When Baird & Warner was founded in 1855, Franklin Pierce was president and the nation was comprised of only 31 states. The family-owned indie real estate brokerage is the oldest in the United States, having survived the Civil War, The Great Chicago Fire and The Great Depression.
But CEO Steve Baird isn’t interested in resting on the company’s history. The roughly 2,300-agent firm — among the top 25 in the country for both transaction volume and sales volume, according to Real Trends 500 and the Swanepoel Mega 1,000 — is constantly adapting, scooping up smaller indies and adopting new technology for its agents.
Baird recently spoke to Inman about some of the pressures facing indies from both inside the industry and outside, as well as dished on competitors and revealed why he’s never outright acquired a RE/MAX franchise.
Baird and Warner is one of the biggest indie brokerages in the country and everything we’ve seen shows its kind of a difficult landscape for indies right now. Pacific Union, Alain Pinel, Ebby Halliday and other top indies have all been scooped up. What kind of market pressure are you facing currently?
I actually don’t agree with your premise. I think the indie broker is in the best place as long as they run their companies right and so forth. There’s so much chaos in the market place right now, we’re just seeing benefits from it.
I don’t view the current market as any more or less competitive than other markets. There are always competitors out there.
What do you mean by chaos in the market?
A lot of the companies are going through changes. A bunch of people moving around from company to company. There’s the implosion of Coldwell Banker, Compass entering the market place. In this particular market, Berkshire Hathaway has been impacted in a negative way.
The ones where we’re finding lots of opportunities are small, independent companies. Both franchises and independents are realizing they’re having a harder time competing. We’ve done a couple of really nice deals in particular markets because of that.
Does the presence of a company like Compass, as you just mentioned, and other well-funded competitors, put pressure on agent commissions and your ability to recruit and retain agents? I’ve spoken to a lot of other brokerages who have talked about Compass’ ability to throw a lot of cash at agents.
The fact that they’re well-funded is not necessarily the issue because other companies have come in and been well-funded. What’s difficult is they have an irrational business model that’s not based on any kind of rational economics. When we’re recruiting, it doesn’t impact us as much. They have taken people – they basically bought people from us – with what I view is an outrageous and unsustainable model.
Obviously, with their funding, they’re able to do more of it. This is a low margin business and I know how hard it is to make money in this business. For them to come in basically with no rationale for making money is a little confusing to me and not sustainable.
I’m an old school guy, I think you need to make money to survive and that’s certainly a long-term trend. I don’t really understand what their game plan is. Reading what they talk about, I’m not sure they really have one, more than just, ‘we’re going to buy market share and spend a lot of money,’ which is not a great business plan from my point of view.
You mentioned you’re an old school guy, but your company doesn’t seem old school despite the legacy. How are you keeping your brokerage current? What trends are you following and how are you arming your agents to compete?
We’ve been around a long time, we’re the oldest real estate company in the United States at 163 years old. But we’re constantly looking at ways to get better, to grow, to bring technology into the company.
But we also understand a fundamental thing which I think is really missed in a lot of discussions these days, which is that this is fundamentally a service business. It’s about people providing one-to-one service to buyers and sellers. We believe heavily in training our people on how to do that. We go and look for the latest technology – we’re installing a brand new CRM right now. But the key is to take that technology and those tools and make it work for the agent when they’re interacting with buyers and sellers. If they can’t interact with buyers and sellers, it doesn’t matter what technology you have there. We’re big on training, we’re big on technology that works. If we have great technology and nobody uses it – I think that’s actually in today’s world, generally one of the achilles heels of technology, how it works on a particular application.
I know you touched on it a little bit, but what are some of the things these ‘disruptive’ brokerages and models are overlooking in your opinion?
When I read all the popular press and talk to different people, it just always amazes me that they don’t really get that this is a people business. The successful companies are the ones that treat their employees fairly, train their employees properly, manage them properly, support them. I’m a big person for managing – I think there’s sort of the thought that technology will solve that particular problem.
I’m amazed that all these companies come in with this technology and they fail. They fail because they can’t get people to use the technology or make it work. It’s always been fascinating to me.
When we went through the downturn of the market in 2007 and 2008, I had a fundamental question: ‘Are we going to be relevant?’ There are a lot of businesses that came out of that and weren’t relevant, newspapers, retails business. So why are we different? We’re selling a product but why are we different? What it comes down to is, people want to buy and sell property using agents. If you look at NAR’s studies, the percentage of transactions that are done using an agent hasn’t really varied much in the last 20 years. There’s a whole lot of psychology around that. They want somebody to hold their hand, they want somebody to negotiate, they want someone to be a marriage counselor, they want somebody to interpret the data.
I actually think the internet today for real estate is incredibly chaotic. Consumers need someone to help them find out what the real information is. There’s so much information on the internet, how do you know what’s correct?
The other thing is that we deal with an imperfect product. You can only represent a house on the internet to a certain degree. You cannot replace somebody standing in front of the house, walking through the front door, or into the master bedroom. People live there. There’s an emotional connection that can’t be translated into the internet.
Are you concerned then as more internet-literate generations are the ones buying homes? Ones that rely on the internet for everything these days?
No, it’s just changing the business. We have to change, it’s an evolutionary thing. If you look backward, when there was no internet, they were doing it using books. Before that people were just using fliers and before that, it was word of mouth. This is just the latest iteration and we have to provide the tools that customers want in a timely fashion and the way they want it.
For me, the internet has been an enormous plus. It enabled us to get out of print media. My cost of promoting properties went down to about 30 percent of what it was 15 years ago and its a much better experience. The information is way better, the tools are way better.
I don’t believe any significant level of the population is going to go to the internet and buy a house. Will there be people that do that? Yeah, I suppose there will be some who do that, but I don’t think you’ll find much more than 5 percent.
What do you think of iBuyers? Would you ever consider implementing an iBuyer platform? How much of the market share will that account for?
IBuyers, those programs are not in Chicago. I don’t get the iBuyer program. You’re asking somebody to take a discount in exchange for convenience. How many people are going to do that? I don’t think there will be very many. But even if they do that, the margin you’re going to get is 10 to 15 percent that some company is going to make, and out of that, they have to pay a certain number of costs. I just look at this business and see huge capital expense and low return on capital. It doesn’t make any sense to me.
The places that they’re going, Las Vegas, San Diego, Phoenix, where there’s a lot of uniform product. In a market like ours, or on the East Coast, where every house is different, it’s much harder to use an AVM model. For example, Zillow is used here, but it’s not considered to be particularly accurate because of all of the idiosyncrasies.
What’s really missing in these discussions – a lot of these things are not driven by a real estate need or consumer need. There’s a huge push going on of capital trying to find an investment. This is a Wall Street capital play. It’s fueling the evolution of the business but there’s way too much capital coming into the business, more than is needed.
IBuyers are the perfect example to me. Compass is another example. Before Compass, Berkshire Hathaway came into the market and they had a couple hundred million. Compass comes in at a 5X multiple. Well, this is a business with low margins. That’s more about the fact that it’s capital looking for a deal than it is there’s a huge opportunity.
Compass’ model is pretty much the same model that I have. There’s not some fancy model that’s going to disintermediate me. They use exactly the same model. They pay agents. They have the internet. They market. They have offices. They claim to be a little better at everything. But a little better doesn’t make you a lot more money. It doesn’t make sense.
Are you worried about any of the forces from outside the industry impacting the way you’re able to do business? The DOJ investigation or Moehrl lawsuit?
At the end of the day, people are going to use buyers agents and they are going to pay them somehow. So, are we going to change the way we pay? Maybe. I don’t know, I haven’t really read the lawsuit. You’re not going to get a situation where buyers are represented for nothing, they’re going to get paid somehow or people are not going to move into the business and they’re not going to provide that service. We will adjust like way back when buyers’ agents were subagents.
My own particular view is that the buyer should pay the buyer agent and the seller should pay the seller agent. It’s coopted in different markets depending on local custom. That’s the way it’s done in the commercial business.
You mentioned earlier that you’ve done a few smaller acquisitions of franchises or indie brokerages. What are you looking for in an acquisition and what multiples are you looking to pay?
The biggest thing for us is the cultural fit. We have a very distinct culture. We’ve been around for a long time. We won a lot of awards for our culture. We want people who are going to move into our culture easily. That’s getting harder and harder to find.
What we pay is very specific to the situation. It depends on what we can leverage. We’ll pay one price if we have to just take over their office and costs. In a different situation where we can fold it into a different office or create leverage by using existing systems. Then we make a calculation based on how aggressive we need to be in the market.
At the end of the day, it’s all about buying people. If the people aren’t going to come over and be productive… That’s why culture is so important because that’s the biggest factor.
For example, we’ve never bought a RE/MAX company. We had a backdoor merger with a RE/MAX company because it’s a very different culture. We know from experience that those people don’t really work well at our organization. It’s not that they’re bad people, they’re just used to paying for everything themselves, they’re not used to working with other agents.
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