Firms weigh the benefits of acquisitions and contractions

By Marcie Geffner

It’s no secret that a sharp decline in home sales has triggered a wave of consolidation that has swept through California’s real estate brokerage companies. With statewide sales at just 366,720 in April, there simply isn’t enough demand to keep nearly 175,000 REALTORS® busy.

The closure of realty companies and offices may sound like more bad news for an industry that’s already under siege, but consolidation isn’t all bad. Some practitioners have greeted an office closure as an incentive to reinvent their business.

Chuck Knapp, owner and general manager of Century 21 Desert Rock in Hesperia, is a case in point. The firm, which has 55 full-time agents, closed one of its three offices in February. The office was closed because the outlying locale hadn’t experienced the sales growth Knapp and his wife, broker/owner Hanna Knapp, had expected three years earlier.

“When business is good and doing well, it’s probably  time to look into expansion, and when the business changes and volume drops, you have to look at a reduction. I don’t think it’s wise to say it’s good to expand or not expand or to reduce or not reduce. You just have to do it,” Chuck Knapp says.

Business Model Doesn’t Depend on Third Office

The bottom line was that the incremental business Century 21 Desert Rock could attribute to its physical presence in nearby Apple Valley no longer justified the overhead, Knapp explains.

“In our hearts, we knew we could still service that neighborhood from our existing main location,” he says. “We’d learned that we had a good sphere of influence there, and I don’t think we necessarily acquired a lot more business through that location.”

Seven of the 20 or so sales associates who were affected by the consolidation had already been on board when the third had opened; the others were newbies who’d signed on within the last three years. Yet, all of the associates were absorbed easily into the main office, Knapp notes.

At 53,000 square feet, the main office is reasonably large, so “it wasn’t that hard to fit the people back in,” Knapp says. Some office equipment was moved over as well, which also helped the company accommodate the additional associates at that location.

The payoff of the office closure was realized immediately.

Expenses eliminated from the budget included:

• Rent

• Utilities

• Telephones

• Marketing expenses specific to the Apple Valley location

“All of those costs immediately came back to the company because we no longer had those expenses,” Knapp notes.

Discount Broker Becomes REO Specialist

Not only fewer closed sales, but also shifts in market opportunities can result in consolidation and office closures.

When the telephone stopped ringing at New Millennium Discount Realty in Victorville, broker/owner Brant Ensworth knew it was time to make a change. He shuttered the once-prosperous discount firm and signed on as a broker-associate with Keller Williams Victor Valley Market Center, also in Victorville.

“Our business as a discount REALTOR® had completely dropped off. The market turned, and the sellers who were listing their properties really focused more on the name-brand companies,” he recalls.

Rather than push the discount model any further, Ensworth, who has worked in different aspects of real estate for more than 20 years, turned his attention to bank-owned homes, or REOs. As part of that transition, he became concerned that REO asset managers in faraway cities wouldn’t take a chance on an unknown name or keep faith with an independent broker.

“My concern was if we had an REO that was on the market for a considerable amount of time, that they [sellers] would assume it was because they’d listed with the wrong individual and not a name they were aware of or knew well, and that they’d made a mistake and then they’d go with a larger or more recognized franchise,” he explains.

He believed an association with a large national firm would offer a better name recognition and help him gain credibility with REO asset managers.

Ensworth considered his options and Keller Williams won out, Ensworth says, largely because he wanted to keep his existing separate office, which is on a major thoroughfare, and display signage. The firm’s agent-centered culture and an attractive commission structure were also important criteria.

At its height, New Millennium Discount had had five licensed salespeople, including Ensworth, and three unlicensed assistants on board. Today, Ensworth’s team at Keller Williams is comprised of himself and two assistants, who show property and process paperwork. REO properties now make up most of the sales in the local area and Ensworth’s own business.

The switch paid off in a variety of ways, some of which were expected and others were surprising even to Ensworth.

These positive outcomes included:

• REO inventory continued to grow

• New connections with other agents

• More networking opportunities

• Increased personal income

“We’ve made a lot of contacts with very successful agents since we’ve been with Keller Williams and the training opportunity is there to help veterans and beginners, so I’ve learned a lot as well,” he says. “There are a lot more networking opportunities available when you are part of a larger company than when you are on your own.”

Marcie Geffner is a freelance reporter in Los Angeles.