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RISMedia and The Top 5 in Real Estate Network® Lead Industry Out of Recession

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By Beth McGuire

NYC_9_23RISMEDIA, September 23, 2009—The message was clear, and frankly, not the “happy days are here again” refrain that some may have wanted to hear, as news of economic recovery begins to take shape. Yet, more than 500 real estate professionals eagerly packed the standing-room-only opening session at RISMedia and The Top 5 in Real Estate Network®’s Leadership Conference Sept. 9-10 in New York City, to hear the industry’s brightest thought-leaders discuss their powerfully detailed insights into the real state of the industry, what they are doing to steer their companies out of a down economy and what every real estate professional can—and should—be doing to do the same.

Why in the midst of a difficult real estate market and a struggling economy was the buzz so palpable and why did so many enthusiastically attend? An unofficial poll of attendees produced a common response: That they had come to terms with the heyday of 2005-2007 being over and were ready to hear the realities and do what is necessary to grow their business in new ways. In short, brokers and agents said they were ready, willing and able to do the hard work – and it was easy to see that by their enthusiasm and eagerness to participate throughout the entire event.

“The high level of attendance combined with the palpable level of enthusiasm and energy at the Conference reminds me that it is these top real estate professionals who will lead our industry out of its current slump,” said RISMedia President and CEO and Top 5 C-founder, John Featherston. “We are still in difficult times but there are signs of recovery dotting the landscape and the optimism, talent and thought leadership displayed by the esteemed speakers and attendees at our Conference gives me extreme confidence in the full recovery of the real estate market.”

The opening session, titled, “Preparing for Tomorrow…Today,” was held Wednesday, September 9 at The Roosevelt Hotel in New York City and was comprised of two sets of panels that offered both a national and regional perspective into: the breakdown of the market opportunities today…and into 2010; banks, REOs, lending and working with Realtors; credit challenges; expanding your brand in the middle of recession; risk vs. reward in today’s marketplace; and energizing a battle-scarred agent base.

The panels were facilitated by Ed Krafchow, president, Prudential CA/NV Realty and John Tuccillo, president and owner of John Tuccillo & Associates and former chief economist for the National Association of Realtors.

Panelists on the National Perspective session included:
Gino Blefari, Founder, President & CEO, Intero Real Estate Services
Tami Bonnell, U.S. President, EXIT Realty Corp.
Sherry Chris, President & CEO, Better Homes and Gardens Real Estate
Joe Jackson, CEO, Wells Fargo Ventures
Jeff Mandel, President & CEO, ApprovalGuard
Carter Murdoch, SVP, Bank of America
Rick Sharga, SVP, RealtyTrac

The Regional Perspective panel included:
Bill Keleher, Chairman & CEO, Prudential New Jersey Properties
Rei Mesa, President & COO, Prudential Florida Realty
Greg Rand, Managing Partner, Better Homes and Gardens Rand Realty
Dick Schlott, Chairman & CEO, Gloria Nilson GMAC Real Estate
J. Lennox Scott, Chairman & CEO John L. Scott Real Estate

Alex Perriello, President and CEO of Realogy Franchise Group started the session with a special State of the Industry Address touching on four points that included the current state of the market; the NAR/Fannie Mae Q4/2010 forecasts; macroeconomic forces affecting the market in the coming months and five best practices that can be implemented into daily business regardless of the market.

State of the Industry

“It’s premature to say we’ve hit the bottom of the housing market,” Perriello said. “We’ve seen encouraging signs but when we dig down, those transaction volumes are confined to a narrow band of home sales at the lower end of the market, such as REO, short sales and first-time buyers. We haven’t seen any evidence of spillover to the move-up buyer, second-home buyer and luxury segment.”

He added, “Is what we’re seeing in the market sustainable, and when will we see that spillover occur? Until those questions are answered—with operating results, I feel it’s too early to call a bottom to the market.”

Economic Forecasts

Perriello outlined the following statistics from the NAR and Fannie Mae Q4 and 2010 housing forecasts:

NAR
In Q4 NAR forecasts transaction sides will be up 11.2%; prices will be down 5.3%; for the full year 2010, NAR forecasts sides will be up 5.4% overall over 2009 and prices will be up 3.2%.

Fannie Mae
In Q4 Fannie Mae forecasts transaction sides will be up 8.6% and prices will be down 9.7%; for the full year 2010, Fannie Mae forecasts sides will be up 10.7% but prices will be down 7.2%.

Perriello said Realogy’s numbers historically track closer to Fannie Mae’s forecasts, but they are cautious in looking at both forecasts.

Macroeconomic Forces on the Market

“I’m not trying to depress all to tears,” Perriello joked. “Realogy is bullish on long-term housing, but we are doing business in unusual times set against economic challenges and uncertainty. Now is not the time for rose-colored glasses, but to be well-informed in business.”

With that, Perriello outlined, in part, the following statistics:

- The current national debt is $11.7 trillion, which represents 8.3% of our Gross Domestic Product, the highest since WWII.

- The national debt is projected to increase by a trillion dollars a year for the next 10 years, doubling our national debt in as many years.

- Consumer confidence is improving.

- Unemployment is at 9.7%, up from 9.4% in August. According to the U.S. Bureau of Labor Statistics, 14.9 million people were unemployed as of August. The last time unemployment was at this level, were two periods in 1982 and 1983.

- According to RealtyTrac, there are 1.4 million foreclosures in the U.S. and 32% of all mortgages have negative equity (15.2 million homes).

- A second wave of foreclosures coming will create more properties to sell – but the downside is continued pressure on price has negative impact on appraisals and underwriting. Until that inventory is absorbed we will not see a return to normalcy in this market

- First-time buyer tax credit – will it be extended past November 30? Based on the average time it takes to close a property being 45 days, the “real” deadline to get the credit is the first week of October. Evoking enthusiastic response from the crowd, Perriello said Realogy is lobbying in Washington D.C. to extend the deadline and also expand the credit to all homebuyers – including move-up buyers. They’re also lobbying to raise the limit to $15,000, but, “if we don’t at least get the first-time buyer tax credit extended before the beginning of October, we could see a drop in sales because first-time buyers represent 30% of all sales this year.

Five Best Practices to Use in Any Market

According to Perriello, the following five Best Practices can be implemented into your business in any market:

1. Create a written business plan and operating budget.

Be sure your plan is based on realistic market assumptions for inventory sides and price, then, reforecast every month based on actual results. Also, have a “Plan B” and “Plan C” in the event your original plan needs readjusting.

2. Aggressively manage expenses.

Identify any and all efficiencies that will not directly impact sales and customer service and know your return on investment.

3. Know your local numbers.

Break them down by how many months supply, time on market, list-to-sell ratios, market segment price and by property.

4. Maintain sharp focus on profitable market share growth.

5. Over-communicate.

Transparency is a must; keep staff and associates well-informed about market activity and company performance.

Perriello summed up his message as follows: “It’s premature to call the bottom of the market; the overall economy is still uncertain and will be challenging in the months ahead and you need to plan accordingly.”

“Each person is a corporation within themselves,” added Tucillo. “I’m shocked at the number who don’t have a business plan.”

Following Perriello’s State of the Industry, the panelists offered an unprecedented level of detail on how they have managed their companies in the current economy and what they are doing to prepare for the coming year and changes expected in the market.

The Right Message Is Key

Joe Jackson, CEO of Wells Fargo Ventures, noted that his company views the current recession “much like the [19]80s recession. We feel closer to the [market] bottom in some local markets.” He urged the industry to have a unified front on its message going out to the mainstream media.

“In these environments, we have to be careful how fast sound bites turn into perceptions, which turn into policy. The regulatory environment…appraisal market, the industry – anything we can all do together to provide the right message out there really helps.”

On a positive note, Jackson said his company’s appraisers have continued to be compensated the same now as they have been the last five years, and that Wells Fargo is continuing to look for markets where they can be more aggressive with first-time buyers.

Jaw-Dropping Cutbacks

Gino Blefari, founder, president and CEO of Intero Real Estate Services, with approximately 1,200 agents, offered an unprecedented breakdown of the cuts made at his company this past year, which, overall saved his company more than $7 million.

As a result, “We’re the only major competitor in our market that gained market share in the last two years,” he said. Some of those cutbacks included:

- Restructured its training center – saved $230,000

- Laid off 46 people (38% of its staff) and 21 people took payroll reductions – saved $3 million

- Saved $22,000 by eliminating high-end coffee service

- Eliminated vacation accruals – saved $150,000

- Eliminated their own (executive team) vacations – saved $81,000

- Reduced coaching program by $30,000

- Downsized annual award ceremony – saved $205,000

- Downsized company Christmas party – saved $275,000

While revenue is still down $700,000 from last year at this time, Blefari said the company has gained 6.2% of the market share in his area.

EXIT’s View

Tami Bonnell, U.S. President, EXIT Realty Corp. centered her must-do guidelines around staying focused.

“The keywords for next year are ‘lean, clean and green,’” she said. “We as an industry have been archaic for a long time and we have not run our business like a business. The majority of people who came into the industry were trying real estate as a second career; some came in generationally through family; most did not have a degree in real estate. But most were good salespeople and set up good companies and we’ve kept that going. Today we are seeing more people come into the business with technology, business and real estate degrees.”

But to run a good business, Bonnell said, “You have to be focused. The market shift has forced us to focus. We have to get out of the real estate business and into the business of real estate. If we go with that focus we will excel and it will force us to be lean.”

As for the “clean” part of Bonnell’s buzz words, “Technology has helped us with that more than anything else.”

“It’s time the industry not only catch up to consumers’ ability to use technology in their real estate goals, but get ahead of them,” Bonnell said. “Consumers are out there rating us online; we might as well rate ourselves first.”

She suggests agents “Google” their name to research what consumers might be writing about them online.

As for the “green” part, she said Realtors have a responsibility to give back to their communities and look at ways to work more energy-efficiently and with the environment in mind, especially as Generation X and Y buyers enter the market, who are more focused on these aspects of their home purchases.

Tammy’s Tip: Create a six-week action plan and half way through the month, look at it again and revise it. Do this repetitively, she said. Ask yourself, “What can I do today that will be the highest and best use of my time.”

Her final suggestion: “Find a ‘Dirty Dozen”—meaning find a group of 12 people to have in your inner business circle and who can help you stay informed on trends and what’s happening locally and nationally. Have six working in your local market and six working statewide including in government so you can get the 20,000-foot view, she said. “You need to have more information than the consumer; you need to have more market knowledge.”

A Whole New Culture

Sherry Chris, president and CEO of Better Homes and Gardens Real Estate, echoed Bonnell’s sentiment about today’s real estate consumers being so market-savvy, adding it was a good thing for the industry.

“One good thing happening is the consumer is much more informed now,” Chris said. “The consumer is clearly in control of the transaction and we have to acknowledge that, live with it—and move forward with it.”

A new challenge will be coming with the generation of “Echo Boomers,” 18-34-year-old consumers, which Chris said will “drive the industry for the next 30 years. We have to look at how we deal with this generation.”

Chris said that with this new generation of buyers there is an “underground” of people looking at new ways to conduct business with them. At its core is “no less than an entire industry culture change.”

“Think about the current conditions in our industry,” she said. “Massive cube farms with empty desks of agents who’ve become mobile. Office space needs to change; lead generation needs to come back into the control of the broker. Agents who are good at selling homes are not as good at capturing the multitude of leads. We need to take that back so the broker can manage that better again.”

Chris also talked about the relationship between franchisor and broker and how that needs to become more of a partnership. “Our job is to help broker/owners reduce costs, and we also have to help them make a cultural shift. There are companies today not only downsizing their [office size] but changing their culture. We can offer technology platforms and training and create compelling brand partnerships. It’s about becoming a true strategic partner.”

An example of this new approach and partnership is Better Homes and Gardens Rand Realty where Managing Partner, Greg Rand, who also spoke on the opening session, took a leap of faith, he said, to switch his long-time affiliation with Prudential to expand his company’s market share and growth, even in down market. While Prudential will always be a part of his business family, he said, it was a winning strategic move to move to the Better Homes and Gardens Real Estate franchise to explore new opportunities for growth.

The State of Our Credit

Jeff Mandel, president & CEO, ApprovalGuard offered his insights into the credit issues affecting many Americans today.

“We don’t have the right foundation for continued growth,” he said. “Unemployment rates are predicted to spike at 10% in 2010—that’s one in ten people out of work. We’re doing things that are not working right. Almost 50% of our nation’s youth graduate with derogatory credit.”

Adding to these sobering statistics, Mandel reported that the average credit score across the country right now is 638 and only approximately 35% of mortgage applications are successful. “A lot of people want credit right now who just can’t get it,” he said.

While some of the factors affecting credit are beyond our control, such as banks cutting unused credit lines, he said we do have some key variables within our control, such as practicing responsible real estate and, in turn, building investor and consumer confidence.

Recovery Outlook

Bank of America SVP, Carter Murdoch talked about the economy making an “L-shaped recovery,” where small improvements would occur, but over longer periods of time.

“All industries find ways to take credit from the future and put it into the present,” he said. “If you go back five years ago, the average family of four only had $580 in reserve. Just in the last year alone, Americans’ savings rate has gone to 8%. That means people are afraid to spend. When they’re afraid to lose their job, they spend less. Consumer confidence levels were at record lows.”

The government stepping in to try to stabilize the economy needed to be done, he added, but troubling numbers such as $787 billion in bonds and bills coming into the economy next year means the real issue then turns to unemployment. “We need to put people back to work. We have to finance some of that debt. We have a real human dilemma in what is going on in unemployment.”

For its part, Murdoch said, Bank of America is committed to transparency with the consumer in its real estate transactions, and to helping educate consumers on what they’re truly signing on to in their home purchase. Its “Clarity Commitment” is an important step in helping consumers make the right financial decisions when it comes to buying a home and, ultimately, toward its part in positively affecting the economy and an industry turnaround.

But the reality, says Murdoch: “We will see a change in culture and recovery, but the next two years will continue to be a challenge.”

Spotlight on Foreclosures

Rick Sharga, SVP of RealtyTrac offered some sobering information about the state of foreclosures in our nation but urged brokers and agents to use these circumstances to their advantage by becoming better skilled in selling REO properties.

“Anyone who doesn’t believe the Internet hasn’t had a major affect on our industry has been sleeping the last 10 years,” he said. “And the interesting thing is we’ve only seen the tip of the iceberg on what it’s going to do to change our industry.”

Sharga said the most primary fundamental shift the Internet has caused in the real estate industry has been putting the buyer in charge of marketing “from here on out. So get ready for that.”

He said the number-one complaint he hears from buyers and sellers is that they know more about foreclosures than their agents do. “You have to be more informed and more consultative. You need to be thinking about non-traditional ways of doing business.”

Right now in the market, Sharga said that 60% of home buyers are looking for foreclosures or bank-owned properties. Over the next year, he said, rather than one, big tsunami, we’re looking at three big waves of foreclosure-related affects on the industry, noting that activity will peak late next year and will likely not return to normal levels until sometime between 2012 and 2013.

“That doesn’t mean the market can’t stabilize, but we’re looking at 3.4 million homeowners getting a foreclosure this year and over a million properties being repossessed by banks this year,” he said. “Last month, 45% of all home sales were distressed properties. If you’re going to succeed in the future, you have to think about creating an effective REO practice in your business and short sale process.”

Session 2: Preparing for Tomorrow…Today – The Regional Overview

The business done on the local and regional levels is often considered “being in the trenches.” In the opening session’s second discussion, industry executives delved into the business of real estate in 2009, including: expanding your brand in the middle of recession; risk vs. reward in today’s marketplace; and energizing a battle-scarred agent base.

Efficiencies vs. Production: Where to Cut Costs

Bill Keleher, chairman and CEO, Prudential New Jersey Properties offered insights into how he increased efficiencies at his company of 15 offices and 650 agents.

“We cut 34% of our annual budget—$1.6 million in 2008 and $3.4 million this year,” he said. “We did it across the board; we looked at every category and how we could be more efficient while maintaining production.”

“The biggest lesson we learned was that you can do a lot more than you thought you could do—if you are willing to commit to preparation and intense communication, you can do almost anything and retain and grow you markets. How did we do it? We started to challenge every expense we had and it was easy to do that when we had to.

Through all the company’s efforts, Keleher said they reduced expenditures overall by 40%.

Rei Mesa, president and COO of Prudential Florida Realty supported Keleher’s statistics adding that the industry’s message to consumers needs to use the current conditions to its advantage. For example, he said, rather than focus on the negative with decreasing home values and prices, Mesa’s message through his 40 offices and more than 1,800 agents is, “Affordability is up 31%.”

He added that his business approach is to maintain an aggressive approach with the goal of “capturing all the marketshare. Retention is extremely important right now,” he added. Most importantly, communication, or as Mesa says, over-communication is vital in today’s real estate climate. “We over-communicate in our company,” he said. “You have to be certain everyone knows what direction the company is going and where we stand on the important issues.”

J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, tried to get the crowd going with a brief, but motivational message for attendees.

“What are some positive roles you’re playing in the industry today? And what are some positive aspects to the market today?” he asked conference goers. “Trusted advisor; educator; counselor; low interest rates; affordability,” he repeated from audience member feedback.

Next he said, “put ‘I am’ in front of everything—‘I am’ a trusted advisor; ‘I am’ an educator; ‘I am’ a professional. He urged agents to “create an abundance” of business with the help of a positive attitude. “Tell yourself, I’m not the last five months of pain in the economy; I am energy and I’m going to create an abundance of business because I say so.”

Dick Schlott, chairman and CEO of Gloria Nilson GMAC Real Estate, wrapped up the opening session panel with some powerful insights from a veteran industry executive with 40 years’ experience. Schlott founded Schlott Realtors in 1971 and grew it to 40 offices and 4,500 sales associates across five states with over $7 billion in sales.

“Broker/owners today are more important than they have ever been before,” he said. “Those who write the checks are putting themselves on the line every day from the responsibility side. They are leading their companies. They’re not followers. They’re doing that every day, and now is the time that the old ways of doing business are gone.”

Regarding recruitment and to thunderous applause, Schlott said, “The days of cutting special deals and making promises to get agents to come to your company—you’re going to regret that so much. Those days are gone. Agents want to work for good, solid companies with leadership they can believe in.”

Schlott said the one area of his company he didn’t cut was training and education for his agents. “That’s the most critical part,” he said.

“A leader has to tell their agents what they expect of them, but also, what they expect of themselves. How are you going to best use your resources? We have to communicate with our people everything good and everything bad. Tell them we love them—they are our business family and we have to let them know that.”

Closing one of the most powerfully detailed opening sessions in RISMedia Leadership Conference history, Top 5 in Real Estate President and Co-Founder, Allan Dalton emphasized the importance of transparency in today’s real estate industry, and lauded the panelists for their candor in detailing their company cost-cutting strategies.

“A very iconic moment happened here in this hotel several years ago. Here is where the movie, ‘Wall Street’ was filmed and Michael Douglas playing Gordon Gekko said, ‘Greed is good.’ Today, a symmetrical moment happened when Gino Blefari said, ‘Cost-cutting is good.’” That’s the environment we’re in today, and never in my 30 years in business have I heard a panel so willing to delve into and share the private details of their company in such an open fashion. It’s a tribute to their attributes and leadership.”

Over the two-day event, approximately 1,000 real estate professionals in total attended RISMedia & the Top 5 in Real Estate Network’s Leadership Conference, including an impressive showing of Top 5 Members, brokers, economists, leading industry icons and dedicated agents.

Held at the Roosevelt Hotel in midtown Manhattan on September 9 and 10, the Leadership Conference featured nearly 90 expert speakers over the course of 20 educational sessions.

Quotables

“The real estate industry is like a dry lake bed. When the rains come the grass grows and the plants begin to flourish and it becomes a truly beautiful site. It’s beginning to drizzle.”

- John Tuccillo

“The real estate industry is like a teenage party where there are a few people dancing and a lot of people criticizing – and the way to avoid criticism is by doing nothing. This is a time where you can’t avoid criticism and you can’t avoid doing nothing.”

- Ed Krafchow

“No matter who you are – a manager, broker, strategic partner or agent, you need to start thinking about making a bold move in your business. I challenge all of you here today to think about what bold moves you have made to change the way you do business.”

- John Tuccillo

“What doesn’t kill you makes you stronger.”

- Joe Jackson on the downturn in the housing market

Books Recommended by Panelists

Gino Blefari: Scorekeeping for Success, Outliers, The Game of Work, The Chain of Blame, The Laws on Lifetime Growth

Ed Krafchow: What Would Google Do?

Check back soon for updates on video news clips taken at the conference.

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