The Pittsburgh Business Times book of lists for the residential real estate industry is very informative. There are just enough statistics reported by brokers about their own companies to draw some conclusions about our market. I conclude that there is plenty of room for competition within the Pittsburgh residential real estate market and the point of this article is to persuade agents to start their own brokerage.
The top four residential real estate brokerages in Pittsburgh have over 80% share of the market. This situation did not happen overnight. It happened over a period of many years, as larger firms bought or merged with smaller firms.
During my 15 years in this business, I’ve witnessed Coldwell Banker real estate buy Metro Realty and Century 21 Scott Rodgers. CB Pittsburgh was bankrolled by their then-parent company, NRT, the largest franchisee of Cendant (now Realogy) brands. Howard Hanna has been on a merger and acquisition spree for at least 10 years, fueled by a $10 million line of credit.
More than 15 residential real estate brokerages reported to the Pittsburgh Business Times. After the top five (by sales volume) reporting brokers, every other brokerage has 1% or less share of the market. Many of these small firms have been in business for 10 years or more. What does this say? A firm can have a tiny, even less than 1% share of the market, and still be profitable real estate business.
But why would anyone do that? If you’re asking yourself this question, you don’t understand entrepreneurship. (By the way, that is not meant to be an insult.) REALTORS® have an identity conflict. They’re not quite sure where their place is in business. That’s because REALTORS® wear many “hats,” like salesperson, financial advisor, lawyer, independent contractor, small business owner. (Note that I didn’t use the word “employee.”) It’s very confusing. Frankly, you’re fortunate if you can afford the time to ponder this conflict.
What’s the difference between a REALTOR® and an entrepreneur? A REALTOR® is someone who has a real estate sales or brokers license and is a dues-paying member of the National Association of REALTORS®. Most commonly, the term entrepreneur applies to someone who creates value by offering a product or service in order to obtain certain profit. Business entrepreneurs often have strong beliefs about a market opportunity and are willing to accept a high level of personal, professional or financial risk to pursue that opportunity.
Here’s something that may sound shocking to you: it is possible to be both a REALTOR® and an entrepreneur. In fact, many REALTORS® are entrepreneurs already. If you are a REALTOR® who invests your money in order to market your own name (as opposed to your broker’s name), you are an entrepreneur. How can it be that easy? Well, for starters, you already own your own business. (Remember, you are an independent contractor. Pennsylvania law requires you to affiliate with a broker but you are not that broker’s employee.) Since you are taking financial risk to pursue a market opportunity (for example, trying to attract homeowners who want to sell their house), you have met the criteria for entrepreneurship.
Now that we’ve established that many REALTORS® are entrepreneurs, it’s time to discuss market opportunities. My father, who was a lawyer in Pittsburgh for 40+ years used to tell me, “Lawton, there are way too many lawyers in Pittsburgh, but there are never enough good ones.” I feel the same way about REALTORS®. The real estate market in Pittsburgh has plenty of room for good REALTORS® and good brokerages.
Once you’ve made the decision to start your own real estate brokerage, here are 10 tips to follow in order to get your brokerage up and running:
1) start small. lease a minimal amount of office space – just enough for you and a few other agents; overflow agents can work from home.
2) avoid the temptation of purchasing a franchise. Franchising creates a layer of cost that you don’t need. Unfortunately, there are plenty of good examples of agents who purchased a franchise but were unable to recruit other agents to their firm. Wait until you’re successful to even ponder a franchise. By then, you won’t see the need to have one anyway.
3) Guerilla market. If you spend your money on billboards, radio or print advertising, you’ll be out of business in no time. Again, this mistake has been exemplified very recently in the Pittsburgh market.
4) Only recruit fellow-agents who share your business ethics and philosophy. After all, your recruits are out on the street representing you every day.
5) Differentiate yourself from the competition. If you can’t create a niche of some sort, don’t bother. In other words, why do you see the opportunity?
6) Affiliate with a real estate lawyer. You and your agents are going to need a lot of advice.
7) Hire an accountant to handle the money properly. Escrow accounts must be handled meticulously. You don’t have the time to do this.
8. Don’t hire an administrative assistant. Again, keep your overhead low. Use an answering machine if you’re all out of the office. Or lease a high-tech telephone system to route your calls. Let your accountant keep your files organized. You can QC your own files until you can cost-justify hiring an AA.
9) Don’t hire new agents unless you can afford to waste an awful lot of time training someone who doesn’t necessarily have what it takes to be successful in the business.
10) Create a web site that’s first class and includes IDX. After all, the web surfer’s don’t care what your office looks like – they just want to look at the listings.
If you’re thinking about starting your own brokerage in Greater Pittsburgh and you want some more gratuitous advice, call me at (724) 321-1495 anytime. I love this business and I love to talk about it.
-Lawton
