain the same workforce.
Other firms have started to merge, they are considering or have
-already closed or consolidated in our area. I expect more of this to
happen, and often they are joining us or joining firms like ours. Some
successful brokers decided to open their own place and now they realize
that they have to recruit, train and motivate all these people. They
realized that they can get higher commissions without the risk and
aggravation of paying bills, so they are coming back to us.
What’s the overall scene and mood like in the business today?
Our agents are tougher and work harder. Some agents are taking it
slow and using it as an excuse. If they take it easy they are going to
be defeated. Some will jump to another career. We are training
[brokers] in how to list properties, how to say no when it’s
overpriced, and how to be more selective with who they work with so
they don’t have to work twice as hard.
What about commission structures? Are they changing?
There is in an increase in commission structure to top agents. Part
of our strategy is to attract the top agents … and [that includes] fees
to top agents. The lower end is not getting a raise. We are getting
tougher on the lower end, not giving the high splits unless they have
minimum standards now like [taking more] classes in training and skill
workshops to get to that next level.
What are firms doing to generate revenue in new ways now that sales volume is down?
We are more focused on our commercial department; it has doubled in
size this last year and we have worked on our new -development
division, which has grown 250 to 300 percent in the last year. We
started a contract today on a great job in the Bronx with 1,800 co-ops.
We opened an office in the Bronx at the beginning of this year.
Are you seeing more brokers who were exclusively working on sales also take on rentals?
We are a perfect example of that. We are rolling out a rental division.
Diane Ramirez president, Halstead Property
What are you seeing terms of layoffs and how much do you expect the city’s brokerage workforce to shrink by?
There is no excess in our employment and, therefore, no layoffs
will be made. Historically, the bottom 20 to 25 percent of the
brokerage community will be lost in any serious [down] market.
What are the biggest mistakes you see brokers make in a down market?
To get caught up in the negativity and to forget that this is
residential real estate — selling homes — and in all markets, some
people will need to sell and/or buy. Agents must also be well-versed
and knowledgeable about the art of negotiation. It’s -essential in any
market, but especially in tough ones.
Has your brokerage closed any offices? Do you plan to consolidate operations in any way?
We have not closed any offices and, in fact, we just opened one in
Hoboken, New Jersey, and started an investment sales division. This is
a time to look for opportunity in a fiscally sound way.
Barak Dunayer president, BARAK Realty
What are you seeing in terms of layoffs and how much do you expect the city’s brokerage workforce to shrink by?
I have spoken with my fellow CEO/presidents and sadly I learned
that many are laying off employees. I predict a 20 to 30 percent cut in
the city’s brokerage workforce and that much for agents as well. There
just won’t be as many transactions.
What are the biggest mistakes you see brokers make in a down market like this one?
The biggest mistake one can make in a market like this one is
taking a break. We have not hit bottom and now is the time to
strategize. All the managers at [our firm] actually started talking
about this all the way back in January. One of our managers, because of
the mortgage debacle, told all our agents that if you want to do 15
transactions this year, you must do 10 of them by June.
Are brokerages eliminating services yet? Are they decreasing advertising budgets?
We have looked into being even more effective with our advertising.
Even during a plush market, we minimized our print advertising since we
know it was never effective and it was only to impress sellers. Now,
because we want to hedge ourselves for tougher times, we have decided
not to have any print advertising whatsoever.
What’s the overall mood like in the brokerage world right now?
Discouraging at best. Many have quit and many of my colleagues have
let go of agents who are not producing. We have fought this off.
Are commission structures changing?
There will always be sellers who will try to negotiate our
commission no matter what market we’re in. In this market, however,
sellers need us more than ever. We’re already turning down listings if
they’re overpriced. This is a tough market to sell a property … In a
market like this, our managers have actually spoken about perhaps
charging a higher commission.