Brad Broberg is a freelance writer from Federal Way, Wash. A former newspaper reporter and editor, he writes about business, health care, and real estate. In addition to writing for REALTOR® Magazine, he's a contributor to HouseLogic.com and On Common Ground, both published by the NATIONAL ASSOCIATION OF REALTORS®.
Rethinking Office Space
At a time when every penny counts and mobile technology is mainstream, brokers are redefining their workspace.
February 1, 2010
Mobile technology, along with the tough economy, have inspired brokers to pare their square footage.
Therese Meddaugh Jenkins, ABR®, wasn’t planning to close her office and work from home eight years ago, but the events on Sept. 11, 2001, left the broker-owner of a corporate relocation business no choice.
Her company, Apple Realty Group, was just five blocks from the World Trade Center, where lingering smoke and dust kept her from reoccupying her Manhattan office until the air cleared.
That’s when Jenkins and her six sales associates—who also started working from home—made a surprising discovery. In the age of cell phones and e-mail, they didn’t need—or even want—their old office back.
On went a lightbulb.
"My overhead in Manhattan was huge," Jenkins says, "so I was always looking for ways to cut costs without hurting the ability of my sales associates to be successful. Since everyone liked working from home so much, I decided that a virtual office was the way to go."
In many respects Jenkins was ahead of her time, as more brokers have come to realize they don’t need a vast bricks-and-mortar base of operations to be successful.
In 2003, Jenkins moved to Charleston, S.C., for personal reasons. After working four years for two other companies to learn their business models and get to know the market, she opened Beautiful Homes Realty of Charleston as a virtual brokerage. Her 10 sales associates pay no administrative fees, just a small charge for insurance, a quarterly charge for the multiple listing service, and their commission split based on experience.
"It works beautifully," Jenkins says. "Sales associates like to be on their own, so being a virtual office actually makes us a more attractive place to work."
While stand-alone and storefront office operations won’t vanish anytime soon, more and more broker-owners are rethinking the size and location of their office. "It’s not a trend," says David Colmar. "It’s a matter of survival."
Colmar, a broker and CEO of Colmar and Associates, a real estate consulting company in Rancho Santa Fe, Calif., meets regularly with operators of leading real estate companies. Five years ago when the market was still on fire, reducing office space was the last thing on their minds. Today, it’s one of the first things they talk about.
That’s good, Colmar says, because the typical real estate office was larger than necessary before the housing slump hit—let alone after. "If you haven’t begun to figure out a way to cut office space, clearly you’ve got to," Colmar says. "You may be OK today, but you’re not going to be OK tomorrow."
The changing work habits of sales associates—especially as Generations X and Y replace retiring baby boomers—are permanently reshaping office dynamics. Liberated by the Internet and iPhones to work from home, in their car, or at Starbucks, associates find coming into an office less and less necessary. The cost of ignoring this shift: a lot of empty desks, wasted space, and dollars that could otherwise go toward upgrading technology, expanding marketing, and lowering fees.
One of Colmar’s consulting clients recently tracked how many of its 35 agents were actually in the office at three specific times of the day over the course of 30 days. The most was nine. The average was 4.5. "That’s like having a warehouse and there are only six boxes in the middle of the floor," Colmar says.
Customers also are making less use of the office. Rather than coming in to thumb through a multiple listing book with a sales associate, home buyers are looking at homes on the Internet and calling to schedule showings of properties they want to see.
"The number of walk-ins has dropped off dramatically," Colmar says.
Yet change is slow. In a series of annual Brokerage Performance Reports edited by Colmar for RealTrends, the average square feet per agent hovered between 132 and 139 from 2004 to 2006.
While Colmar has not completed any similar reports since, the numbers "haven’t really gone down" based on conversations with clients, he said. "We’re in the real estate business, but we simply do not need so much real estate," Colmar said. "We’ve got to get the number below 100."
That’s easier said than done for existing businesses with long-term leases. They must either renegotiate, sublease, or hang tough until their lease expires. "It’s a very difficult process," Colmar admits.
Finding Creative Solutions
Peter Consolo, broker-owner of Lake Barrington Realty in Lake Barrington, Ill., downsized his office in January 2009 by trading spaces with an adjacent travel agency in the same strip mall, swapping 1,780 square feet for 1,270. The two businesses also considered sharing the larger office, but determined they couldn’t quite squeeze into the same space.
At one point, 20 sales associates worked out of the Lake Barrington Realty office, but over the last several years the number plunged to six. Although the travel agency’s lease was up, Consolo was in the middle of a five-year deal, so the opportunity to swap was a godsend. "The landlord was very supportive," Consolo says.
Kathryn Chavez, e-PRO®, broker-owner of Carolinas Home Place in Charlotte, N.C., found a way to have an office without paying for one. Not long after she and her business partner, Tracey Propst, GRI, teamed up earlier this year, the developer of a town home community made them an offer they couldn’t refuse: If they ran the developer’s sales center out of the ground floor of a model home, they and their six sales associates could have free use of the model home for their office.
Chavez and Propst hope to continue their relationship with the developer as he moves from project to project. They may even try to make similar arrangements with other developers. "We have absolutely no overhead," Chavez says. "I will never ever go back to running a [brokerage] with an ‘office’ office."
Todd Kohlhepp likes to brag about the size of his office. "My office is approximately 12 inches deep by 9 inches wide," says Kohlhepp, broker-owner of Todd Kohlhepp & Associates. Those are the dimensions of the two mail boxes he rents from UPS to establish a local identity for his 10-person virtual brokerage in Greenville and Spartanburg counties in South Carolina.
When Physical Space Is a Must
But there are challenges in running a virtual brokerage. One is the lack of meeting space. Kohlhepp, who started his business last May, solved that problem by working out agreements with a dozen local mortgage brokers to use their conference rooms. "It doesn’t cost me a penny," he says.
That’s because Kohlhepp and his dozen sales associates are bringing people who need loans through the doors. "I’m putting [the mortgage brokers] in a good position, but I’m not promising them anything," he says.
Barbara Watt, broker-owner of Century 21 Sunbelt in Fort Myers, Fla., currently operates nine offices with approximately 475 sales associates. While she has closed and consolidated seven offices over the last two years, her remaining offices are all a good size, ranging from 2,400 to 8,000 square feet. "I will not go smaller than what I have," she said.
That’s because Watt values the energy generated by large numbers of sales associates working in the same location. "No man is an island," Watt says. "You have to have that energy to keep going. You don’t get that if you’re working at home."
On a personal level, Watt takes pride in being able to witness the success of her company’s sales associates. "There are brokers who don’t care if they see an associate as long as they get the check, but I feel like my associates are family and I want to see them on stage succeeding," she says.
Over the last 20 years, Ken Fisher, CRS®, GRI, broker-owner of Ken R. Fisher & Associates in suburban Indianapolis, has gradually whittled his office from 1,600 square feet to 1,200 to 800 and now to 400. "There was just no reason to have all that space," Fisher says, "but I don’t see getting any smaller." Fisher was able to slash fees—associates pay no office costs other than a share of the annual errors and omissions premium—while lowering overhead.
All 10 of Fisher’s sales associates have home offices with their own computers. So why not go totally virtual? "You have to have a place for a meeting with your customers," he says. "In real estate, we talk all the time about being professionals, but meeting at a McDonald’s is not professional."
The building that houses Fisher’s office makes three conference rooms available to tenants as well as a kitchenette and four restrooms—shared amenities that enable Fisher to minimize his own square footage.
What About Visibility?
Another possible downside to downsizing is decreased company visibility. There isn’t always a big selection of office space that’s less than 1,000 square feet, and what there is may be tucked away out of sight. Fisher made sure his office had an outside entrance that could be seen from the street.
"Visibility is part of the credibility game and if you don’t have credibility, you don’t have anything," he said.
As a new operator, David Keith, broker-owner of RE/MAX Gallery in suburban Detroit, was able to right-size his space from the get-go. His office is 1,200 square feet—a little small for the 30 sales associates he plans to recruit but big enough considering how he’s running his business.
Keith, who opened his doors last July, is targeting sales associates who work mostly from home. He describes his office as a "service center" where associates stop by to use the conference room, print documents, and take part in training. They can also log in at one of two computer work stations, borrow one of two laptops, duck into one of five cubicles, or meet clients for coffee in a café-style lobby complete with wireless Internet and a big-screen TV.
"I hear all the time of sales associates meeting clients at a Starbucks. Our associates can come to the office and have the same type of environment," Keith says. "The uses for the space really have no limits and it’s a great recruiting tool."
When sales associates are at home or on the road, a private intranet provides online access to everything they would find at the office—from listing documents to marketing materials to company announcements. "With so many sales associates working from home, it’s imperative to have an intranet," Keith says. "This way, associates can rest assured they have the latest version of a document and they are in the know about what’s going on in the office."
Keith says his service center model is more profitable than a conventional office. Even with lower administrative fees ($7,192 per agent per year) than typical in his market, it takes just five associates for him to cover his overhead ($36,000 a year) and he’s still able to provide the same service, equipment, and technology as a larger office. As the business grows, the profit potential is "enormous," Keith says.