Town Residential closing it's doors

If you have a signed contract for an exclusive with a Town broker, what becomes of that contract? Is it automatically transferred, without your consent, to another form or is it entirely null and void and time for you to self market or find another broker?

"Today I made the decision to pivot TOWN Residential from the re-sale and rental business to focus on the new development and international sectors. Due to the new realities of the new marketplace, it is simply impossible profit from those lines of business when considering the primary factors of the rapidly increasing agent commissions stemming from fierce competition to attract and retain the best talent; lead generation platforms; and the disruptions on the tenant side of the rental brokerage business. There will be another great endeavor to come, stay tuned..."

It's seems like a lot of folks are hurting these days. Too bad, lot of great guys at Town.

@wiseking, talk to your broker about that -- but it's likely that your broker will land at a new firm and ask you to move the contract over.

A friend I spoke with this morning, someone who I would say has a small sphere of business, is already on her way to Warburg. A "superbroker" I was in touch with said that he had offers from eleven firms. So it's chaotic right now, and it's sad for the industry because the firm had a reputation for being classy good guys, but everyone will land on their feet in the end. I wouldn't punish your broker for his firm's decision to focus on a different business.

ali r.
{upstairs realty}

- Dear Team, With my appreciation for your faith and trust, after much thought, consideration and analysis of the new marketplace we have made the decision to shift our business plan to focus on International and New Development. In plain language, our luxury rental and luxury re-sale business will cease operations on Friday, April 27th. We are here to work with you to ensure a smooth transition; please contact Samar Hamza or Marshall Garson with any questions or for further assistance. I know that you will find continued success and if there is anything I can do to help you now or in the future, please do not hesitate to call. Warm regards and the best of luck always, Andrew Town Residential Andrew Heiberger Founder and CEO Town Residential 888 7th Avenue 2nd Floor New York NY 10106

@thewiseking I've heard that exclusives and even in contract deals will follow Town agents to their new firms. However, check the language, perhaps you will have an out due to this event and be able to switch it up.

In terms of self marketing, that is up to you. There is plenty of self promotion on this forum for self listing or flat fee type seller services. I'm sure the discount brokers & their many usernames who keep clogging up this forum will be all over this.

@luxurybroker: Well, at least they're giving everyone a week's notice; that's thoughtful. Since it can take five days to transfer a license that gives associates several hours to sort through their job offers. /sarcasm off

I have a number of friends there many of them people I worked with many years ago at Citi habitats before Andrew sold the company. I actually leased Andrew his West Village office. He was always a very good guy to work for and very concerned about the well-being of his agents.

Keith
Tbg

While I find this shocking, I guess I can say it's surprising. Town went from zero to a hundred miles an hour in 10 seconds, and that is often a problem in many ways. They took on tremendous obligations by renting retail office space in some very expensive locations and then did expensive, luxurious build outs. If you are both going to do that and lure agents away from other firms by offering High commission splits (and these days, there is so much competition for high producing agents that I do not see any other way for a new-ish firm to get "star" agents. As Ali noted above, she spoke to an agent that already has 11 offers - I guarantee that at least a few of those offers are competing based on a high split), then what is left over for profit?

It's somewhat a tale of a lot of businesses we are seeing these days: startups are only interested in acquiring as much market share as possible with pretty much zero eye on the bottom line. Uber is valued over $70 billion and the last I saw they were crying because they managed to narrow their loss to "only" $741 million Q4 2017, down from over $1 billion Q3.

But to some extent you could see the writing on the wall because the most common way to tell when a firm is in trouble is when there are issues with agents getting paid. Remember there is zero "costs of goods sold" (as opposed to General operating expenses), so when a commission check comes in, the agent should get paid as soon as the check clears, unless the owner is a general scumbag. When I started at Bellmarc they were notorious slow payers so they could make money off the float. But Hank Sopher was worse. As a manager I had to go up to Hank's office

(continued)
And sit in front of him while he went through the checks which had already be cut to agents, and have to justify the him why the agents should actually get paid. Most times if the agent only should have received his compensation 2 weeks ago, Hank would say something like "it's only been two weeks, he can wait." One time, I had to sit waiting in front of him for 45 minutes while he argued with a supplier over $4 in light bulbs. Everytime agents needed new business cards we had to find a new printer because he had stiffed the last one.
Over the past few decades what I think has changed a lot in the real estate brokerage business is that a lot of the large brokerage houses are treating it like they are selling cereal. The way the big breakfast companies work is that they make all these different kinds of similar cereals, not because there is really a demand for them but because they want as much shelf space as possible. In real estate we have seen large companies gobble up a lot of firms, often leaving them as separate entities rather than folding them into large ones. I think a large part of the reasoning behind this is that they don't care which of their agents gets an exclusive as long as it is someone in their company. So if five agents are all pitching at exclusive, even if they seem to be working for different firms, they are actually working for the same parent company. So it doesn't matter to the parent company which agent gets the exclusive as long as it's one of the only agents the seller is seeing. Just like the breakfast cereal shelf space scenario.

I also have to wonder about the strategy of "refocusing on only handling new developments". Not only is that his this becoming more and more competitive from the brokerage side, and not only is that section of the market seeing a slowdown, but in terms of cash flow it's the slowest paying. You start marketing a big project and it can be years before you see your first commission check when closings start.

As far as exclusive listings "automatically traveling with the agent to their new firm":
You do not sign an exclusive agency contract with an agent, you sign it with the brokerage. So if a brokerage goes out of business, all its exclusives are null and void. In this case, it seems like the brokerage entity will still be in business so that's not the case, however if they are closing their retail brokerage arm they will not be able to service those lists things so they are probably avoidable. In either case, the only way of the listings remaining with the agent is if a new exclusive brokerage agreement is signed with the new broker. I would be weary of doing so without having something in writing from Town acknowledging that their exclusive was null and void (for some sort of confirmation that Town is no longer a brokerage entity), or a seller could find themselves with two legally valid exclusive agreements signed and be liable for two commissions to be paid.

In terms of deals that are already in contract, those certainly remain with Town, just like if an agent decided to switch agencies under normal circumstances. There is a fairly long history of Agents having difficulty collecting their commissions after leaving a firm (for example https://therealdeal.com/2016/10/04/compass-president-leonard-steinberg-sues-elliman-over-unpaid-commissions/ ).
I sued Sopher after leaving there and even though they said they never cashed any commission checks on the deals I said I did, when I presented copies of the checks made out to Sopher, the Court ruled that I was due my commissions because I did my job and if Sopher wanted to claim they never got paid they could go after the seller.

First I have to say you brought up some really bad memories of working at Sopher! You talk about weeks, I remember more like months and months to get paid. I think the company language was how many deals do you have in the books.

You bring up Uber which makes me think of Compass. What are your thoughts on their ability to sustain their business model once the VC money Runs Out? Town had some very good agents as well as good management and Technology. I like your cereal comparison, but I think some of these new firms are more comparable to the internet based companies. Pets.com anyone?? You can only sustain a business for so long that's running in the red. That's pretty basic economics.

The margins are already notoriously thin in The Brokerage business. So when you start over paying agents, offering bonuses and have very expensive Office Space you're going to run into some problems. And they were grossing a ton of money!

I think in the next 10 years you'll see a much different model for The Brokerage biz. I did approximately $90m in sales last year; I built my own website with Squarespace, run QuickBooks for accounting in the cloud, have a cloud-based CRM program and have a $300 Google Chromebook(which I love!). Along with my Google pixel phone it's smooth sailing and practically no overhead.

The bottom line all Brokers look for listings essentially in the same place, the RLS or one of its third-party vendors. All buyers search for listings essentially in the same place... on-line. So these days why do you need a $50,000 a month Office Space, a bunch of back office employees and a multimillion-dollar advertising budget? Just saying...

Keith
Tbg

Kieth,
The other newish firm with expensive retail offices is Core. They also sort of came out of nowhere. They are ranked 10th as opposed to Town's 8th in this article, and the chart says their sale volume is down 27%. The same chart lists Town as down 24%, both rather large drops. OTOH you see Compass up over 100%. They have opened a bunch of offices in other cities and appear to be much more well-funded than Town (and as far as I know by real VC guys, as opposed to a NY real estate guy who is having his own cash problems lately and I think Andrew had to buy him out, which led to not only having the investors cash no longer available, but he also have to come up with the cash for the buyout out of somewhere). That is not to say that Compass can't get bitten in the ass by this very aggressive expansion they are doing, and going into other cities where they don't have any real experience.
https://therealdeal.com/2018/02/19/we-ranked-the-top-manhattan-residential-firms-by-closed-sales-in-2017/

I started working for Sopher in the early eighties. I was pretty green then, didn't know much about real estate although I bought my co-op in 1980 when the building I was living in converted.
Sopher's office was on the East Side and I was told that I was hired due to the fact that I lived on the Upper West Side and it became common knowledge that maybe people will buy there, that they heard talk about this. All the women there had a wonderful coffee clutch going on, gossiping about owners. Most were there because they lived in prestigious buildings, and of course brought in listings. One woman there told me that if she had any listings on the UWS she would give them to me since she would not know how to get there. Sopher hired some people whose job was to impersonate buyers and go on appointments with realtors to get listings. Others were relegated to the black phone room to call brokers as prospective buyers.

Once I got an up meaning a walk in customer and it was so lucrative that the Vice President took it away from me.
After a few months there I had a buyer who wanted to sign a contract to buy a co-op. The Vice President called me into her office and told me that the buyer was her client and that she wanted half of my commission. I knew then what the term, she has her hand in other people's pocket was which is what other salespeople told me about the Vice President. I walked out never to come back and took the buyer to my new employer.
Looking back on my experience with Sopher I guess I should have realized how sleazy they were what with the black phone room and the people acting as buyers. Other salespeople there told me all brokerages do this, and that I shouldn't be concerned.
Not long after that I quit working for brokerage houses and started my own business with an attorney and started buying and selling tenants rights in buildings being converted to co-ops. It was a fun lucrative experience.

I did a longer post about this on my (firm's) Facebook Page, but the short version is: it's pretty clear that firms are choosing their positioning. CORE and Elliman are both connected to developers, so it makes sense for them to focus on New Developments because they're moving in-house product. Town Residential's founder has been a developer himself (at 88 Greenwich) and if thinks New Dev is the path for him, he's probably not wrong. And then clearly the war to be the biggest before the robots come is lining up to be a shoot-out between Compass and Corcoran/NRT.

However, I think there's still room for boutiques. Keith you left out three giant components of my budget: office rent, advertising of listed properties, and data services... but there's still a margin there if brokerages can keep from being greedy about it.

As far as the exclusives, The Real Deal is reporting that Town is willing to relinquish the exclusives in return for a referral fee. I haven't spoken to a Town agent yet to confirm that that's what they've been told, but it makes sense. I would certainly pay referral to get a good agent with an active listing, and I'm sure several brokerage managers are making the same calculation.

ali r.

Hi Ali,

In 10 years I've spent about $300 on Advertising, and that was an experiment with Google Adwords. I maintain a virtual office which allows me to keep my name plate down in the lobby so I can conform with Department of state regulations. Not exactly sure what you mean by data services but I pay about $1,600 a year to be a member of rebny and about the same for my account with real Plus. Quite honestly I'm scratching and clawing for deductions at the end of the year!

I look at traditional advertising in New York City as a way for big companies to establish brand. I quite sincerely don't believe it helps selling Apartments, though it may help you in listing Apartments. Just my two cents.

Keith

Keith, I hear you about the selling/listing distinction LOL -- but I do think ads help sell listings... and certainly, before the REBNY/NYT alliance, I felt good about buying Times ads because I felt like I was helping fund important journalism... perhaps my age is showing ...

Ha! I'm 54 but I've been going with the flow when it comes to the digital age. I know you've met Norman who's a writer/former Professor at Brooklyn College. He'd probably agree with you on funding important journalism. I haven't read the New York Times in 10 years, outside of a few pieces that pop up in my Twitter feed. Though there was a time I certainly enjoyed picking it up with my coffee and bagel on a Sunday morning and going through each section on the sofa with my girlfriend...

Streetsmart,
Don't forget they made the rental agents have their own phone at their desks which they had to pay for in order to make outgoing calls. The office phones were for incoming calls only.

@30 lol, that's right! And it was kind of a pita to set up your phone line I think you had to assign your desk an apartment number? If I remember correctly it was a very Antiquated system of button pushing to put people on hold and transfer calls Etc.

@30 yrs, I don't remember that. My department as I recall was strictly for sales.

https://therealdeal.com/2018/04/25/town-drops-25-referral-fee/

The article above states that Town is releasing the exclusive to the agent and their new firm without charging a fee. What is does not address is the owner/clients right to consider the exclusive contract null and void and to renegotiate terms if they feel they can do better than they did with Town. Given the new position of the broker at their new firm, it would not be unwise for owners/clients to do this.

If you don't feel like reading that article, a simple "Dave was right again" will do. LOL.

https://therealdeal.com/2018/05/04/lori-shabtai-sues-town-over-274k-commission/