Contact Lists May be Commodity to Brokers

INDUSTRY WATCH
Tom Dooley let's you in on the industry scoop.

Tom Dooley is president of TWD Associates, a real estate consulting firm in Arlington Heights, Il., and editor of two monthly newsletters. He has been a respected real estate industry observer for four decades. You can contact him at 847/398-6410. tdoo@aol.com.

Increasingly, successful real estate practitioners reaching retirement or leaving the profession for other reasons find that their personal referral network, database, and contact lists hold significant value as a book of business that can be transferred to another salesperson. The exchange often results in a sizable remuneration for the seller. (For REALTOR^®Magazine Online's coverage of this trend, see “ Opportunity Knocks,” February 1999.)

Recently, a new twist in the sale of these books of business has emerged as several franchises explore the possibility of buying their former salespeople's books of business. Company management then would distribute (or sell) all or part of the contact lists to other salespeople in the company or handle any activity that can be generated from the lists as company business.

One somewhat overlooked facet of the wave of consolidation that swept the industry for the past decade is a system of licensing in which an independent real estate company extends the right to another company or broker to use its name and operational and marketing tools and programs in return for remuneration--either a flat fee or a percentage of income. Less restrictive than a franchise, the licensing arrangement is a collaborative undertaking, with two or more companies sharing tools, techniques, and services while advertising under a common name.

Although most folk in the real estate profession and elsewhere are concerned about whether the Y2K bug will roll all time-related machines to 1900 come New Year's Day, Century 21 officials are getting ready to set the calendar forward—to 2021—as part of the franchise's marketing collaboration with major league baseball. During 14 Century 21–sponsored games, beginning in mid-July, teams around the country will dress in futuristic uniforms and caps. In addition, Century 21 says, its “Turn Ahead the Clock” series will feature “creatively renamed field positions, futuristic public address system music, and futuristic caps for youngsters attending the games.”

Residential brokerages aren't the only segment of professional real estate to be active in the affinity marketing field. In its recently released annual report to shareholders, Indianapolis-based Simon Properties Group Inc., the nation's largest publicly traded retail real estate company and the largest owner of retail shopping centers, boasted of its achievement by stating that its MALLPeRKS affinity marketing service is the country's largest frequent-shopper program. MALLPeRKS had enrolled more than 2 million members by year-end 1998.

The program rewards members with points for every dollar they spend at a Simon mall. The points can be exchanged for cash discounts offered by participating merchants. The company has also partnered with AT&T to offer long-distance services to MALLPeRKS customers.

Home sales records have been shattered regularly during the past couple of years, resulting in much work and great satisfaction for the real estate brokerage community. However, this success comes with at least one troubling element. As the spring selling season continues, practitioners throughout the nation are reporting a severe shortage of listings. It isn't that there aren't sellers. Rather, it's that homes are selling so rapidly that many MLSs are carrying listing inventories that are 15 percent to 25 percent below average for the season. Some companies report increasing difficulty in converting FSBOs to exclusive listings because homes are selling so rapidly.

At first blush, the relationship between Cendant Corp. and NRT Inc. appears to be a simple one: NRT is the largest franchisee in the Cendant Real Estate Division, operating offices in each of three brands--Coldwell Banker, Century 21, and ERA. It also functions as the unofficial buying arm of Cendant, acquiring independent real estate companies throughout the country.

Legalistically, however, the relationship is a different story. Attorneys for both entities are quick to point out that NRT Inc. is an independent corporation, albeit one that was incorporated in 1997 by Cendant and Apollo Management L.P. Under the arrangement, Cendant acquired $182 million of NRT preferred stock. Underscoring its independent status, NRT is on the verge of issuing its IPO of company common stock.

In reality, the arrangement between the two companies is a closely related and complicated one. The following data, excerpted from Cendant's “Notice of 1999 Annual Meeting of Stockholders,” sheds some light on the relationship:

“In February, NRT entered into new fifty-year franchise agreements with each of the three Cendant [real estate]brands. . . . During 1996 (from May 31), 1997, and 1998, NRT paid an aggregate of approximately $24 million, $60 million, and $121 million, respectively, in franchise royalties to Cendant. . . . Cendant has an agreement with NRT that reduces NRT’s effective purchase price for brokerage acquisitions in which Cendant agrees to participate. In such arrangements, Cendant purchases the trade names, trademarked operating names, and, in some cases, mortgage operations of the brokerages being acquired by NRT. All other assets of the acquiree are purchased by NRT. Through the end of 1998, Cendant has provided between 12 percent and 90 percent of the total purchase price for each acquisition costing more than $1 million,and has provided an average of 66 percent of the total purchase price for all NRT brokerage acquisitions.”

Through the end of 1998, Cendant had participated in each of NRT’s 28 acquisitions of multioffice brokerages and 36 acquisitions of single-office companies. It has paid NRT or the seller(s) an aggregate of approximately $446 million. NRT has paid an aggregate of $227.4
million in those transactions.

In 1997 Cendant advanced $446 million to NRT to be used in the acquisition of companies. Once that amount was exhausted in February 1999, Cendant made an additional $1 billion commitment, with $500 million available immediately and the rest available when that was spent.

NRT has an agreement with Cendant Mortgage Corp. to assist in marketing various mortgage programs and products through NRT’s brokerage offices. During 1998 Cendant paid an aggregate of $11,183,000 to NRT under this agreement. The two entities are expected to replace the marketing agreement with a joint venture in 1999.

NRT also has an agreement with Cendant Mobility Services under which it receives referrals of relocating clients from Cendant Mobility. During 1997 and 1998 NRT paid Cendant Mobility $5,435,000 and $11,631,000 respectively, in referral fees.