Downturn means downsized offices

Andrew Moore / The Bulletin

As the housing market deteriorated last year, a number of real estate agencies in Bend were forced to shut their doors. The biggest was the Nov. 1 closure of RE/MAX Equity Group, which affected roughly 50 real estate agents.

But since the start of the year, 22 new real estate offices have opened in Bend, according to the Central Oregon Association of Realtors.

They are generally small, independent offices, also called boutique agencies, whose owners envision a more intimate approach to the business of real estate and filling the needs of a marketplace that has undergone significant upheaval, such as specializing in the sale of distressed properties.

Some also say they can save their customers money by charging less in commissions.

Fred Mannila recently opened Fred Real Estate Group in Bend, believing that customers no longer want to pay traditional real estate commissions.

A percentage of the purchase price of a home — traditionally 5 percent, though it’s open to negotiation — is split between the listing agent and the buyer’s agent.

Mannila said he’s willing to lower his agency’s listing commission in order to get the business, though the amount varies by situation.

“At Fred, we think this is an opportunity to change the traditional way of thinking as far as real estate goes,” Mannila said. “If we can save people a few thousand dollars in commissions and provide unbelievable service, we’ve done our job.”

Chris Carrillo, COAR’s new executive director, said commissions are flexible no matter which agency a customer chooses, sometimes more so at larger brokerages that can benefit from economies of scale.

Lynnea Miller, the principal broker at Cushman & Tebbs Sotheby’s International Realty, located in Bend and one of the region’s larger real estate brokerages, believes real estate has always been about the relationship between the customer and the agent — it’s just that bigger firms cast wider nets. In other words, that means more real estate agents to show a property.

“All real estate is still done on a one-on-one basis, but our brand offers for our clients international exposure for their listings,” Miller said.

Boutique agencies have always been a part of the real estate landscape, often opened by more established real estate agents who strike out on their own after spending years at big, brand-name firms or to fill a specific real estate niche. In Bend, most of the real estate offices are small.

According to COAR, there are 138 real estate agencies or sole proprietors in town, but only a handful of agencies that have more than 20 real estate agents. The city’s largest real estate agency is John L. Scott Real Estate, with approximately 70 real estate agents, according to COAR.

Big or small, each real estate agency is different, which bodes well for customers, Carrillo said.

“Each member of the public will have their own comfort zone on how they want to operate,” Carrillo said. “Some will want to work with smaller offices while others perhaps prefer going with larger brokerages because there’s more brand recognition, but I think it’s healthy to have a variety of different sizes because each one does tend to be a little different. … It really serves the end customer.”

Changes

The real estate market in Bend has changed considerably since the onset of the nation’s housing crisis in 2007.

In the first six months of 2006, 1,178 single-family homes were sold in Bend, according to the Bratton Report, a local real estate analysis produced by the Bend-based Bratton Appraisal Group. By comparison, 539 single-family homes sold in the first six months of 2008, a decrease of 54 percent.

Data for 2009 are not yet available.

Fewer sales also mean fewer real estate agents. According to COAR, there were 1,237 active real estate agents in Deschutes County at the end of June. The association was unable to provide data from past years, but a May 5, 2008, story in The Bulletin reported 1,728 real estate agents in Deschutes County at the time, according to the association. That translates to a decrease of more than 28 percent in one year.

Dave Feagans is a co-owner of Alpine Real Estate in Bend. He started the firm in January 2007 with two partners after their agency at the time appeared close to collapse. He later interviewed with several big agencies in town, but decided he wanted to “control his own destiny” and opened his own shop.

Feagans now wishes he would have done so sooner.

“I had lots of peers say I was crazy, but I love that kind of talk because it makes me want to prove them wrong,” he said.

Alpine Real Estate now has 11 real estate agents, Feagans said. He considers his shop a boutique agency, and likes to keep it small to reduce overhead costs.

Feagans knows many real estate agents prefer to work with big, brand-name agencies because of the support, brand recognition and referrals that a large agency can generate.

But he also knows there are some customers who prefer working with “locally grown” agencies.

“On the selling side, it’s good to have that support (from a big, brand-name agency), but on the buying side, I think it swings the other way,” Feagans said. “We’re lean and aren’t driving brand-new Lexuses, and buyers respect that. They think, ‘I have a real person here.’”

Not easy

Keeping a boutique agency afloat isn’t easy, said Natalka Hamilton, who formerly owned Meridian Realty but shut it down last year. Hamilton said her agency never turned a profit, even though she loved working for herself.

She now works for Coldwell Banker Morris, in Bend.

“The idea is awesome — keeping it a small, tight ship — but no matter how you look at it, if you’re operating from a business location, you have lots of expenses, the rent primarily, and then staff and salaries, so it’s tough.

“Even when the market was really good, I never had a profit,” Hamilton said. “The outgoing was higher than the incoming.”

She said it also can be a struggle for boutique agencies to attract new customers. Out-of-area homebuyers are likely to call the big-brand agencies they’re familiar with, she said.

And boutique agencies are more prone to downturns because fewer agents can mean fewer sales, she said.

“I talk to (real estate agents) all the time, who say, ‘I could make more money on my own, I could make 100 percent,’ but trust me, 100 percent of nothing is nothing,” Hamilton said. “You need to be with a team, a group of people that are working full-time.”

Generally, real estate agents pay desk fees to their agency to help cover costs for an office and office equipment. The agency usually takes a percentage of the agent’s commissions, which is called the split fee.

But those are the old ways of doing business, said Bill Duffy, the owner of Taft Dire LLC in Bend. Duffy, who considers his agency a boutique firm, said he encourages the company’s real estate agents to take advantage of e-mail and other home-office technology to work from home, thereby eliminating the need for a desk fee.

He’s also done away with commissions, instead charging the firm’s real estate agents a flat transaction fee. That “keeps more money in their pocket,” he said.

“As markets change, it’s more difficult for Realtors to make money because there are not as many transactions,” Duffy said. “That being said, as with any business, a Realtor is concerned about their overhead. If you’re at a big-box office, you pay for that with desk and split fees — so here they have a lot less overheard and less commissions, and that is appealing to a lot of Realtors right now.”

Duffy thinks big-brand agencies will always be around, especially since they can provide support and training for real estate agents and are a powerful tool for generating referrals. But he does believe changes in technology make it easier for real estate agents to strike out on their own, especially if they can carve out a specific real estate niche.

Taft Dire specializes in working with developers and also recently acquired a mortgage broker’s license so that it could become a one-stop shop, Duffy said.

“Twenty years ago, the big, brand-name offices provided the technology, like the fax machine, so you really were determined on having to go to the office to do your work, and now you don’t have to do that,” Duffy said. “Technology has really changed our business.”

Fred Mannila, in his office with some of his real estate agents and staff Wednesday, recently opened Fred Real Estate Group, one of more than 20 new real estate offices to open in Bend. They are generally small, independent offices, also called boutique agencies.