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Overhead in Residential Real Estate and Why Most Firms Are Overspending

An old adage among those in the real estate industry states that “those who list, last.” Although it’s no doubt a cliché, it nonetheless continues to ring true. Honest listings are the backbone of the residential real estate business. However, all too often firms lose sight of this, and end up wasting funds in the process.

Traditionally, many residential brokers acquired clients by advertising an apartment and taking the client to see that apartment. Nowadays, however, many brokerages have websites that are long on bells and whistles but short on real properties. These websites often feature hundreds or sometimes thousands of properties but many of them are open listings, to which the agent listed on the webpage may or may not have actual access. Such complex websites are also enormously costly to create and maintain.

I feel there is much more value in smaller websites with fewer listings. Such websites are not only relatively inexpensive to create, but they generally reflect more favorably on a company as one that only advertises legitimate listings. It’s always best to advertise one’s own listings if one has exclusives. However, advertising open listings is certainly fair game provided that the broker has a relatively solid relationship with the landlord and can secure easy access to the property.

In addition to overly elaborate websites, I have been surprised to learn how much the new crop of residential brokerage teams often spend on excessive amounts of overhead. While flashy office space may look impressive on television, residential brokerage is a profession that requires its employees to be out of the office most of the day. As a result, simple desks with basic computers and phones, as well as a presentable conference room in which lease signings can be held, are all one really needs.

Another unnecessary expense that I have noticed is the amount of “special events” that some companies host for their brokers. They often do so in the hopes of retaining their brokers for a longer period of time. However, there does not appear to be any correlation between the number of perks beyond an expense account and broker turnover. If a company can offer a good split and timely commission payouts, there is no need for over-the-top lunches and splashy holiday parties.

Spending large amounts of money in the hopes of attracting leads is a common practice but one that would often qualify as a misuse of funds. Although it may sound old-fashioned, in my experience, the most reliable way to obtain good leads is to keep a network of potential clients and reach out to them on a monthly or quarterly basis with one or two specific properties. When I first began working in residential real estate, I sent out emails such as “Sale and Rental of the Month.” The simplicity of a single listing attracted many more clients than a newsletter filled with facts and figures. In general, people like looking at photos of apartments, and that’s often all you need.

People in New York City want the property, not the broker, and we as a brokerage community must remember that the focus should always be on real, honest listings rather than extraneous factors. Know the comps in the area and be honest with your clients. Prioritizing honesty, high-quality listings and conservation of funds are the keys to reducing overhead costs. Such strategies will always help to maximize profits and increase deal volume.

Adam Frisch
Lee & Associates Residential
875 Avenue of Americas, Suite 1808
New York, NY 10001
afrisch@lee-associates.com

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