Originally Interviewed for Real Estate Executive Magazine, subsequently censored and cancelled for publication

What are the most significant events you've witnessed during your quarter century in California real estate?

Four things come to mind immediately.

The first is the impact of increased legislation and tighter regulations. Lawmakers, as politicians like to call themselves, make laws. He who has a hammer tends to see every problem as a nail. Over 900 new laws were enacted in California in 2003. Some of them will have an impact on the real estate business.

Next is the emergence of technology tools.

Number three would be the consolidation of the majority of local practitioners into a handful of large sales organizations.

And last, but certainly not least, the automation of real estate finance.

In what ways have these events changed the way real estate is practiced?

First of all, I should point out that these events are ongoing and the business is continuing to evolve as the events become more integrated into the planning and practices of real estate brokers. In the meantime, old habits die hard. State of the art MLS systems were frequently delayed because practitioners did not want to invest in the newer technologies required to utilize them, and companies didn't want to invest in the training required to enable their agents to master new skills. Consequently, we have defaulted substantial revenues to those outside the industry with no vested interest in the status quo.

Having said that, let's take them one at a time.

Increased legislation has expanded the scope and the complexity of a real estate transaction, altered the role of the practitioner and required the development of skills not previously necessary for the successful practice of real estate. The license may say "salesperson," but the relationship had better be one of "counselor."

Over the years, contracts have gone from one page to ten, with numerous addenda and a blizzard of disclosures that swell a file to two inches. And, real estate brokers have been assigned a number of additional duties to accommodate a host of federal, state and local laws. The increased costs of file storage, E & O insurance, increased staffing and additional training are all passed on to the practitioner. So, while increasing housing values have driven up fees, the added revenues have been offset by additional costs.

Technology has been a double-edged sword. It has sped the dissemination of information and made it more widely available to consumers. The downside is that the value of our work product, listing information, has been diverted.

All of those websites that are aggregators of listing information are putting nothing back into the pockets of the people who formed the relationship that led to the listing. The aggregators argue that the information is free. They like to overlook that someone else researched and collected the information, incurred overhead, assumed risk, and then paid all of the expenses for posting it in the MLS. As we moved from a published book to an online system, we lost control of a valuable revenue stream. That information has already created a lot of millionaires who never have and never will input a listing.

I've often thought it would be funny if local brokers launched a new MLS and simply shut off the flow of this information to the national aggregators. My client doesn't need her listing published in Ohio.

The fax machine has actually reversed the custom of being able to present your own offer. There was a time when if I had an offer on your listing, we'd sit down, have a cup of coffee and talk about how we could work together to meet the needs of both of our clients. Then, I would go with you and present the offer myself. The fax machine has changed all of that.

The consolidation of local practitioners into a handful of large sales organizations has created a weird sort of ethnocentricity. The big brands remind me of high schools or tribes. They have their own colors, they have rallies, and they even have powerful totems like rocks and balloons. How any of that benefits the consumer is debatable, but it has certainly eroded the spirit of cooperation that once characterized local real estate.

Financing has evolved dramatically. There have never been more options available to borrowers. Knowing and understanding those programs is vital to maximizing a client's ability to leverage a real estate acquisition. Despite what every new licensee mumbles, it isn't location, location, location. It is leveragability combined with tax-free profits that have been creating wealth for knowledgeable investors.  

What are the biggest challenges you face as a businessperson?

Like any locally owned, independent business, I'm facing the Wal-Martization of my industry by well-capitalized multinational corporations. I struggle against their limitless resources and economies of scale. They can afford to buy market share that doesn't have to translate into profit. Take Cendant for example. Prior to 1995 they weren't even in the real estate business. Less than eight years later they boast having 40% of all agents in the nation.

How did they manage to attract so many agents so quickly?

They bought them. First they bought three competing national brands, Century 21, Coldwell Banker and ERA. Then they turned their sights on mid-size regional firms. As a publicly traded company, they were able to take tremendous amounts of stockholders money and buy up unprofitable real estate offices.

How are you able to compete against the national brands?

I can't. I don't even try. I could never afford a Super Bowl ad. Then again, I'm not even sure that we are in the same business. I'm in the real estate business; they are in the business of recruiting and developing salespeople.

Their objective is to grow market share by continuing to amass an army. They see the marketplace as an infinite sea of real estate that must be "sold" to unwary buyers.

You'll note that the big sales organizations give numerous and frequent awards for things like most sales, most money earned, and most listings taken. Obviously, these companies are savvy enough to be rewarding the behavior that they want. So it follows that their training would be focused on selling techniques and closing scripts intended to convince potential customers to list or buy. I call this the "Master of Persuasion" Model.

They want their salespeople going to a listing appointment with the mindset of persuading the owner to list on the spot. Otherwise, someone more persuasive from another company might come along. The motivation is to get the listing before someone else does. Where is the consideration for the consumer in that?

But, that is the sales organization approach and it is a distinct model. It's an army of Willie Lomans trudging through Glengarry, Glen Ross fantasizing about the "good leads" while mumbling the ABCs of their company motto... "Always Be Closing."

One large lender even advertises to real estate agents with the tag line... "Explain less, close more."

To what do you attribute the success of these corporate giants?

I guess that depends on what you're measuring. Have any of them found the secret to greater agent productivity? Does their presence bring more inventory to the market place or provide the consumer with an improved experience? I don't see any evidence of that.

To their credit, they have amassed an astonishing cash flow by gobbling up lots of real estate companies. But that hasn't translated into increased value for their shareholders. Six years ago, Cendant stock was trading above $40 a share. Then, after the discovery of accounting irregularities, it plummeted below $10. Since then it's bounced around in the $10-$20 range.

I'm not so sure that they are anything other than big. I look at the local marketplace and I see that the county will have a record year for home sales. But, that translates into no more than 38,000 residential resale closings or fewer than 3,300 per month. When you crunch the numbers, it's pretty obvious that there aren't enough revenues to support all the Cendant offices let alone all of the other brands that have multiple offices in the county.

That success hasn't done much for their salespeople. While the big sales organizations boast of their contribution to the successes of their salespeople, it does beg the question, who then is responsible for those who fail? (Which, in light of a study cited by the National Association of REALTORS, is the far more common experience.) 86% of new agents don't survive their first year in the business and only seven out of 100 ever renew their licenses. So while these large companies are achieving growth for themselves, they haven't done much to improve the productivity of individual salespeople.

By their own measure, Cendant has 40% of the agents, but collectively, they account for only 26% of the transactions. It just seems to me that the largest real estate company in the world, armed with unlimited resources, ought to have the most productive people, not the least. I like to joke that if they had 100% of all the agents there would still be 35% of the business just for me.

With that degree of turnover, you don't really have time to train people about the fundamentals of the business. It takes years to master all that there is to learn and no two-week classroom program can change that.

What are the alternatives to that model?

One that is gaining in popularity in this tight market, with over 21,000 licensees competing for so few closings, is the discount approach. This model concedes high value service and simply says to the consumer, "I'll work for less." Everyone knows the old saying, "You get what you pay for." And when it comes to highly skilled professionals, they usually charge the most, not the least.

I call this model "Master of Nothing."

How is your model different?

Well, as obvious as it might seem, I created my company for me, not for a distant board of directors, so it's fairly unique. My tastes are simple; I'm always satisfied with the best. But, in my personal experience with service providers, all too often there is a sizable gap between my expectations and reality. And, it seems to me that the experience of buying and selling real estate ought to be more fun and less stressful than it often is.

It isn't my objective to build an army of salespeople. Plenty of companies are competing to do that. My objective is to develop the best practitioners in the industry, who can deliver the highest quality service to my clients. And that's key. I never forget that my associates operate under my license. Under California law, I'm the agent. And even though I might never meet the client, the service they get is important to me. I know their names and I review their documents. I'm responsible for the experience they have with my firm. My involvement is much more personal and intimate than it would be if I were looking at spreadsheets in New Jersey.

I wanted to leverage my unique skills and talents in the most productive and fun environment I could create for myself. I love studying real estate and helping people appreciate all of the benefits that are conveyed along with that bundle of rights.

To me, there seemed to be a niche in the marketplace for a company dedicated to creating informed consumers. Particularly in helping people appreciate the significant implications of the Tax Payer Relief Act of 1997. I'm always amazed that the industry hasn't done more to get the word out.

When you consider the benefits of leverage, appreciation driven by scarcity, the mortgage interest tax deduction and tax free profits, it would seem that only the ill-informed wouldn't want to implement a strategy to acquire two homes.

We believe that informed consumers make the best clients. They send referrals. and they are a pleasure to work with. They don't ask for a reduced fee because they understand and value what we do.

In contrast to the "Master of Persuasion," we go to a listing appointment with the mindset that a client should not sell an appreciating asset without exploring all options. They need to take into consideration that in a few months the home could be worth substantially more. They should sell the home only when it is in their best interest to do so.

The long-term goal of any practitioner should be to build a listing portfolio. That means more than just selling someone a house. It requires assuming a role in their life. I recognize that people consider selling their homes in response to a limited number of life events: birth, death, divorce, marriage, relocation, reversal of fortune, or a windfall. More than ever, this is when people need to understand fully the consequences and benefits of the choices they make.

They don't need a salesperson trying to win a plaque. They need a "trusted advisor" who is an understanding, knowledgeable, and articulate counselor, who relishes the role of fiduciary and who always puts the interests of the client first.

That takes a special person. And that is the practitioner that I created my company for.

What do you call your model?

"Master of Competencies." This is the true professional who neither prospects nor promotes, but instead builds a reputation that attracts a steady stream of high quality referrals. This individual, by necessity, is committed to mastering every fact, every technique, every tool, and every nuance of this highly complex and critical personal service.

The practitioner in pursuit of mastery knows that if they build value in themselves, the consumer will perceive it and gravitate toward it. That is why I believe that my most important job is educating my associates. Training, coaching, and consulting are my advantages over the competition.

How long is your training program?

How long? It never ends. It isn't an event; it's the most important part of the process. And it isn't just a training program. Self development is a vital component of a growing and improving personal service business. Everyone in this type of business should, as a part of a business plan, have a comprehensive plan for self development...and I don't just mean the mastery of real estate.

The best strategy for dealing with change is to stay ahead of it. If we see ourselves as works in progress we give ourselves permission to change. To move forward, it is necessary to surrender old beliefs and behaviors that hold us back. If we can admit that all limitations are self-imposed, the need for personal development becomes obvious. In nature there are only two states, growth and decay.

That's what I'm all about. It's my job to assist those who really want to be masters of the competencies. We meet twice a week to cover everything from changes in the law, tax issues, and financing to local market conditions. And that has really paid off for our clients.

Do you have proprietary systems?

Yes. Over the years I have experimented with a wide variety of tools and systems. I just couldn't find the right tools for my view of the business, so I created my own.

I created "Your Personal Best System" to provide a training approach intended to develop the individual around their unique talents and abilities in order for them to achieve their unique goals. Everyone has aptitudes and passions and these are what determine each individual's path to success. For years I have struggled to develop a one-page system to plan for the week ahead, evaluate the week passed and track the growth of the practitioners business. The "Red Zone Planning System" assures that the practitioner regularly focuses sufficient resources on their priority activities and that future revenues are accumulating. It's a great tool for me to coach with because it is a reflection of their business plan in action, week in and week out. Building a business is all about correcting course.

What sort of advertising do you do?

Virtually none. Everyone would like to think that the key to creating business is to advertise and business will come to you. But, what works for Pepsi doesn't necessarily work as a way of building a personal service business. With so many messages bombarding the consumer, it's hard to break through the clutter.

It isn't consistent with my experience. I can create leads through advertising but I can't create customers. Only the individual associate can create a customer and that, according to management guru Peter F. Drucker, is the very purpose of a business.

What I do is far more valuable to the practitioner wanting to build a stable and predictable long-term business. I assist them in creating customers for themselves. It's the difference between giving them a fish, which only makes them more dependent, and teaching them to fish, which makes them free. Free to use their uniqueness to develop the best business for their goals.

If you don't advertise, how do your associates get business?

Here again, my model is based on a different perception of the market place. If you view the market as demand driven, you may be pursuing the wrong strategies. This market is characterized by a very limited supply. At the time of the October 2003 fire, there were fewer than 4,000 resale homes available in the county. The fire destroyed more than half that number.

Not a single dollar spent on promotion will alter the fact that property only becomes available when an event occurs in the life of its owner. Do they turn to the newspaper, the Internet, the phone book or the Pennysaver? Rarely. They ask their friends, family, neighbors, and co-workers who they would recommend in the business. The objective is to already have your message in place before the need occurs. A local practitioner can market just as effectively as a big sales company. It simply requires putting the "six degrees of separation" into practice.

It is the difference between promoting and attracting. I teach my associates how to develop a steady stream of high quality referrals, pre-determined to do business with them, and only them.

Is that realistic?

Actually, I think that proactively implementing a strategy to generate referrals is much more certain than passively sending a message out into the clutter and hoping someone, anyone, will respond. In addition, it seems obvious to me that if I do what everyone else is doing, I'll get the results everyone else is getting. That applies whether I'm a broker or a practitioner.

Are there principals to developing referral business?

I believe there are, and we actually incorporate them into our mission, vision, and values statement: Courtesy, quality, integrity. Always be nice and polite; you don't know who they know. Always do high-quality work. And always be honest. It takes years to build a great reputation and only seconds to destroy it. Fail in any area, and the referrals vanish.

What do you look for in an associate?

Attitude, character, and coachability. When it comes to attitude, we have a company policy that we all have to maintain an upbeat, positive and considerate attitude while in the office or associating with clients. Considering the high failure rate, it becomes apparent that to succeed in building a business, obstacles will have to be overcome. Disappointments and failure will lead to growth and improvement if one has the proper attitude.

A good attitude is the foundation of character. Trustworthiness, respect, responsibility, fairness, caring, and citizenship are the components. People who possess character are respected. Respect leads to referrals.

And finally, they must have a strong desire to learn, grow, and improve. They must appreciate that in the new millennium real knowledge has value. In addition, the more one knows, the more business unfolds, and the more value we bring to the customer. To take full advantage of what our company offers, you have to value education.

In closing, what advice would you give to someone just starting out?

See it as a business. Get the big picture. Become a student of the business, not just your business. Think long term. This is a business built one brick at a time. Create affiliations and utilize systems that are the most likely to work for you. Get a coach, mentor, or teacher who will be as committed to your development as you are. Never give up; it isn't easy but it is possible. Make it fun.

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