RISMEDIA, December 12, 2006—A slowing real estate market might well boost inventory and dampen commissions in the short term, but smart brokers are seeing it as a chance to take a deep breath, reflect, and, ultimately, improve their bottom line.

Rather than slashing costs, savvy brokers are seeking to increase productivity and sales staff, recruiting top agents, looking to acquire smaller firms, and accelerating a shift from print advertising to marketing on the Internet.

“When things are really good, everybody gets a little lazy,” says Steve Baird, president and chief operating officer of the Chicago-based real estate giant Baird & Warner. “This is an opportunity to reposition yourself in different areas, to look at how you can do things more efficiently, differently.”

Says Sherry Chris, chief operating officer of Coldwell Banker, “You need to grow in these times. The worst thing you can do is to start slashing costs, expenses. You need to look at how to effectively spend and increase productivity.”

Chris is immediate past president of the Realty Alliance, a national organization of 67 broker members, and Baird is the fifth generation to head the 115-year old family business. For these brokers, the bad news in the market is also the good news in the market—an opportunity to become stronger in the long run.

Both say they are looking to hire more agents, but only the best, a pool that may widen as smaller firms go under. Baird also hopes to acquire or consolidate with “good, struggling companies. The stronger companies will gain out of this environment,” he believes. “We’re waiting for those opportunities, and they are going to be there.”

Here are five ways industry experts suggests managing costs in a changing market:

1. Which Line Items to Limit

Says Chuck DelGrande, an investment banker and consultant to the real estate industry, and managing director of Presidio Merchant Partners LLC: “Coming off a five-year almost unprecedented business high, the smartest brokers are using this economic cycle to really reflect and not assume it was all because they were extraordinary managers.” That said, only a handful are doing so, he says.

DelGrande’s prescription: “Money spent on advertising, technology and revenue management are probably three areas where a judicious scalpel needs to be taken. Even if you’re coming late to the party, don’t simply and naively assume life will return to business as usual if you do all things right tactically, operationally and financially.

“The real estate slowdown may in fact be a blessing, allowing brokers to significantly reduce their off-line advertising expenditures in the form of traditional media,” he adds. “Use of the Internet allows them to accomplish a majority of their marketing objectives for 40 to 50 percent less.”

Brokers can also save on technology. While many added in-house tech capability during the boom years, DelGrande suggests it may be time to outsource such tasks. “Tech service partners are getting in the door now,” he says, “and being listened to far more than in the past 14 months.”

In this environment, DelGrande says, it’s especially important for brokers with subsidiaries or partners offering ancillary services such as mortgages or home and title insurance not to lose such business to competitors. Improving this “capture rate,” he says, can substantially improve the bottom line.

2. Real Estate to Follow Airlines’ Example?

As the airline industry has undergone a tectonic shift, where full-service carriers are increasingly an endangered species, so, too, may real estate. DelGrande thinks more discount brokers and lower sales commissions are the future in real estate.

“Consumers,” he says, “are beginning to ask, ‘What value am I getting for the commission rate,’ and asking, ‘Do I look for alternatives?’” Brokers who ignore such trends do so at their own peril.”

Ultimately, he predicts, the real estate industry won’t look the same as it did before, which makes it especially critical for brokers to “step back and ask the broader, strategic question,” what does the future hold and how to adopt a more pro-active business model.

“Will you, in fact, have the equivalent of an unprofitable legacy brokerage business or a fee-for-service discount model in 18 to 36 months? I’m not suggesting go all discount. But you don’t need a 50 percent penetration rate by a new business model to create a sea change. You really need only 10 or 12 percent.”

3. Smart Tech Decisions will Save Dollars

Baird intends to shift advertising dollars to the Internet, now accounting for $1 million annually, compared to $3.5 million the firm spends on print advertising. But he says the change is not easy. “We’re locked into some old perceptions with sellers and agents about print media,” he says, “mainly because sellers bought their house by looking in newspapers for the most part, so they want to see their property there.”

With the 30-35 age group, however, he says, “Their first question will be: ‘How are you marketing on the Internet. Print media? Oh yeah, I’ve seen one of those.’ We’ve been addicted to print media. Just like any addiction, you go through methadone and a 12-step program to get off it. In Chicago, the print media is [still] very strong. But with real estate, the Internet is a natural.”

In its July 2006 update on online real estate advertising, Borrell Associates, a Portsmouth, Virginia research firm, found that newer agents tend to turn more to the Internet, but of 535 surveyed, 61% overall do not advertise there and 87% are not buying keywords on Google or Yahoo.

Like other brokers “in transition,” Dottie Herman, president and CEO of Manhattan-to-Montauk Prudential Douglas Elliman, is trying to redirect some of her marketing money to the Internet. She is also working to make her firm’s Web site more interactive. “I’m trying to get our Internet to be like a destination,” she says. “It’s not only about saving money but capturing more of the business than your competitors.”

4. Approaching Growth During a Slow Down

According to Herman, Prudential Douglas Elliman, an $11 billion-a-year company, reports higher inventory but a strong “very high-end” market, which includes the Hamptons on Eastern Long Island.

“What I have done is probably put off growing this company. I’m just not opening offices. I’m doing less acquisitions of small companies. I have not drastically slashed my advertising, but I’ve kind of taken a step back. When a market slows down, obviously, you will cut unnecessary expenses, such as how many tables we take at charity functions. We still do a lot, but I can’t be at every charity.”

Herman said she is consolidating offices and, like her counterparts elsewhere, recruiting high-performing agents. “I haven’t cut personnel. I’ve gone out and gotten better people. I’ve done a very big job recruiting selected top agents from other companies, because I believe that in this market you need the best brokers.”

Baird, whose company did $6.5 billion in sales last year with 35 offices, hopes to save “a couple of salaries” by creating a centralized call center to schedule appointments with agents, “instead of a part-time person making appointments in each branch.”

5. Market Conditions—All Relative

One thing Herman is doing differently: She is walking away from listings she thinks are “ridiculously overpriced…We have a lot more inventory, so there is no point because advertising is not going to sell them.”

She sees today’s market as a challenge but not overly daunting. After decades in the business, she says, “I’ve been through a lot worse.”

In real estate, of course, one size does not fit all. The old adage—location, location, location—comes to mind. In Katrina-ravaged New Orleans and the Gulf Coast, it’s another kind of bad news, good news scenario.

“Before the hurricane, we had 28 offices; the day after we had only four,” says Arthur Sterbcow, president of Latter & Blum, one of the South’s largest real estate companies. “We’re back up to 28 again and looking to open up our 29th. We had 1,000 agents before the storm; we have 1,100 now. We did $2.5 billion last year. Right now we’re almost to $1.5 billion. We may hit $3 billion this year.”

With demand far outstripping supply, Sterbcow says, “we’re a very unique animal relative to the rest of the country. In some areas, the market is hyper excited, there are multiple offers, and bidding wars are the norm. Our home sales are up 37 percent over last year…

“We’ve recovered as a company; we’re doing extremely well.” However, he added, “As a market on the scale of human misery, we’re not doing well. I’d much rather have a [crummy] market. Certainly we’d much preferred the hurricane not hit us, and we’d be thrilled to death to take the national slowdown everyone perceives they have.”

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