Melbourne elite agent Gary Peer shares his observations of his recent visit to the Big Apple, meeting the city’s major real estate brokers and investigating buying and selling, American style.
‘If I can make it there, I’ll make it anywhere,’ wrote Fred Ebb, the lyricist behind the famous song New York, New York, but does this bold challenge apply to real estate agents competing for their piece of turf in the Eastern Metropolis? I was determined to find out, and as it turned out the first known New Yorker I saw was seated three rows in front of me on the plane from Los Angeles – Mr Tony Bennett, who co-performed the famous song with Frank Sinatra in 1993.
Hungry for inspiration and eager to learn, I arrived focused and ‘suggestible’ to my first engagement with one of New York’s leading property players in the fiercely competitive real estate arena. This was to be the first of seven different companies visited, who between them cover the majority of real estate transactions within central Manhattan. This agent was an aggressive new player in the market, already successful in other American states, now coming to make his presence felt in the ‘biggest of them all’ (perhaps not geographically but certainly commercially). The main point of difference was their pitch to the brokers in the state, with their ‘unique salary package’ designed to lure them away from the more established outlets.
The second agent visited was an old friend, Susan Merdinger Greenfield, Vice President of Browns Harris Stephens, a very established high end specialist firm. Susan, who I correspond with regularly, is a member of an international Real Estate Federation – FIABCI, which I also belong to. One of the main points of difference of her agency is their in-house economist, Greg Heym, who presented us with his observations of the property market and thoughts on where the market may be headed.
There is a bizarre disconnection between the desire of agents to compete against each other to attain the listing, and then, upon being selected, to embark on the traditional American realtor process of inviting those agents who were unsuccessful to partner with them in attaining a ‘joint’ sale for the vendor.
Following six further office tours, I concluded that there is a bizarre disconnection between the desire of agents to compete against each other to attain the listing, and then, upon being selected, to embark on the traditional American realtor process of inviting those agents who were unsuccessful to partner with them in attaining a ‘joint’ sale for the vendor. This concept is alien to Australian agents, who almost always retain exclusive rights to represent the owner and then begin the journey, and commitment, of seeking a suitable buyer to finalise the sale transaction.
Perhaps the biggest winner through the traditional Australian model is the vendor; however, the Yanks would argue that their model allows their vendors’ properties to attain a full exposure to all buyers, everywhere, through all agents. But at what cost to the vendor, and can’t one agent achieve the same outcome anyway?
Whilst commission rates in Australia are negotiable, traditional industry statistics indicate the typical rate in most parts of Australia will vary around 2% of the selling price (this may change upwards or downwards depending on which part of Australia the property is situated in, price of property, ease of sale and what arrangement is finalised between seller and agent). Enquiries about selling fees in the USA consistently revealed that the buyer and seller are both typically billed close to 3% of the selling price, so 6% in total. The major difference in the vendor’s selling expenses is that agents in the USA will be responsible for funding any, or all, advertising costs on the vendor’s behalf. As a result, marketing in Australia is, in my view, clearly superior – more innovative, fresh and vibrant, as agents work creatively and diligently to ensure that the funds they are entrusted with by the vendor are used as effectively as possible to capture the attention of the buying public.
Core, Corcoran, Brown Harris Stephens, AC Lawrence and Douglas Elliman are all household names in New York, and seem to operate almost exclusively within the New York Precinct, in stark contrast to many other brokers who have offices throughout the USA. The numbers written by the major players in this group are staggering. A large rent collection business in Melbourne (or indeed anywhere in Australia) would cover approximately 2,000 tenants. New York’s largest agency manages 60,000 tenants. A large sales agency in Melbourne would have 30 to 50 salespeople. In New York, a number of firms visited have 200 to 400 sales agents engaged to represent them. They may not do business better there, but they sure do do it bigger!
New York’s business community has had its share of challenges in recent years, certainly within the real estate space. Anthony De Grotta, President of AC Lawrence, is an agent who has been operating for many years in the Financial District of Manhattan, specialising in residential property leasing. He spoke of his recollections of the 9/11 disaster and the ensuing difficulty in attaining tenants to move into the area. Rather than shutting his doors (as some others did) he decided to stick it out and convinced landlords to offer inducements to tenants whom his agency was attempting to attract. Rent-free periods and rent reductions plugged the hole and the office was soon buzzing with tenant activity, whilst servicing/accommodating the firefighters and police by offering them use of their kitchen, bathroom and office areas during their gruesome task of sorting through the crumbled and smouldering ruins of the twin towers.
No sooner had the ashes of 9/11 disappeared than the collapse of Lehman Brothers occurred in 2008, consolidating, according to many, the commencement, or recognition, of the Global Financial Crisis on United States soil. The arrival of Hurricane Sandy in 2012 was the most recent test for residents of New York and the battered real estate industry; however, there seems little evidence left, at least in Manhattan proper, of any significant damage or doubt in the property market.
In true real estate agent fashion, all agents I met and interviewed claimed they were ‘the best’ and ‘number 1’ – of something, anyway. Cynicism aside, the agents there are sharp, friendly, professional and energetic.
At present, low inventory, strong demand/multiple offers and rising prices, particularly in the lower price point of the market ($700,000-$1,500,000) were factors that all agents consistently reported. The low interest environment that has been prevalent for many years is already changing, as interest rates begin to climb in accordance with improved confidence and increased buyer activity. It appears the world’s biggest superpower is cranking up its engine in preparation for growth and development, which is a positive and refreshing sign for a city that may never sleep but perhaps is now in need of some sweet dreams, given the challenges of the last 15 years.
All that said, as far as I’m concerned the grandiose delis, mega-sized department stores, impossibly high towers, international tourist icons and the glow of Times Square can wait in the sweltering heat for my next visit, as I cuddle up in the fresh Melbourne winter air to the sights of our trams, the scent of our beautiful, crisp gardens and the sounds of one of our auctioneers in full swing. I’ve concluded that this agent may or may not be ‘A-number one’, ‘top of the list’ or ‘king of the hill,’ depending on who you talk to, but in the meantime ‘you take Manhattan’ – give me Melbourne any time!
Gary Peer is the Principal of Gary Peer & Associates, and will be speaking at the 2014 Idea’s Exchange.
