Brokerages are changing faster than ever before due to advances in technology, as well as an influx of venture capital and private equity that’s bringing in new business models. Still, it’s not the end of traditional brokerages, according to some of the biggest names in the business. With more options on the table, the best defenses are knowledge and a value proposition that keeps customers coming back. To stay in the game, know your competition and be prepared to explain the value you offer when an agent, buyer or seller asks, “Why should I go with a traditional brokerage?”
One size does not fit all
During the pandemic, market conditions really carried brokerages, regardless of their business model, according to Jack Miller, president of T3 Sixty and a contributor to the Swanepoel Trends Report. Despite all the uncertainty and some agents’ opting to stay put, new entrants into the marketplace, like eXp, a digitally based, officeless concept, managed to heavily recruit. “They did not hit the pause button during the pandemic whatsoever,” Miller said. “In general, other new business models continued to show growth during that period.”
New investment in the real estate sector has become a trend in the past three or four years, Miller explained. “More companies go public in real estate every year now. That’s showing a dynamism in this industry that is quite different from the past. For a long time, there were only a handful of publicly traded companies.”
It definitely goes back to capital, he said. The root of change in real estate, in a number of different areas right now, is capital-based. Moreover, there has been a tremendous amount of capital invested in iBuyers and iBuyer-type models, as well as companies like Compass that are expanding their footprint. “A lot of these companies … like eXp don’t need to raise any more money to continue to grow,” he said. “It is big now. It is out of the barn. It is off and running.”
While those types of business models continue to grow, Miller said there is still absolutely a place in the industry for traditional brokerages that provide multiple services and have offices and staff, because real estate is not a one-size-fits-all industry. Some agents want a physical office and like working with staff in person, he added.
“The great news about the brokerage industry today is that we have many, many business models to fit many different kinds of agents,” he said. “If you’re an agent who doesn’t require a lot of services from your broker and you want to just do your transactions and pay a transaction fee, then you can do that today, and you can greatly reduce your cost profile. If you’re a team and you want a broker that supports your team structure financially, and as a financial model makes your team structure really easy to run, then you have those options today.”
In reality, one business model is not better than the others — there’s just more product on the shelf for agents to choose from to fit their particular situation, Miller said. “This is not an industry where a new model comes along and destroys an old model.”
He emphasized that technology is not the driver of change; it’s simply playing a supporting role. The real drivers are capital and business model. “Some brokers probably do need to make changes,” he said. “They do need to either add things to the brokerage that they don’t have or get better about presenting what they do have as a value proposition. They need to sharpen their saw in terms of being able to talk about what they do to help agents be more productive.”
A tale of two business models
An iconic brokerage that has maintained its position in the marketplace for 166 years is clearly doing a lot of things right. Stephen Baird is a fifth-generation president and CEO of his family’s business, Baird & Warner, which was founded in 1855 by his great-great-grandfather, Lyman Baird. The locally focused brokerage defines brand recognition in Chicago. Lyman came to the Windy City from New Haven, Connecticut, Baird said, to represent “East Coast money” — people who were interested in investing in the booming West, which was Chicago. Although the company that exists today is very different from the business Lyman Baird and all of his successors created, one founding principle has remained: Do the right thing.
Without public shareholders or private equity players to answer to, Baird and his team can base their decisions on what is right for employees and customers, and it rarely has to do with money. “That’s been to our advantage for 166 years,” Baird said. “It’s what everybody in the company lives by.”
The other key driver of the privately owned brokerage’s longevity has been its commitment to evolve and grow as a company. Baird has done that by selectively acquiring one to two businesses a year that fit within the company’s culture. Its last sizable acquisition was the purchase of Century 21 Kreuser & Seiler in Libertyville about two years ago. “They were the No. 2 broker in the Libertyville market, and we were No. 1,” Baird said, noting that it has been a very successful merger.
Although Baird & Warner is primarily a Chicago company, the brokerage does have some operations just over the Illinois border in Wisconsin and Northwest Indiana. But that’s strictly because the Chicago territory happens to flow into those areas. A national expansion is not part of the plan, Baird explained.
“It’s a local business,” he said. “When we go to another market, we lose the advantages we have here: name recognition and our knowledge of the marketplace.” Plus, he focuses on the best opportunities for his company, and there are more than enough of them right here. “Being the biggest is not a goal of ours, but being the best real estate company is one of our focuses. We don’t want to give up quality for size.”
For that reason, Baird & Warner’s position in the marketplace continues to gain muscle. To Baird, opportunity also comes from the brokerage’s two subsidiaries: Key Mortgage and Baird & Warner Title, which operates as Landtrust Title. “They are very vibrant businesses for us and opportunities that came to us over the last 20 years or so,” he said. “We understand how Realtors and how customers think about mortgage or title in a transaction, so we have a distinct advantage.”
The complementary businesses fulfill Baird’s “one company” strategy of making the transaction process as seamless as possible by providing consumers with all the services they need in one place. Overall, the goal is to create a better transaction for customers. “We measure it when we provide more than one service in a transaction, what we call our ‘Epic Ratio,’” Baird explained. “Currently, 38% of the time, on average, we provide more than one service in a transaction.”
Of Baird & Warner’s brokerage business, 25% of transactions include Key Mortgage, while 50% use Landtrust Title, Baird explained. Outside of its own transactions, the company has grown its subsidiaries by providing mortgage and title services to competitors and partners. Baird pointed out that although the businesses are definitely related to real estate, they are not brokerages. As such, he does not run them that way. Instead, he runs the mortgage company like a mortgage company and the title company like a title company. “It seems like a subtle difference, but other real estate companies run them as just an offshoot of the realty company,” he said. “That’s why they have challenges relative to that, because they are totally different businesses.”
Another advantage of running two complementary companies is that it diversifies the brokerage and makes it a stronger company. In 2019, RealTrends 500 ranked Baird & Warner 19th in sales volume out of 500 residential real estate brokerages nationwide. But high rankings are not the goal, according to Baird.
“We don’t manage the company based on market share,” he said. “Our focus is how do we create a great environment for our employees and customers and do a great job. Rankings are a result of that and not a goal.” For the past decade, the company has experienced record years in its brokerage, mortgage and title businesses, Baird explained. It has never been in a better position financially, and in terms of volume, it’s hitting on all cylinders at this point. “Year-to-date, we’re running about 30% ahead of last year in volume and 16% ahead in units,” he said. “That’s good. We continue to do that. We do a lot of volume. I don’t want to discount it, but that’s not a primary driver for us.”
Equally important is its internal customers: brokers. Baird & Warner has appeared eight times on the Chicago Tribune’s list of top workplaces. “It’s an indication of our focus that we want to create a great place for people to work,” Baird said. “We also are a big believer in developing people and agents. We do a lot of training.”
Baird can give many examples of agents who came to the company, built careers and learned to excel. “If you as an agent are interested in growing your business to the next level, we are the best place for you,” he said.
National expansion through franchising
A mere 21 years ago, @properties, a young and innovative brokerage, made its debut in the Chicago marketplace. Once competitors from across the country came calling, asking to license @properties software, the brokerage’s co-CEOs Thad Wong and Michael Golden decided against becoming a real estate company focused only on technology, because they viewed that as a recipe for failure.
They opted instead to put key components that worked for them into a franchise package that they felt would ensure the success of a company in a new region: @properties’ proprietary technology known as [email protected]; exceptional marketing integrated into the technology; @academy, the brokerage’s proprietary coaching and training program to help agents increase their volume; a culture that is appreciated by agents and consumers; and the capital that franchisees need to grow organically or through acquisition. Before they went full speed ahead, though, they first tested it out in a big city.
In 2019, @properties bought Ansley Real Estate in Atlanta and proved that [email protected], its proprietary suite of integrated apps for digitally managing transactions and client relationships, could be successful in markets outside Chicago with multiple MLSs. What’s more, the entire franchise package was a success. “Ansley had about $600 million in sales in 2018 and will close well over $2 billion this year,” Wong said.
Franchising @properties on a national level will build greater brand awareness and create a network that generates referrals from around the country into Chicagoland, Wong explained. “Once we announced we were franchising, we immediately had a number of inquiries. We’re going through the process of meeting with each one and figuring out timelines of which offices and locations are best to roll out.”
So far, @properties has franchises in Detroit, Michigan; Indianapolis, Indiana; La Crosse, Wisconsin; and Dallas, Texas. “The Detroit company was No. 1 in the city of Detroit and wanted to expand in the suburbs,” Wong said. “The Indianapolis group was doing under $700 million in Indy and needed tech and wanted to scale into other markets.” Both companies are only a few hours away from Chicago by car, have cultures aligned with @properties and reminded Wong in many ways of @properties in its early days.
“It was very inspiring,” Wong said. “We saw a nice reflection of what companies were at the beginning stages of our organization and how quickly we could help them grow by giving them the things we developed internally over the past 20 years.”
In reality, Wong said he doesn’t choose the market. “It depends what market is looking at us,” he said. “We’re in a nice position. We have optionality to go through different markets that feel appropriate for us. The neat thing about our business model is it can be successful in a smaller region, hyperfocused like La Crosse to major cities like Detroit, Indianapolis and Dallas.”
While launching in a competitive market like Dallas will increase the speed of expansion and growth, Wong said the challenge might be brand awareness. But he is not concerned, because the company makes up for it with its tech [email protected], which is fully integrated with its CRM and customer-facing marketing, as well as its training, coaching and capital.
The numbers prove it’s a winning formula. In terms of sheer dollars closed, @properties went from $8.793 billion for the 12 months ended Aug. 30, 2020, to $15.03 billion a year later. On top of that, the $6.236 billion increase is the largest, on a dollar volume basis, of any brokerage firm in Chicagoland.
Maintaining its position as one of the top brokerages in Chicago while managing this expansion is not of concern to Wong, because his and Golden’s primary focus is the Chicagoland region. “That is what we know and love,” he said. “We’ve brought in a great team to tell our story and build relationships. The work being done to expand the brand is not being done by us.”
He anticipates announcing the addition of more large and small franchises by the end of this year and beginning of next year.
As for the newest competition, iBuyers, Wong said they have been around forever. “We Buy Ugly Homes is effectively what an iBuyer is today; really, there is no difference,” he explained. “iBuyers will bring a good option for sellers who want an immediate closing guaranteed.”
Still, he’s not worried about their disrupting the market, because, in his opinion, sellers will want the return on investment that comes from working with an agent. Local agents know the market, have existing relationships with the trades to improve housing and get places sold quickly at a nice profit that benefits the seller — the value proposition you miss out on with an iBuyer.