More than 500 Southern California real estate agents have been scrambling to find a new employer after Century 21 Beachside and Coldwell Banker Beachside announced plans to shut down by the end of June.
Tom Denny, owner of a 10-office operation stretching from San Clemente to Rancho Cucamonga, said that “after three decades in the real estate business, I have decided that it is time to retire,” according to a statement provided by Realogy Holding Corp., the parent company for both Century 21 and Coldwell Banker.
No other details were provided. And while the reasons may be strictly personal, as Denny maintains, the Beachside closure could be the first of many rumblings in the real estate industry as a housing market cool-down continues into a second year.
Southern California home sales have declined year-over-year in 17 of the past 22 months, CoreLogic figures show. Transactions this year so far are down 11%, falling to the lowest level since 2008.
Until recently, rising home prices have offset decreased sales, sustaining commissions.
But the sales drop could be starting to impact the bottom line, new figures from real estate consultant Real Data Strategies of Brea show.
In Orange County, where the cool-down is most pronounced, home sales dollar volume fell to a 10-quarter low of $49.5 billion during the first three months of this year, Real Data Strategies figures show. The average since the fall of 2016 was $52.3 billion per quarter.
“It hasn’t happened yet at any scale,” said Real Data Strategies President Pat Veling. “But if it continues in this vein, it’s going to cause … more mergers, acquisitions and failures.”
Even in the best of times, brokerages are continuously looking for ways to streamline expenses.
“The real estate industry has incredibly low margins,” said Rich Cosner, a former broker now working as a brokerage consultant. “The brokers pay very high commission levels to the agents, yet the brokers maintain the expenses of the offices themselves. Therefore, when the industry sales slide, it typically has a negative impact on the brokers already low margins.”
Brokerage values also have been decreasing since Realogy-owned NRT stopped acquiring firms a year or so ago, Cosner said. That left fewer chains competing to buy businesses, “so values of brokerage firms have adjusted downward.”
Traditional real estate brokers also face other pressures due to expanding technology.
Because more agents now work from home — or from their cars while showing properties — rent for brick-and-mortar space has become “a very wasteful use of our resources,” said Mike Deasy, broker and board chairman of Pasadena-based Deasy Penner and Podley.
“The industry is changing,” Deasy said. “Revenue from sales commissions are shrinking a little bit. We have to be more efficient.”
As a result, Deasy’s firm is reducing the space it leases at four of its 11 offices.
“We’re squeezing down our offices into more creative office space where agents don’t have proprietary space, but they do get private space,” Deasy said. “I don’t think bricks and mortar are a necessary component of a brokerage.”
Deasy Penner and Podley isn’t alone. Most brokers are looking for ways to reduce their square footage, Cosner said.
“They are not renewing leases or are reducing square footage when they do,” he said.
Jamie Duran, Southern California president of NRT-owned Coldwell Banker Residential Services, said her company’s focus is shifting to more smaller offices so agents can stop in when they need a desk or a phone.
“Our agents are mobile today,” Duran said. “They spend most of their time in their cars and showing houses. … A large number of our brick-and-mortar offices are not required.”
Meanwhile, Silicon Valley “disrupters” like iBuyers – which make direct offers to buy homes online, often without an agent – also are forcing traditional brokers to adapt.
For example, Deasy’s firm created an online auction site called plumBid, in part to address competition from “non-real estate interests.” The bidding process takes into account factors other than price, such as a buyer’s willingness to waive contingencies or have a shorter escrow period.
Greater involvement in the community also gives local brokerages an edge that can’t be captured in an algorithm, Deasy added. Online sites provide statistics like walkability and school test scores, but fail to capture the essence of a community — something brokers can get through “a deep insertion into the communities in which we sell.”
“Successful brokerage houses are those that are most involved in the community,” Deasy said.
Having to scramble
At least half of the agents at Beachside have found a new broker to work with, one former agent said.
Three Coldwell Banker chains accepted more than 70 agents from the Beachside operation, with just over 20 of them joining NRT-owned Coldwell Banker Residential Brokerages of Southern California. The remaining 50 will join Coldwell Banker Alliance Realty and Coldwell Banker Coastal Alliance.
While agents are independent contractors, those with salesperson licenses must affiliate with an “employing broker” who provides supervision and support in exchange for a cut of the commission. Many with broker licenses chose to affiliate with a brokerage anyway rather than work on their own.
It’s not hard to move your license to another company, said former Century 21 Beachside agent Tony Shrikian, who was recruited by 12 brokers before moving to Century 21 Award in Irvine.
“We did have to scramble,” Shrikian said. “It was difficult after 17 years to move, but it wasn’t difficult to find a broker.”
Shrikian said the Beachside operation notified agents on May 23 it would shut down on June 30.
Agent Helen Reed said the news came as a shock to her.
“I thought the company was running pretty good, and all of a sudden, it shut down,” said Reed, who finalizing her move after speaking with three or four brokers. “What can we do? We are agents. There are tons of brokers, (but) no one wants it to happen like this.”
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