How Do You Define 'Independent'?

INDUSTRY WATCH
Tom Dooley gives you the industry scoop

Veteran industry observer Tom Dooley is president of TWD Associates, a real estate consulting firm in Arlington Heights, Il., and editor of two monthly newsletters. Contact him at 847/398-6410; tdoo@aol.com.

Owned or not owned
How Do You Define 'Independent'?
Tom muses on who's more independent: a franchised or an independent company.

BY TOM DOOLEY
Just what is an independent broker, anyway? Speaking at the recent RELO convention, Joe Aveni, a director of that organization and chairman of Realty One, the largest brokerage in Ohio, extolled the virtues of independent brokers, saying that "we're alive and well and our opportunities are in the future ahead of us." Not mentioned was the fact that Realty One is a wholly owned subsidiary of Insignia Financial, one of the largest publicly traded companies in the real estate industry.

If Realty One is "independent" despite being owned by Insignia, should the 100-plus companies owned by NRT Incorporated also be so considered? Or, is there a distinction between companies that are affiliated with a franchise and those that aren't—despite the fact thatthey identify themselves as "independently owned and operated”?

Directors of RELO, the Chicago-based relocation network whose membership includes most of the nation's major independents, have taken a strong stand on the issue of after-the-fact referrals. Their position advocates honoring referral fees only for managed referral programs, regardless of whether the transaction involves a corporate transferee or an affinity customer. RELO defines a managed referral program as "one in which notification of the referral fee requirement is made to the real estate company or associate prior to the execution of a listing agreement or buyer's agency agreement." Notice must be given by the corporation, relocation management company, other broker, or affinity organization making the referral, by the individual client who contacts the real estate company, or by the associate who'll handle the referral directly.

Meanwhile, RELO is flexing its operational and marketing muscle in a number of ways. One such move is the beefing up of its relocation management service company, RELO Direct Inc., with key executive personnel. Named president of the subsidiary is Therese M. Albertini, a veteran of more than 20 years’ experience in the financial services and real estate industry. Prior to joining RELO Direct, Ms. Albertini was executive vice president of marketing and financial services for Argonaut Relocation Services. She also held the position of vice president of business development for GMAC Mortgage Corp. Joining RELO Direct as vice president of operations is James S. Rihn, whose experience includes several years in residential sales as well as service with a number of major relocation companies, GMAC Relocation being the most recent.

Another new venture is RELO's development of a two-day training program in handling relocation clients, which leads to a Gold Corporate Business Development certification. At the same time, the organization is in the midst of an eight-month rollout of its new private labelhome warranty program, offered through a partnership arrangement with Denver-based Home Buyers Resale Warranty Corp.

When it comes to analyzing the future of the real estate market, there are bulls and bears. Newsweek magazine recently reported that amid the humming economy and double-digit appreciation in home values, people are beginning to wonder how long the good times will last. In the past three years alone, the average homeseller has gained $35,000 in profits; and in many markets, house prices have soared to unsustainable levels. To finance the high-priced homes, lenders have loosened borrowing standards, overextended credit, and employed aggressive marketing tactics. The results have been dangerously low downpayments and exorbitant monthly mortgages—both of which could lead to foreclosures of epidemic proportions in troubled times.

Moreover, many homeowners have taken out home equity loans for risky ventures like Internet stocks or new automobile purchases. Those loans forfeit the house in the event of delinquency and could saddle borrowers with heavy debt if the economy falters.

Opinions vary as to how long the boom can continue. Optimists, like Nicolas Retsinas of the Harvard Joint Center for Housing Studies, foresee continuation of the housing boom for the next 10 years because of the number of first-time buyers entering the market. Cautious analysts, however, wonder what the cost will be to the millions of heavily indebted new homeowners if the economy turns sour. UCLA real estate expert Stephen Cauley projects that if a recession hits, "we'll see a lot of people walk away from their homes."

The status of the Ohio real estate industry's top legislative initiative remains unresolved as a result of the general assembly there adjourning for summer recess without taking action on the bill, highly endorsed by the Ohio Association of REALTORS^®. The measure attempts to repeal a long-standing, state-mandated prohibition on lenders, brokers, and salespeople from owning a majority interest in title agencies. Ownership of this type of affiliated business is already permitted in most states, including four that border Ohio.

After six hearings on the bill, which is vigorously opposed by the state Land Title Association and the state Bar Association, the House Insurance Committee sent the legislation to a subcommittee for further review. The general assembly is expected to reconsider the proposal in October. The bill's sponsor, Rep. Dennis Stapleton, expects a favorable response from his fellow legislators then.

Probably everyone in the real estate industry knows about niche marketing. Very few may know about "niche ownership," a method of doing business practiced by many of the nation's leading real estate investment trusts. Some of these publicly owned companies maintain highly focused property portfolios. For example, PanPacific Corp. owns 54 different properties, encompassing 8.2 million square feet. All are shopping centers—what the company calls "neighborhood centers for everyday essentials." All are located in California, Oregon, Washington, and Nevada.

Similarly, Urban Shopping Centers, as the name implies, also owns retail centers, but only large ones with multiple, triple A, anchor-type tenants, and only in metropolitan population centers exceeding 2 million people.

Still another unusual niche is demonstrated by SL Green Realty Corp. This New York REIT invests only in Manhattan commercial office buildings. It's unique, however, in that all its holdings are Class B properties. Most properties 10 years or older fall into the Class B category. Generally, they feature high-quality services, amenities, and technology-friendly infrastructures but rent for 30 percent less than comparable new Class A structures. SL Green claims that its leadership position in Class B ownership also makes it the second largest REIT.

Although there's continuous growth in the real estate profession, most observers would probably classify it as a mature industry. In his most recent book, Management Challenges for the 21st Century, distinguished teacher, author, and business guru Peter Drucker describes the challenges confronting a mature industry in terms that seem applicable to real estate brokerage. Drucker writes: "A mature industry needs to be managed to have a leadership position in a few, a very few, but crucial areas, and especially in areas where the demand can be satisfied at substantially lower cost by advanced technology or advanced quality. And it needs to be managed for flexibility and rapid change. A mature industry shifts from one way of satisfying wants to another. A mature industry therefore needs to be managed for alliances, partnerships, and joint ventures to adapt rapidly to such shifts."

Next to the NATIONALASSOCIATION OFREALTORS^®annual national convention, there's probably no gathering that attracts more top-level industry executives than the annual Real Estate Leadership Conference, presented by RIS Media, scheduled this year for Sept. 13-15 in New York City. This year's theme is Technology and the Online Transaction. Topics include new profit centers, Internet services and technologies, online mortgages and auctions, and improving real estate and relocation services.

The year's most powerful networking and educational event is planned for broker-owners, salespeople, relocation specialists, top producers, franchise senior executives, technologists, and industry leaders to discuss the future of real estate and the relocation industry. Cosponsored by RealEstate.com, the conference will feature an array of talented speakers, including presidents and senior executives from Prudential Real Estate & Relocation, Century 21 Real Estate Corp., REALTOR.COM, RE/MAX International, HomeAdvisor.com, ERA Franchise Systems, Homebid.com, and the Employee Relocation Council.