Industry leaders share their insights on what principals can expect in 2012
In an industry first Real Estate Business, in partnership with Macquarie Bank, brought together some of the country’s senior industry executives and thought leaders to discuss the key issues facing principals and agents. In the context of softer market conditions, an evolving legislative environment and commission pressure, the Executive Roundtable highlighted an industry focused on best practice and driven to excel despite the challenging market. The following pages reveal some of the debate, thoughts and opinions from the roundtable, offering essential insights principals can use to gear their business for the year ahead.
Are agencies finding it increasingly difficult to access finance for growth or working capital in light of a tougher sales environment?
As a market, finance is becoming harder to come by, and that’s probably because on the agency side of things we’re actually seeing tougher cash flow positions. The fundamentals of lending have never changed, and they don’t change during a good market or a bad market, and that’s the character, capacity and collateral.
What’s probably suffering most at the moment is that capacity, the ability to repay debt. Unless you’re approaching a bank or financial institution and you’ve got a business that is profitable and has the free cash flow to be able to repay a level of debt than you are going to find it hard to be able to
access funding and finance. In terms of what Macquarie is doing, we are trying to, and have done for the last 25 years is to maintain a high level of consistency.
Where we are helping a lot of agencies at the moment and have been for some period of time is in actually buying rent rolls. One of the agency’s biggest challenges is the fixed expenses and the variable income being the sales income.
Where you can meet a level of fixed expenses, if not all your fixed expenses is in that recurring income, and that’s the property management income. Business can actually borrow to acquire an income stream, which puts them in a stronger financial position going forward.
I’m a big one for organic growth. If there is a great opportunity and your business can afford it and it makes sense on the bottom line, well then absolutely go and do it [purchase a rent roll]. But from our perspective organic growth for any business is the best way to grow a rent roll and to do that you have got to have the right staff and structure in place.
The two departments have never really got along well together in the past and as an industry well really need to change that. Because unless the data is shared from sales into PM and vice versa you are never really going to get the growth that you technically should get organically.
Sometimes when we see a rent roll transaction occur, then [the new] business becomes more proactive in asking their landlords whether they have any more properties they own. They uncover numerous homes that the previous agency were not aware of because they didn’t take the necessary
What training/education programs should principals be looking for to help them meet market challenges in the year ahead?
We don’t use a lot of external people. We took the view when we established the group that we wanted to internalise a lot of our training, so that we had an absolutely consistent delivery of message, process and procedures. We do use external trainers from time to time, and they’re more to reinforce [our] message. What we’ve found is a lot of our principals have really enjoyed a good market for a long time...and, to be honest, I think they’ve gotten a bit lazy. They’re sending their people to training – this is our experience – and people are getting well-trained, [but] they’re going back to the office and the principal isn’t on the same page.
We’ve gone down the path of creating our own web-based programs, or what we call blended learning, so we have webinars...which are then backed up with face-to-face [learning]. We run programs where we very much include the principals in all of our sessions, so we combine business planning days with the business owner, we go out and involve the business owner in their offices...People don’t have the time to do face-to-face anymore. Technology allows us to access it through iTunes, video, a CD in the car, through TV...we try and utilise every possible avenue.
The one thing they love is success stories. We’re a copycat industry, we tend to follow our peers. I would say the best attended training sessions are those who have someone considered in the industry to be at a higher peerage than
anyone else, someone who can actually polish techniques, polish attitudes and open the mindset of the people in the
room to new ideas. The industry is full of a lot of people that would like to sponge up that sort of intellectual property.
Where do you expect to source new recruits?
In terms of new salespeople, they are often better coming from outside the industry where they have no real estate knowledge but have good skills. Hospitality is a great breeding ground for salespeople because they’re used to odd hours and dealing with people... they’re just an empty vessel, and you just pour the knowledge and the training into them, and they go out and produce.
I look at our Rookie of the Year awards in the last few years and some of them have been phenomenal in their first full year in real estate. I go back a couple of years, the Rookie of the Year wrote nearly $800,000...he was a young guy, who came in with no knowledge, who said just tell me what to do and I’ll go and do it. We said your KPIs are 1000 letter box drops, 200 telemarketing calls and 100 door knocks for the week. He went and did it...and guess what, he got some great results.
There are two types of [franchisees] – there are real estate agents in business, and there are business people in real estate...is it easier to teach a business based person with commercial acumen how to do real estate, or it easier the other way around? I would argue that it’s probably easier to teach a commercially-minded person how to do real estate, as long as they’ve got
some form of sales skill. We’re finding a lot more people coming into the industry from outside.
Our perspective is it’s all about culture and personal development. Whether we consider that on an office level or we consider that on a personal level, we absolutely believe our growth will come through people, therefore the development of those people comes when they arrive. In 2011 we have put on 50 new offices…in each one of those cases it has been a cultural fit within our group and the surrounding offices. In terms of attracting the right people, it does come back to culture.
If those office environments are beautiful environments, they have winning teams, high quality people, the truth is you don’t have to go out and looking – you’ll actually attract [and] bring people to you.
The obvious talent pool lies within... 5km from your office. Your next best recruit is probably sitting in another office as a competitor, and they’d dearly love to become part of your brand. Recruitment is about timing and opportunity, and you match the people with the appropriate skill, strong track records, similar values, and their ability to seamlessly transition into your brand.
What do you think will be the greatest challenge to grow an agency’s profit/revenue in 2012?
Our industry has the tendency to take on listings just for the sake of getting listings, particularly newer people who perhaps don’t know any better.
Looking at it from an internal business perspective, a lot of businesses are going to have to start [using] their databases properly. A lot of businesses, when times get hard, they’ll go running around everywhere in their marketplace looking for new business when usually the business is right there.
I think fees. When it’s tougher, strangely we do the exact opposite of what we should do, we actually reduce our fees. If it’s taking more to sell it, surely we should be charging more. If we’re not careful as an industry, fees will tumble.
The greatest challenge I think is to tackle the adverse market conditions and at best probably the flatlining market conditions. If prices fall, gross revenues fall, days on market expand, and in a people business which is a confidence driven business, what this expanded days on market will do is dilute the willingness of the principal to be entrepreneurial in their business.
I think the first thing they are going to focus on is the their market share, you are going to focus on the calibre of your listings and then I think you’re going to show this greater discretion in what type of listings that you take on.
Where will most profit and/or revenue growth come from?
We have to change the way we do business, transaction costs have to come down, revenue streams [based on] just increasing listings is not the way to grow the business. The issue for our industry is...what is our core business?
Is our core business going to be property management, [or] are we going to get involved in the side issues of our industry, which [are] the mortgage and insurance transactions... At the moment, most agencies are just battening down, just trying to sell the listings they have.
The market has shifted and our businesses are suffering, but there is still a lot of profit left in most real estate businesses [that] aren’t addressed correctly. We’ve been of the belief that a lot of profit lost is still sitting in the business in ‘lazy’ expenses, which business owners just don’t address.
We like to see businesses reporting separately through sales and property management - they need to be answerable to their own profit centres as such. It’s difficult to set KPIs and remuneration structures if you don’t understand the profitability within different departments, and even individual accountability.
Are you looking at (new) strategies for reducing days on market? And where does auction vs private treaty fit into this?
Douglas Drisc oll
Brutal honesty. When engaging with the client, tell them as it is. There’s no point in sugar coating these things. Bring anecdotal evidence to the market appraisal, show them what’s actually out there, what’s selling, and for what [amount]. Managing their expectations is a huge part of it, and diarizing forward regular meetings and reviews. Let’s face it, [when] Plan A doesn’t work, you need a Plan B and Plan C. In private treaty or auction, I think it’s very much horses for courses.
We encourage our agents to take a forensic view of their listings. So, really sound buyer qualification methods... and seller qualification methods. We don’t expect every property to go to public auction but it obviously comes down to the skill sets of the principal out there, it comes down to the environment that they’re selling in, and it comes down
to the sheer motivation of the seller.
We have the term, ‘set date’, that’s actually trademarked to us...it’s not unique, there are other agents doing similar types of methods out there. The set date method [is] akin to a tender. During the course of the campaign if you receive an offer that is acceptable to the vendor, then the vendor can say, ‘yes, I’m happy with that price’. We have a very structured process around
that, where we then close the sale off, any registered buyers are then notified that we have an acceptable offer, and they’ve got 24 hours to submit an offer.
In many ways it’s no different to how you close off a private sale when you have a competitive situation...but it puts more
structure and process around it. You get some amazing results out of it under what’s in some respects a tender method, you don’t know what you’ve got to beat. We’ve seen some amazing gaps between the winning price and the next price. We’ve seen some amazing gaps between the winning price and the next price.
Are you satisfied with the current entry requirements for real estate agents and principals?
No, I’m not satisfied with it. It took me five years, three nights a week through Techl [College] to get my licence. Now you can do it in five days, so I wasted a lot of my youth sitting in a classroom...I think of all those nights. And one year I had Friday nights.
You had to do them all back then - real estate, auctioneering, business agent, stockman and station. It’s laughable [now]. Entry level to this industry...it’s not right. And the attrition [of agents leaving the industry] is purely a result of that. It’s too easy to get in, and so, it’s easy to get out.
The best agents I know are always learning… it’s not necessarily how you come in, it’s how you continue to become successful. And we’re self-regulating.
If we don’t get it right, we might not be self-regulating for much longer. National licensing is the starting point...our Mildura office has to be licensed in three states, so they can’t wait for national licensing – [but] my fear is that the state institutes will see it as the end of the process.
The disappointing thing about CPD, in NSW, is it’s seen as one of these ‘tick the boxes, lowest possible cost, must do, go along and be bored in the classroom [activities]’.
I mean, if we were serious professionals, we would get something out of this continuing professional development.
You hit the nail on the head. Every CPD training [course] in every state is now…‘we can do it quicker, we can do it cheaper, and we can do it easier’. That’s the whole focus as opposed to what was the rationale with doing it in the first place.