Disaster-proof Your Brokerage

February 1, 2003

Misfortune often strikes a business without clear warning—whether in the form of an accident to you or a key employee, an act of nature, a disgruntled customer, or a management predicament of your own making. Are you ready to deal with the unexpected? Here’s how four fast-thinking brokers reacted decisively to keep calamity from putting their business on the skids.

Case #1: Ship shape

Under a gleaming summer sky, with a whiff of sea breeze coming in from the coast near his home in Sayreville, N.J., Ken Stanley, CRB, took a step back as he wrapped up some repairs on his boat.

The boat had been in dry dock, and he hoped to spruce it up before putting it up for sale in the next few weeks.

Then his foot slipped, and he fell 10 feet to the ground. An hour later, he was in emergency care with his knee broken, blood clots in one leg, and facing a three-week stay in the hospital.

As the broker-owner of a small residential real estate brokerage—Realty Executives Home Group in Edison, N.J.—the veteran Coast Guard reservist found the accident, which occurred in 1999, to be more than a painful trauma; it was a disaster in the making for his business.

With only one full-time and one part-time support staffers and more than a dozen sales associates depending on him for everything from their commission checks to sales advice, much of his operation could effectively have been shut down by the hospital stay. But, not long before the accident, Stanley had upgraded his office computer system, facilitating remote access to his office files. He was able to move his operation to his hospital bed and continue working.

“I was able to generate checks, pay bills—basically, do just about everything I could from the office,” says Stanley, an 18-year veteran in the industry. “If I’d had to do everything by hand, it would’ve been a real mess.”

For Stanley, network technology was the answer to keeping his accident from spiraling into a business disaster. But disasters can take any shape, from costly and dispiriting lawsuits to sudden losses of sales associates to office fires. By planning for contingencies and organizing your operations to respond flexibly to unforeseen events, you can turn disasters into stories with a happy ending, say brokers who’ve navigated their offices through crises.

Case #2: Suited for battle

For even the most carefully managed real estate brokerage, the threat of lawsuits is a fact of life. At a minimum, the key to disaster-proofing your brokerage is your errors and omission insurance, say real estate attorneys. That insurance kicks in when you’re sued and gives you the resources to defend yourself.

But setting up a thoughtful risk-management plan is equally important, because it reduces the likelihood of your being sued in the first place and gives you a basis for negotiating lower E&O premiums, says Robert Bass, a broker defense lawyer in Phoenix.

At its most basic level, risk management means instituting a sound record-keeping policy.

For Duane Fouts, broker-owner of Dan Schwartz Realty Inc. in Phoenix, record keeping is proving to be key to mold litigation he’s been fighting for two years.

To the credit of one of his sales associates, who followed company policy and kept a copy of an inspection report giving a clean bill of health to the house that’s the subject of the suit, Fouts can document that his associate was unaware of any mold problem. The buyer, who filed the lawsuit, claims the seller and the associate failed to disclose mold spreading under the kitchen sink.

“There’s really no way a broker or a manager could have avoided a lawsuit like this,” says Fouts, “but there’s no doubt we’re well prepared for it because our associate did his job.”

Adequate documentation is clearly just as crucial in lawsuits you initiate. Thanks to meticulous record retention, David Bronson, broker-owner of Bronson America, REALTORS®, in Binghamton, N.Y., prevailed in a lawsuit he filed two years ago to secure his commission on a sale he worked on in Ithaca, N.Y.

Per an agreement he had entered into with the seller, a nonprofit organization, he procured a ready, willing, and able buyer. Then the nonprofit decided not to sell the property. But the nonprofit turned around and sold it a short while later without him. When Bronson filed a lawsuit to claim his commission, the seller argued that the deal Bronson put together was for less than the asking price. But Bronson was able to counter this by producing a handwritten note from the nonprofit organization’s treasurer authorizing him to reduce the price of the property to the appraised value, which was the price his buyer had agreed to pay.

“The key document was the price reduction authorization,” says Bronson, who received financial help on the case from the New York State Association of REALTORS®. “The treasurer gave a sworn deposition that the organization wanted to sell the property at the appraised value,” and the note supported that contention, he says.

Case #3: Mutiny averted

When a lawsuit strikes, it can feel as if the office is under siege. But there are other disasters that erupt from inside the brokerage. In some cases, personality conflicts or misunderstandings can be a recipe for disaster if the problem isn’t diagnosed quickly and treated, say brokers.

When Michael Morelli, a broker with John L. Scott Real Estate in Puyallup, Wash., brought a handful of go-getters into his 35-associate office, the chemistry between him and the newcomers was bad from the beginning. Within weeks, the new group was disparaging him behind his back about even minor problems, such as copier malfunctions. The situation persisted for months, bringing down morale among his other associates. Morelli was tempted throw up his hands and tender his resignation.

Instead, working with a consultant, he completed a painful self-assessment and rebuilt his management approach from the ground up, with a new focus on building better relationships with the associates.

Morelli now involves associates in decision-making, which helps them feel invested in new policies, he says. In addition, he helps associates stay attentive to their performance by having them set and work systematically on clearly defined goals, for both their business and their life. And he responds quickly to the smallest request, including pleas to deal with copy machine problems.

Once Morelli got his relationship troubles under control, increased sales followed. Within a year, he had almost doubled productivity in the office, from about a dozen deals per associate per year to just under 21.

The new management approach wouldn’t have taken root if it hadn’t been for Morelli’s willingness to look deeply into his own behavior and make drastic changes, he says.

“The consultant asked me, ‘Who’s responsible for what’s happening in your office?’ and I saw that I was,” says Morelli. “By permitting the negative environment to persist for even a short time, I was promoting it.”

Case #4: Water, water everywhere

Early one morning a few years ago, Stephen Summers, broker-owner of Realty Executives of Kansas City in Leawood, Kan., arrived at his office to find his desks, cabinets, computers, and chairs sitting in eight inches of water. After the offices had closed, a small fire had triggered the sprinkler system, which had run for much of the night. Office equipment and furniture were ruined.

The damage created more than an inconvenience. Suddenly, several dozen sales associates had nowhere to meet clients, no office phone system, and no access to their computer files. “We were basically out of business,” says Summers.

He moved quickly. Within 24 hours, he had rented office space in a nearby building, hired specialists to retrieve data on his computers, and re-established telephone communications. The temporary space, at not quite 1,000 square feet, was a quarter of the size of his damaged offices, but it gave his associates what they needed most: meeting space and phones.

And, just as important, it was close to the damaged space. That gave his associates a psychological boost, because over the next four months, while their old office was restored, the associates could see progress being made daily and could reassure customers that their temporary space was just that—temporary.

It also enabled him to continue recruiting. “The temporary space wasn’t glamorous, but by walking people over to the old office while it was being rebuilt, I could demonstrate to them that we were still a viable office,” he says.

Indeed, during the rebuilding process, Summers says he increased the number of associates at his office by 15 percent.

As Summers discovered, even if you can’t foresee a disaster, you can generally ride it out with a strong contingency plan and a fast, flexible response. With decisive action on your part, potential disasters can have a happy ending.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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