Since Dottie Herman and Howard Lorber bought Douglas Elliman in March, they have been driving hard to expand their latest purchase. The number of agents under their watch has grown from 800 to 1,000. The company has nearly doubled its office space at its 575 Madison Ave. headquarters under a new lease, and Herman is looking at adding room on the West Side. Several top brokers from other Manhattan companies have jumped ship to be a part of Elliman’s hot team.
So perhaps it’s not a surprise that the heads of other Manhattan firms are complaining. They say Herman’s tactics in growing the company are unsustainable for her and her hires, and point to alleged inflated one-year commission splits that drop back down after a year. The head of at least one rival company has complained to The Real Estate Board of New York about the company’s recruiting tactics. Do they have a point?
“I think they’re all speculating,” said Herman. “I heard I gave people $250,000 as a signing bonus to come over.”
Herman said she is not taking a big loss by bringing in agents, as other company heads allege. “You’re losing tons of money by doing that,” she said. “I won’t do that. It has got to be good with me, too.”
Andrew Heiberger, president and chairman of Citi Habitats, said Elliman’s strategy is to offer high splits that last for a year and then resume back to the split level the broker would normally get. He gave the example of Elliman reportedly offering a 70 to 75 percent split on $150,000 in commissions. At the same time, he said, the company is increasing costs like advertising. “There is so much pressure on the expense side of the firm. It’s not sustainable,” he said. He acknowledged, however, that he didn’t know the specifics of Herman’s strategy or details about her financial backing. “If she figured out a way to do this, my hat is off to her,” he said.
While not referring to Elliman by name, Pam Liebman, CEO of the Corcoran Group, said “any company that tries to lure brokers with high splits for one year – a smart broker isn’t going to go for that.” Making a switch to another company – which entails advertising to let clients know your new affiliation, and other expenditures of time and money – for a year isn’t worth the effort, she said. “A smart broker will look at the numbers,” she said.
Herman dismissed the notion that she is trying to grow the company with short-term incentives. “I’m certainly competitive. But you don’t buy loyalty. I’ve been doing this for a while, and all that happens with short-term incentives is people look around and go somewhere else.”
Neil Binder, the principal of Bellmarc, said the higher splits meant agents were getting “no advertising support,” despite Heiberger’s contention that Elliman as a whole was spending more on marketing.
“What’s the split worth if you are not getting support?” he asked. With 1,000 agents, he said he would expect to see more advertising in The New York Times from the firm, for instance. “I wouldn’t want to get 1/1,000 of that advertising budget,” he said.
But Herman said that is not the situation, adding that she “works out extra marketing dollars” in some cases. She also mentioned that Elliman has a program that pays for the cost of assistants, which isn’t offered at her Long Island company, Prudential Douglas Elliman.
In recent months, Herman has lured several top brokers from other firms, including former Corcoran Group vice presidents Jacky Teplitzky and Marlene Steiner and ex-Sumitomo Real Estate Sales Managing Director Sachiko Goodman. She hired successful broker Edo Raday from Bellmarc in November as well.
Teplitzky cited the fact that Herman brings a “completely new perspective” to Manhattan as one of the reasons for moving to Elliman. “She has a more global vision,” Teplitzky said. Teplitzky was also impressed with Elliman’s marketing and advertising campaigns, which “changed overnight” following Herman’s arrival, she said.
Overall, Herman said there is a trend among top agents not to go into business on their own right now, and instead develop a team inside a larger company – a smaller “business within a business.” Herman sees this trend as an opportunity to bring in other top agents.
“Ten or fifteen years ago, some agents would have opened up their own offices,” she said. “But it cost so much money to be in business, including millions to develop the brand. This way, it’s all on the owners.”
Recruiting has also become a bone of contention between Elliman and some of the other firms. Heiberger said Herman was “irresponsibly calling everyone else’s brokers and interviewing them.” He said he had made a complaint to REBNY about the practices.
Steven Spinola, president of REBNY, said that “some people were complaining about certain offers made,” but as far as he knows, “nobody is dong anything illegal.” He didn’t name Elliman specifically.
“It’s not uncommon for people to move from one firm to another,” he said, “and for firms to be aggressive in recruitment.”
For her part, Herman said she hasn’t had to call around to recruit. “I have never pursued calling anybody. I haven’t had to. There’s been lots of good buzz about the company.”
Liebman said she would be very surprised if that was the case. “I’d be shocked if she were not approaching our brokers,” she said.
According to Herman, Elliman has expanded from 800 to 1,000 brokers since she took over. A lease signed last month for more than 60,000 square feet of space at 575 Madison Ave. is an expansion from the 35,000 square feet Elliman currently occupies.
Under its new 15-year lease, the company, which is currently on the second and fourth floors, will have contiguous space on floors three through five.
Herman said the additional room will allow the sales force to increase by as much as 50 percent. She said the company is also looking into expanding its space on the West Side.
However, Binder said he thinks such an aggressive growth strategy may backfire.
“Why did that firm sell? Because it was making so much money?” asked Binder rhetorically. “The money backing the buying of the firm, said ‘make me a profit’, and that’s a promise they’ve got to fulfill. So they need a strategy for greater revenue or lesser expense,” he said. Assuming they are choosing aiming for greater revenue, which seems clear, Binder said, “they run the risk of cannibalizing themselves. The wealth is spread so wide over so many people.”
Apart from Douglas Elliman’s current approach to splits, the industry in general has seen an upward movement of commission splits over the last several years, say both Herman and Liebman.
Herman said that 10 or 15 years ago, all agents got 50 percent. “Over the last seven or eight years, there has been a significant rise in splits,” she said. “I don’t think it can go much higher.”
The highest split she said she had heard of was 90 percent, at RE/MAX, where the agents pay for their desks. Other than that, the highest she had come across was 80 to 75 percent, and “in rare instances and usually not forever.”
Liebman said the highest level of split has gone up over the past five years. “Brokers make a lot more money for the company, so they achieve a higher split. But the companies are not going to give away the store.”