A shakeout has begun to hit the local residential real estate sales industry.
As home sales have plummeted throughout the region, a host of local and national residential sales offices have closed recently amid a wave of branch consolidations.
The Business Journal has confirmed that in the last 60 days at least six residential brokerage branch offices have closed or are in the process of doing so, most on the Westside or in the San Fernando Valley. Hundreds of brokers have been consolidated to other offices, and some have left the industry.
Several said the consolidation wave has just begun.
"I'm seeing closings going on all over Southern California," said Syd Leibovitch, president and owner of Beverly Hills-based Rodeo Realty, an independent residential brokerage.
The main culprit: a precipitous drop in home sales as interest rates have gone up. In July alone, the number of home sales in Los Angeles County plunged 34 percent to 6,146 compared to last year, according to HomeData Corp., which compiles home sales data for the Business Journal.
July's drop follows six consecutive months of lower home sale volumes compared to last year's historic high levels. That has lengthened the average time a home stays on the market to 36 days from 22 days a year ago, according to the California Association of Realtors.
Home prices are still rising albeit at a much slower 7 percent annual clip instead of the 20 percent plus jumps of recent years sales volume is much more important than price for residential brokerages. With fewer homes changing hands each month, commissions and revenues are down at brokerage offices.
"If you're not making enough in the office, you have to close it down," Leibovitch said.
The situation has been compounded by an influx of newly minted agents hoping to make a quick buck in the recent overheated housing market.
In the last five years, the number of licensed Realtors in California has roughly doubled to 504,000, according to the California Association of Realtors. As a result, agents on average are handling five transactions each year from a high of 11 in 2000.
"Any time you get under six transaction sides represented in a year, a drop in our membership rolls soon follows," said Robert Kleinhenz, deputy chief economist with CAR, which now comprises over 200,000 members.
The actual number of branch closures is difficult to pin down, but several in the industry said it's clear that few if any offices are opening and several have closed or will close. Some believe the number of closings could be big.
"I believe you will see 20 to 25 percent of brokerage offices closing in the next 18 months," said Jimmy LaPeter, a Century 21 franchise owner.
That in turn would likely lead to thousands of residential real estate agents being laid off or leaving the industry voluntarily. In the slowdown of the early 1980s, roughly 30 percent of agents left the industry; closer to 40 percent left following the real estate crash in the early 1990s, according to the California Association of Realtors.
One of the biggest offices to close lately is in the heart of Beverly Hills: Sotheby's International, a unit of real estate brokerage giant Realogy Corp., is closing its Rodeo Drive office and relocating most of its 150 brokers to other offices.
One broker who recently left the Beverly Hills office of Sotheby's rather than be relocated said the market has definitely turned.
"It's gone from being overheated to more normal very quickly and that's meant downsizing," said Philip Buck, who just joined the Beverly Hills office of Rodeo Realty.
Earlier this year, Sotheby's cut agents' commissions as the company attempted to collect more money to cover fixed overhead costs. Then, in late June, word got out that offices in Beverly Hills and Palm Springs would be shuttered by the end of August.
Another agent, who asked that her identity not be revealed, said business got so slow at the Beverly Hills office that it became a joking matter when the former office manager asked agents if they had a sale in escrow.
"It used to be half the office would raise their hands and recently it's just been a few," she said. "(The office manager) would jokingly say, 'Well, we can always start an ice cream parlor in back.'"
Sotheby's declined to comment for this story.
But some brokerages see the slowdown as an opportunity. Rodeo Realty is trying to capitalize on the industry downsizing by snapping up talented brokers from closed offices.
To that end, Leibovitch is hosting a "recruiting party" this week at the Beverly Hills Hotel, with the express aim of trying to get some of these displaced brokers on his team.
Another player trying to capitalize on the downturn is LaPeter, who owns 10 Century 21 franchises throughout Southern California. LaPeter is looking to acquire up to dozen additional Century 21 franchises; if the deals are completed, he said consolidations might follow.
"With the market changing, it's going to be tough for a lot of brokers to stick it out," said LaPeter, adding he may consolidate his own offices in West Covina and West Hills, though a final decision has not been made.
Also closing offices in the region is Coldwell Banker, another unit of Realogy Corp. Coldwell has already closed offices in Agoura Hills and Burbank.
"We didn't lose anybody; we just consolidated," said Jann Berman, spokeswoman for Coldwell Banker Residential Brokerages in Los Angeles and Orange County. "We are always looking to make sure we are making economic sense and our strategy is to be smart about our operating costs."
Corporate, independent closures
These closures, along with those at Sotheby's, are taking place against the backdrop of a nationwide consolidation by joint parent company, Realogy Corp., which just this month was spun off from Cendant Corp. Realogy also is the parent company of NRT Inc., the largest owner and operator of residential real estate brokerages in the U.S.
In a conference call on Aug. 10 in conjunction with the release of second quarter results for both Cendant and Realogy, Cendant President and Chief Financial Officer Ron Nelson said the slowdown in the California and Florida real estate markets were largely driving the consolidations.
"Realogy has worked to rationalize NRT's fixed costs through office consolidation, headcount reduction and other moves," Nelson said.
In many instances, the consolidations are working in reverse of the brokerage acquisitions that Cendant undertook in the 1990s. Those offices that were acquired latest, such as the Sotheby's office in Beverly Hills, are the first to close.
Big brokerages are not the only ones to consolidate offices.
"Independents are also vulnerable; they may not have the deep pockets to get through a prolonged slowdown," Leibovitch said.
In Los Angeles, Boardwalk Properties, recently closed its Santa Monica office and consolidated the agents there to nearby offices. Steve Aguilar, Boardwalk's president, said that the immediate trigger for the closing was a buyout offer for the office space from the landlord, but he admitted that the home sales slowdown was a factor.
"It definitely played into our decision. The timing of the closure couldn't have been better," Aguilar said.
Another independent brokerage, Troop Real Estate Inc., has closed its Agoura Hills office, consolidating the brokers into its Westlake Village branch.
Currently, membership in the local chapters of the Realtors' association continues to rise, Kleinhenz said. But he said he expects that to reverse next year. Indeed, the mindset has already changed among agents from the "hop-on-the-bandwagon" mentality of just a year ago.
"Right now, I'm seeing disillusionment from agents, who are now realizing that this is the normal market and you just have to work a little harder," said Bill Toth, owner of Windermere Real Estate in Burbank.
Toth said he is already seeing some agents the "Johnny-come-latelys" as he calls them leaving the industry. "These are the people who were seeking to make a quick buck. Those who will be left will be those who make a living and depend on it and have built up relationships, clientele and trust over time."
Staff Reporter Daniel Miller also contributed to this story.
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