Staying Above Water in Stormy Times

By Maria Patterson

RISMEDIA, Nov. 5, 2008-In a time when many in real estate are scrambling for safe ground, one company holds steady in its leadership position. With a parent whose big-ticket expenditures make national headlines-Warren Buffett’s Berkshire Hathaway Inc.-and an in-the-real-estate-trenches Chairman and CEO, Ron Peltier, HomeServices of America quietly stays afloat and shores up power, poised for further success once real estate begins its rebound. In this exclusive interview, Peltier discusses where HomeServices’ strengths-and the strengths of this market-really lie.

Maria Patterson: HomeServices of America is currently in 19 states with 20 brand names. When does that number stand to change again?

Ron Peltier: We have spent the better part of the last 18 months just focusing on helping our companies be more reflective of the current market, which is correcting and downsizing dramatically from the peak of several years ago. For the most part, by year’s end, our companies will be well-positioned to take advantage of stabilization and ultimately, the ongoing growth of our industry. We haven’t made any acquisitions for almost two years-since March and June of 2006. In most cases, this was by choice-as the market was correcting and adjusting, we decided to be aggressive, with the exception of a few tuck-in acquisitions in markets we were already in.

MP: Has your philosophy of offering integrated real estate services changed at all due to market conditions? Or is this approach even more important during the current environment?

RP: The latter is definitely the case. During these periods of reduced sales activity in the transaction side of the brokerage business, it’s even more critical to provide mortgage funding and origination and other core services-for the revenue opportunity and also for the service opportunity to better manage the consumer relationship with services like title, escrow, property and casualty insurance, etc. Over the better part of the last two years of this correction-which is now extending into its fourth year-we have focused our interest and attention on helping each of our companies be more effective and efficient and expert in providing all of those core services.

MP: What is HomeServices taking away from this troubled time?

RP: In an overheated market, oftentimes, you don’t have time to refine your practices and skills. You’re doing all you can just to service the business as it comes at you, whether that’s the best, most efficient way or not. Now, as business has tapered off, there’s an opportunity to be more reflective regarding our business practices and eliminate those areas that are less effective and less efficient, and build on the best practices, instead. Regretfully, it’s fair to say that our companies and the industry got sloppy but that was clouded over by the significant waves of business we were presented with. Now, looking back as a company, I think our whole industry should be anticipating the next cycle that’s beginning. We need to ask ourselves, “How can we better provide more effective and efficient service?”

MP: Some argue that now is the time to have the backing of a recognizable brand name. Is the HomeServices emphasis on the importance of local brand changed at all since the market downturn?

RP: I think it’s fair to say that we all champion the advantage that we go to the market with. We have tended to believe that brand is very, very important and I don’t discount the importance of brand. But we do continue to hold steadfast to the belief that local brand is extremely important.

MP: How has HomeServices managed to maintain such a strong position during such a difficult time in the real estate industry?

RP: A lot of it has to do with having the right information and acknowledging the changing market. This has been a challenge for our industry, particularly coming off the incredible market ride that we saw in the early part of the 2000s through 2005.

Companies expanded exponentially to meet the market rise in almost every way. They took on a lot more overhead in terms of staffing and in terms of facilities and programs. I don’t think they’re oblivious to the economic thinking attached to that, but real estate operators, in general, are too optimistic about better days ahead.

MP: How was HomeServices able to react quickly in order to adjust to the changing market?

RP: I think HomeServices saw the changing market sooner than anyone else; we were among the first to take real action. This was a result of the combined strength and the combined wisdom of our brokerage leaders in recognizing that in order for us to match our overhead responsibly with current market activity, we needed to get more properly aligned. We began that process of making adjustments as early as late 2005. We’ve continued to make adjustments as the market has continued to soften and correct. Many companies were in denial that the market would continue to soften every month and continued to hold false hope for a quick recovery. They continued to spend resources that they couldn’t afford to commit to in order to keep their companies operating.

MP: Is it naïve of the industry to be optimistic?

RP: I think it’s a compliment to our industry that they are optimistic toward the long-term viability and prospects for housing over the next 10 years, as it will be very solid-maybe more robust. I don’t think we’ll see runaway appreciation and the market will be much more rational than what we saw in the last 10 years. But we can’t have a company sized today for a market that won’t be here for three years. They might have been properly sized for ’05, but not for ’08.

MP: What does HomeServices offer its brokers in terms of resources and leadership to help them through this challenging period in the market?

RP: We have financial strength. We also have the strength of very solid, superior operators. We have combined strength in terms of operational skills. When you have 20 companies, the sum total of the overall intelligence and skills set is exponential. We’re managing for the long haul. There is no other strategy for HomeServices than to continue to be very significant players in every market we’re in.

MP: How can real estate practitioners work with their clients in explaining the recent government bailout and how it might alleviate their housing concerns?

RP: There’s not enough information out there (at press time) for people to fully explain the implications and ramifications. It is a great opportunity for brokers across the country to look at the facts and information, however. With home prices falling off-10, 15, 18, 20%-market by market, I believe the story that needs to be told is that now is a very good time to consider buying a home. Interest rates are still low by historical standards and housing prices have come off their high, back to ’02 and ’03 levels in some cases. For those who feel they missed a golden opportunity to buy at fair value, that opportunity has presented itself again.

MP: So even despite the financial crisis, consumers should consider buying a home?

RP: Affordability, as a factor of income, is at about 1998 levels. One of the things plaguing our industry and marketplace for the last five years has been affordability, particularly at the first-home and first trade-up buyer level. With prices falling off and with interest rates at current levels-and they very likely might drop another 50-75 basis points, given the economy-these are very good times for people to seize the opportunity to buy a home. We have not seen an opportunity like this in five or six years. I think the media has gone out of its way to discourage and scare people on the sidelines. I don’t know if we’ve done as good a job as we can in each market. Given the fall from the peak in each market, this is a great time to be re-evaluating. As Warren Buffett says, “When others are greedy, I’m fearful; when others are fearful, I’m greedy.” This is a time for people to look in their respective markets and take advantage of the good inventory that’s on the market.

MP: Where do you envision the industry to be by this time next year?

RP: Given all of the initiatives that we are currently working on, the ones that we have focused on over the last 12 months, ’09 will be a tough year. I don’t think we’ll see a lot more transactions but I think prices will stabilize by the first quarter of next year before they start inching up. There will be fewer people in the industry at every level-mortgage, brokers, agents. We will return, sometime early next year to a normal market with normal market activity and good companies that are well led and well managed will succeed. These will not be record years for profitability, but there will be normal markets where good, reasonable companies can achieve a level of success and profitability.

We got disillusioned into thinking that ’03, ’04 and ’05 were normal markets. We had plenty of time to adjust our thinking. I think ’00 will be a normal-not distressed-market. There is an underlying demand. The pride of homeownership is still very much intact. It is our job to help people realize that dream. RE

For more information, visit www.homeservices.com.