Ask yourself a few key questions about how reducing office space would impact your culture.

• How will consumers be best served?
• Will compensation structures for virtual agents differ from brick and mortar agents?
• How will the expense savings on the physical plant be put to work?
• Will you create new and useful tools, services and programs that will attract top agents?
• Will you pass on some savings to agents by helping them set up virtual offices?

Strategically visit potential changes that may need to accompany office space reduction. Things such as marketing plans, advertising, agent bonus structures and incentives must be taken into account before any action is taken.

Brokers who choose to induce change toward smaller offices by motivating agents through compensation incentives might consider the following examples:

(a) Give 5% more across-the-board if agents work virtually, or

(b) Make the ‘in-house’ plan 5% less than current practice and pay out at current splits only if agents work virtually (we prefer choice b)

(c) Consider introducing commission indexing by CPI or another metric in order to assure that margins will be maintained over time despite the higher payout to agents working virtually (see below).

Indexing of Commission Plan

Each year, increase the dollar thresholds that make up the different bands of your commission plan by some multiplier (e.g., the consumer price index).  For example:

Before: XYZ Company has only one commission plan that resets every January 1^st and is structured as follows:  each agent gets a 55/45 split on the first $50k of GCI, 65% for everything between $50k and $100k, and 75% on everything above $100k.

After: What occurs if the thresholds are increased by only 4% each year?  The first band (agent gets 55%) now runs from $0 to $52k (not $50k) while the second band (agent gets 65%) is now from $52k to $104k.  Fast-forward another year and the targets are now at about $54k and $108k and after three years they’re at about $56k and $112k, and so on.  It’s not too dramatic a change from one year to the next but the cost of not doing this is ever-shrinking margins that become uncomfortable over time.

At the end of each lease renewal, ask yourself whether or not you would open up a new office in this location, if you had to do it again.  Depending on the strength of the local commercial real estate market, inquire about subletting rates to see if it’s worth staying or if there are better options “out there.”  Also look into the possibility of renegotiating your lease. This is especially important, if you’re assessing the possibility of closing a given location. Since occupancy is one of the largest fixed expenses in a real estate organization, renegotiating a lease could help to regain margin needed to sustain a viable business operation.

For multi-office firms, map out locations and determine where business is coming from, in order to analyze if and where opportunities for consolidation exist. Analyze costs savings less expected breakage (attrition of agents) vs. staying the course.  Determine what the payback period would be. Consider the 6 office company below:

If the above represented your company, here are a few questions that you might consider.

• Will office 5 continue to be profitable given current market conditions?
  • Why was only .34% ROR generated in office 5, given $4,297,685 in GCI?
  • Is Office 5 located near enough to another location to consider consolidation?
  • How much breakage might occur in Office 5 if agents were asked to move?
• Can Office 2 be far behind Office 5’s situation, or are there mitigating circumstances that make office 2 different?
• How much could operating costs and profit be impacted through lease renegotiation?
• Which managers are performing well and which are underperforming?

Do you consider your space to be a “showcase”? Is this important enough to justify the amount of space that you currently occupy? Business realities have changed rapidly, and as a result, leaders need to give serious consideration to redesigning offices that have fewer desks and less square footage. If there is excess space that cannot be eliminated, consider leasing desks to a mortgage company, title company, a home town bank, insurance person or some other relationship that offers ‘core service’ benefits.  This will help mitigate rent cost and may also provide trailing dollars.

]]> http://bhgrealestateblog.com/2010/05/19/lease-renewal-analysis/feed/ 1 http://bhgrealestateblog.com/2010/05/12/attributes-of-great-real-estate-firms/ http://bhgrealestateblog.com/2010/05/12/attributes-of-great-real-estate-firms/#comments Wed, 12 May 2010 20:58:10 +0000 Wendy Forsythe http://bhgrealestateblog.com/?p=4856 Last week, Steve Murray and Nicolai Kolding closed out the REAL Trends Gathering of Eagles conference in Dallas, TX with a presentation highlighting, in their opinions, the key attributes of great real estate firms. The audience, which consisted mainly of some of the largest and most productive brokerages in the country, listened intently. At the end of the presentation, the audience seemed to agree that their observations were “right on the money.” I do as well, and thought they were worth sharing.

They identified 5 key attributes.

1. Strong Leadership

Leadership was determined to be the single greatest predictor of success.

2. Ability to attract and retain talent

Research conducted by Real Trends concludes there is a direct correlation between an increase in closed sides and an increase in the number of sales associates.

3. Focus on your model

There is no evidence that one business model is any better than another. What is key is choosing your business model, committing to it and building value around it. Companies that try to be all things to all people ultimately disappoint themselves and others. Five types of business models were identified:

• Graduated commission plans
• High commission concept
• Capped company dollar
• “Freedom shops”
• Online and/or discount models

An interesting observation made was that the more commission plans a company has seems to directly relate to less company dollar. In other words, more plans equals fewer company dollars. The advice given was to keep commission plans simple with limited options that stay true to your operating model and value proposition.

4. Customer Service Focus

We have been focusing the last 10 years on creating favorable online impressions with our clients. However, when human contact is disappointing, that favorable impression is lost. Truly successful tools and services recognize that customers demand responsiveness. We have to do a better job at customer service if we want to be a great real estate firm.

5. Ancillary services are part of the core offering, not add ons

Firms can no longer view mortgage, title, escrow and insurance as add ons. They are necessary core competencies to the successful real estate firm.

I think these 5 attributes make a great score card for any real estate broker to do a self-evaluation on their business. How would you rate your firm in these areas? How would your agents rate you?

Thanks to the REAL Trends team for a great conference.

Agent AGCI (Adjusted GCI) – (Commissions Paid + WCA) = Dollars Retained per Agent (DRA)

Adjustments to GCI

Adjustments to GCI include things such as E&O charged to sale agents, desk fees paid by agents, transaction fees and marketing fees paid by agents and the like. It is a way of ‘truing-up’ numbers resulting from a given sales agent’s productivity.

Weighted Cost per Agent (WCA)

Weighted Cost per Agent is determined by weighting the number of months an agent worked during a measured period against total operating costs during that same period, as shown in the example below. It is necessary to have such a weighting system in order to create metrics for newly licensed agents and experienced agents who were hired at some point during the LTM period and as a result, worked less than 12 full months. This view is also helpful in:

1. Assessing the success of training programs, or
2. Comparing productivity of new and existing agents

WCA places a value on each sales professional as an individual ‘profit center’ and thereby presents a superior vantage point for real estate companies.

In this example, it is interesting to note that Newer Agent 8, with 8 months worked is profitable to the branch, whereas Agent 7 who was present the entire 12 months is not. This is true even though agent 7 had a higher AGCI. In fact, Newer Agent (9), who earned far less AGCI than did Agent 7, brought very similar net dollars (negative number) to the branch! This would suggest that we have made a very strong new hire with Newer Agent (9), but that Agent 7 needs to be coached toward higher productivity.

Total Operating Cost x % of total months worked by sales agent = Weighted Cost per Agent

The clear implication of the preceding argument is that the company leaders will have determined a minimum acceptable DRA for agents to remain viable in their organization. Agents who are achieving this level satisfy the minimum Dollars Retained per Agent requirements and those who fall below that mark are in need of coaching or redirecting.

The EOO Ratio is calculated by dividing the number of agents achieving DRA by the total number of agents in the office. Hence for the example above.

7 (Agents Achieving DRA) / 10 (Total # Agents) = 70% EOO Ratio

As a result, business leaders should have tools available to them that allow for the segmenting of associates in many and varied ways. Consider the five examples below:

1. Traditional quartiling - Four groups with non-producers at ‘the bottom’

In many companies, the fourth quartile has little or no production whatsoever, as these individuals have yet to acquire critical skill sets.  Partly as a result of this, the most positive results often come when focusing on the second and third segments.  Create an environment whereupon each agent can generate a minimum of one monthly transaction (listing or sale.) This environment should include training, coaching, sales agent business plans, upholding minimum production standards and in some cases, the re-directing of non-producers.

2. Quintiling – The traditional view but with all non-producers as a ‘fifth segment’

3. Virtual agents – Analyze how your virtual agents compare to one another as well as to traditional and 100% agents

4. 100% Agents – Analyze how all of your 100% agents compare to one another as well as against traditional and/or virtual agents

5. Years of service – Identify training and coaching needs by viewing production in relationship to ‘years in the business’

Although most brokers acknowledge the “80/20 rule” (that 80% of the sales are transacted by 20% of the agents,) too few actually measure it.  I would like to encourage you to challenge this ‘traditionally accepted’ rule when viewing and analyzing your agent productivity. It is my clear and unwavering belief that with proper coaching and support, a far higher percentage of sales agent population will become successful and profitable to your organization and to themselves. Regardless of their past level of success, sales associates should be offered the help and support of management in identifying key areas through which to improve their business. Remembering this critical point will assist you in retaining the best and brightest sales agents within your demographic.

1) Talent Attraction

Broker/Owners: The back bone of every successfully real estate company is its agents. Attracting and retaining professional, committed  and talented agents must be a focus every working day. A look at any successful brokerage will uncover a successful talent attraction program.

Agents: Agents need to attract talent as well. The perspective is a little different but the dependency on success is consistent to that of the brokerage. Agents need to focus on building their support team- mortgage brokers, title people, home warranty relationships, contractors, inspectors, etc. All the professionals related to the execution of a successful real estate transaction. As the agent, you have the starring role in your client’s real estate transaction, but just like every good movie you need a talented cast of supporting actors in order to make it all work.

2) Revenue

The dollars coming in the door. The need to substantiate our commission rate will never subside. In fact, our ability to communicate and demonstrate the value we bring to the client and the transaction continues to separate the successful from the not successful.

Broker/Owners: As company leaders,  your agent’s rely on you to provide them with leadership and an environment that will help them market their services and expertise to potential buyers and sellers. Your ability to do this is critical. Tools, services and expertise are all key factors in supporting your agents ability to generate revenue. If agents do not feel like you can help them make sales they are going to go elsewhere, and they should.

Agents: You are the front line. The direct contact with the buyer, seller or whomever is the gatekeeper to the transaction in the case of foreclosures and short sales. Your ability to bring value to that relationship will ultimately determines the outcome.

3) Expense Control

There’s a saying that you can’t save your way into profit. That may be true,  however you can spend your way into losing money. We’ve all been through an extremely challenging time and have had to make many difficult decisions in the name of expense control. That must continue. Whether a broker/owner or agent, we have to remain diligent about every dollar we spend. What is the return on investment? How does this expenditure support my revenue generation abilities and strategies? These are questions that we need to ask before we make any financial commitments.

I often hear from industry vendors stories about agents and broker/owners signing up for their services and then never using them. This just doesn’t make sense. We need to be smarter than this.

We are staring down the end of the first quarter of 2010. This is an ideal time to review these three areas of your business and evaluate where there are opportunities for improvement. These three elements are like a three legged stool. Together they provide firm support and steadiness. But any weakness will make your business shaky. And if you’ve ever sat on a shaky three legged stool, you know that’s not a comfortable place to be.

Photo Courtesy of Dexigner.com

There are basically three ways to find a home that fits your needs and negotiate terms with the Seller or Landlord of the property. Execute a contract that is a lease with an option to buy the home at some point in the future. Work within your budget to create a lease option contract that works best for you, or negotiate a lease-purchase.

Rent to Own

Rent-to-own homes provide buyers-tenants and sellers-landlords additional options during questionable times for the market or the individual parties. The general agreement allows for a potential buyer, who may not have the capital to buy the house out-right or the credit to get a loan, to pay a deposit up-front, traditional rent and a rent premium and live in the desired home immediately.

The deposit on a rent-to-own is usually between one and five percent of the property price. The traditional rent goes straight to the seller-landlord, as in any other rental agreement. The rent premium acts as a further deposit toward the purchase of the house. Most rent-to-own contracts are fairly short term – one to three years is the usual length – and the price of the property is usually determined by a professional appraisal at the time of contract signing.

Lease Option

A lease option allows the buyer-tenant to work towards the purchase of the house without an obligation to buy. This arrangement provides the buyer-tenant 12 to 36 months to save money or raise a credit score that is slightly below the needed one. A lease option also reduces the potential buyer’s anxiety about making the long-term commitment of purchasing a home and provides them time to further consider the pros, cons and responsibilities of home ownership. At the same time, a lease option agreement gives the seller-landlord more security than with a traditional renter. The tenant can ultimately decide not to by the home, but he or she usually forfeits the original deposit and the rent premiums paid every month.

Example Lease-Option transaction:

• Purchase price of the home is determined to be $215,000
• Monthly rent payments will be $1,500
• You will receive a 50% rent credit ($750 per month).
• You need between 2.5% and 7% in up front Option Consideration. Let’s say your budget allows for $6,000 for Option Consideration. This equates to approximately 2.8% ($6,000/215,000). You will also need $1,500 for the first months rent for a total initial payment of $7,500.

[Please note: Option consideration is not a security deposit. It is a non refundable payment toward the purchase price and is 100% credited toward reducing the price of the home.]

Suppose you paid all your monthly rent payments on or before the due date and you choose to buy the rent to own home at the end of the 12 month lease purchase contract. You will have $15,000 in equity before you even own the home! Here’s the math:

You started with $6,000 and by paying your rent on time your equity position grew 150% (another $9,000) for a total of $15,000 with 12 months. Not a bad deal! Many people find it nearly impossible to save $9,000 in a year with all the costs of living constantly on the rise.

1. In both situations, highly talented individuals are asked to contribute to a team effort
2. Both are highly rewarding in terms of income, but due to spin off success, high performing teams typically earn more than high performing individuals alone
3. Both scenarios require high ego-driven individuals to respect and support overall team goals
4. Both situations present challenges for leaders and managers in creating perceived value for their agents and staff

To Agents

To me, the conversation always comes back to accountability; accountability to self and accountability to the team. Just think about the interviews that were aired during this most recent World Series. In fact, if you recorded the games go back and view them again. What you will hear, time and again, is a high performer crediting teammates for their personal success. If you stop and think about this for just a moment, it is a really striking development and testament to the fact that high performing athletes understand what Warren Buffett meant by the following statement.

“It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction” – Warren Buffett

So the secret to winning, whether a World Series of baseball or any campaign in business, revolves around one simple notion – the ability to hone and develop one’s personal skills and success, while at the same time helping others around you to succeed as well. This is an art that was formerly a fundamental part of the fabric of American business, which sports modeled itself after. Today, it all too often seems to be regarded as a nice, yet antiquated idea. This must change!

By the way, It is interesting to note that only two teams (one in professional baseball and another in college football) do not display player’s names on their jerseys. Can you name them?

To Leaders and Managers

Great managers like Vince Lombardi, Tom Landry, or Joe Girardi create cultures where high expectation and a high degree of accountability is the accepted norm. These leaders also understand that all interactions need to form a two-way street of accountability. At times in our business, leaders unwittingly discount their own value by allowing communications and accountabilities with their “team” to become a one way process; always heading in the leader/manager’s direction. Of course agents provide productivity and hence dollars to the company and no one could ever dispute the critical nature of that contribution. But leaders are equally critical in this mix. After all, it is the leader who;

1. Creates a sound culture
2. Coaches agents to higher levels of productivity
3. Uncovers opportunities in the marketplace
4. Distributes company leads equitably
5. Helps in the negotiation of transactions
6. Provides marketing guidance, and
7. A myriad of other things that have value to agents and company alike.

In Summary

It is time we all realize how much we all truly need one another. It is time for all of us to understand how inextricably we are all connected with each other’s success. This applies to agent teams, the entire collection of agents within a brokerage or our entire industry for that matter. Given the pressures we face from organizations outside our industry who continue to wedge their way into our relationship with consumers, let the valuable words of Henry Ford serve as an anthem for how we can win every World Series of real estate.

“Coming together is a beginning. Keeping together is progress. Working together is success”

• Inventory levels begin to fall, implying an initial increase in consumer demand
• Prices still have downward pressure as foreclosed and other lower-priced inventory sell first
• Sides flatten and even increase, as consumer confidence returns and more homes sell

With this information in view, please note the table below showing closed sales and average price in September and August 2009 vs. one year ago. You will observe that closed sales mostly flattened in August and increased in September year-over-year in all regions except the Midwest, while home prices showed some stabilization. It is important to note, however, that three of four regions in the U.S. actually experienced a year-over-year increase in closed sides during September.

Experts expect continued improvement through 2010

Based on a survey released by the National Association for Business Economics, home prices are expected to rise by 2 percent next year and 80+ percent of the economists surveyed by the NABE think the recession is over and recovery has begun. However, economists do warn that expansion will be gradual due to persistent unemployment. Additionally, sales of existing homes will rise by 11 percent in 2010, [Source: Associated Press, Alex Veiga (10/13/2009)] and Jay Brinkmann, Chief Economist of the Mortgage Bankers Association, recently predicted that sales of new homes will climb by a strong 21 percent in the new year. Finally, mortgage rates are expected to rise to 5.6 percent (low by historic measures) by the end of 2010, yet mortgage applications are still expected to increase by 12 percent [Source: Associated Press, Mae Anderson (10/12/2009)].

What can real estate professionals do to prepare?

All in all, the picture is clear. Recovery is upon us and the time to prepare ourselves for a stronger real estate market has arrived.  So what exactly can real estate professionals do in order to put themselves in the best position for success? Below are just a few suggestions to get the thought process going.

• Your confidence level is a self fulfilling prophecy – Keep in mind that market confidence is brought about largely by professionals bringing timely and accurate information to consumers. Your clients need your good guidance in order to navigate these positively changing waters.
• Consumer confidence doesn’t change overnight – Remember to be patient with one another. After all, we have truly been ‘through the mill’ over the last few years and changing consumer attitudes takes time. It is also true, however, that consumer awareness of trends often lags behind market realities, so some guidance now can help them make timelier and more cost effective decisions.
• Get more than one “no” from a mortgage company – Underwriting rules have tightened causing some mortgage applications to be denied. But nothing is preventing a determined buyer from seeking another opinion on their credit-worthiness. So don’t give up!
• If a property doesn’t appraise, look to get a second appraisal – In markets like the present one, banks and appraisers sometimes over react to the downside. Real estate professionals and consumers alike should therefore not hesitate to ask “why didn’t this appraise?” Open communication is the key here.
• Don’t hesitate to write offers – Resist getting tied up by traditional thinking and just make the offer! It’s kind of like baseball… once the ball is in play, anything can happen.
  
• “Do something today (that you did not do yesterday) to enhance your tomorrow” [Dominic Sacci, GM Better Homes and Gardens Real Estate Wilkins and Associates] – This statement sums things up beautifully. Positive change is the key and we should all expect business techniques to keep evolving. So get comfortable with change, embrace the new and watch the magic happen.

Here’s to your success!

Seth Godin recently predicted that by 2011, 90% of all sales would be sourced from word of mouth and online promotion.

• What does the future of online lead generation in real estate look like?
• Who should be responsible for generating online leads: the broker, the agent or both?
• Should the next generation brokerage consider directing more attention to generating online leads for their agents? After all, when you ask agents what they want from their broker isn’t leads near the top of the list?
• Should broker/owners offer and manage robust lead management and follow up systems on their agent’s behalf? It is likely that consumers will research for longer periods of time before making the buying or selling decision so offering value during that long term relationship will be important.
• Is there enough trust between broker/owners and agents to allow these types of systems to work?
• Do real estate professionals (whether broker/owner or agent) have the expertise required to execute effectively online?

We are presently seeing examples of brokerages across the country that are surviving and even thriving on broker driven online lead generation models. These companies have taken on the responsibility of generating online leads for their agents. In return, they hold their agents accountable for response time, customer service and follow up. This is a fundamental shift in how most brokerages are operating today.

You might argue that the party who has the ability to generate the most qualified leads has the biggest advantage with the gen web consumer. One thing is certain, online promotion that turns to lead generation will be a huge part of our industry in the years to come.

As for word of mouth lead generation, you’d be hard pressed to hear a real estate speaker today who doesn’t somewhere in their training or presentation throw out the term “back to basics.” These basics of prospecting, follow up, customer service and relationship building are all important components that result in that word of mouth business. The tools and methods may have changed with the introduction of the Internet, but the concepts are still the same. Make connections with people who know, like and trust you. These people will then become advocates for you.

Combining tech and touch in lead generation will prove to a winning combination. 2011 is not that far away, will Seth be right?