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What RE/MAX's big push into the Buffalo real estate market means

RealtyUSA and Hunt Real Estate Corp. have dominated the local real estate market, but they are about to get competition from a national rival eager to make a big push into Buffalo.

RE/MAX LLC, one of the nation’s biggest and best-known real estate companies, wants to significantly grow its presence in Western New York, bringing more money and resources from the organization to its local franchise.

“We need to grow in Buffalo. We need a larger presence, as large a city as it is,” said Terri D. Bohannon, the corporate region vice president. “We like to go into a community and stir up the market a little bit. We feel like Buffalo is one of those untapped markets.”

RE/MAX’s emergence won’t necessarily enable Buffalo-area homeowners to sell their properties for higher prices or even pay lower commissions on sales. Commissions vary widely from firm to firm, and often consist of multiple parts. They can even vary within a firm, as individual agents decide how high to set them above a base amount. And sale prices are determined by the market, not by agents.

But it is going to mean more heated competition for the most precious resource in real estate: the best agents.

The region’s real estate firms, especially its two biggest, are constantly poaching agents from each other and smaller rivals with more attractive commission structures, benefits or resources. As with similar professionals in other fields, those agents bring their clientele and business with them. And unless the market itself grows, that’s the only way to increase market share.

To drum up brand awareness among agents and consumers, RE/MAX expects to increase its television, radio, print and billboard advertising in the Buffalo marketplace.

The company will also mine sales data to identify and target local agents with a high production volume and large clientele in an effort to build a more professional team and grow its customer base. And it will introduce its existing agent team locally to other services it offers nationally that they may not be familiar with, such as an online design center for brochures and fliers.

Primarily though, RE/MAX counts on recruiting agents from its competitors by letting them keep a higher share of the commissions they earn on each sale. But that may not work, undaunted rivals say.

“Their appeal is a financial appeal and that’s compelling to some agents. But agents have to make a decision: do they want to choose their broker based on who will pay them the higher commission or on value. There’s no way any broker can be both,” said Peter Hunt, CEO of Hunt Real Estate Corp.

Attracted by growth

The heated real estate market in Western New York appears to have prompted the Denver-based company to expand its two local offices with 28 agents. The Buffalo area has experienced a steady increase in prices for the last 20 years and more frenetic activity than other parts of the state. Homes are flying off the shelves in many neighborhoods almost as soon as they are listed, with multiple bids and heavy competition driving prices to new peaks.

Buffalo region home prices hit a record high for the month of June, while the number of homes available for sale tumbled to a record low, according to statistics from the Buffalo Niagara Association of Realtors.

Additionally, RE/MAX is counting on potential turmoil among real estate agents and consumers that could be created from Pittsburgh-based Howard Hanna Real Estate Services’ acquisition of RealtyUSA this month. That deal combined two family-owned companies and created the nation’s third-largest brokerage but also ended Orchard Park-based RealtyUSA’s independence. And it could trigger moves by agents to other firms.

Finally, RE/MAX is betting that its recent corporate acquisition of the previously independent statewide RE/MAX franchise in New York will pay dividends in strengthening its relationship with its local franchise, RE/MAX North, which is owned and run by Margaret L. Eisenhauer. The deal doesn’t change the ownership or operations of RE/MAX North.

“We’re very excited. We feel so much more connected to the power of RE/MAX,” said Eisenhauer. “They’re actively engaged, energetic and proactive. I’m expecting more growth.”

Last year, Eisenhauer’s agents completed 447 residential transactions, or about 17.8 per agent, and she has added four agents in the last year to her Amherst and Grand Island offices. She said she hopes to add at least another four in the coming months – one was hired this week – and also expects to start developing the brand’s commercial division, which will be new to Western New York. Additional offices are also possibilities in the future, she said, without giving specifics.

“We are proactively trying to work with our region owners,” said Bohannon, who’s now overseeing New York. Eisenhauer “has done a great job, has a good company, and she is ready for some growth. We’re ready to help her do that.”

But RE/MAX isn’t new to the marketplace, and has struggled to gain traction in upstate and Western New York over the last 20 years. “They’ve been here for a long time. It’s nothing new,” said Hunt, of Hunt Real Estate. “When they first came to town, they did all kinds of stuff to woo our agents. They achieved a certain market share off the bat that they maintained for a while, but they’re going in the wrong direction.”

And both Hunt and RealtyUSA are accustomed to competing successfully against Re/MAX, executives said.

“I’ve been banging heads with RE/MAX around the state for years. We’ve been very competitive and we’ve been able to grow market share and prevail,” said Merle Whitehead, CEO of RealtyUSA and now chairman of New York State operations for Howard Hanna Real Estate Services in Pittsburgh. "RE/MAX is certainly a great organization, but we compete very well against them in all markets.”

Difference in structure

RE/MAX’s financial structure won’t be as appealing for agents as it may seem, the rivals said. That’s because agents end up paying for a lot of other things at RE/MAX that they don’t at RealtyUSA, Hunt and other brokerage firms.

“If you just focus on the split, it’s a better deal,” Whitehead said. “Their business model gives the agent a higher split, but then in turn the agents pay for some other items that would be included in more traditional companies.”

Those items – such as rent for their individual office space, plus the cost of signs, advertising, copying and other expenses – are included in the package at many other firms like Hunt and RealtyUSA, which can afford to pay for training, supplies and other resources precisely because they keep more of the commission for overhead. By contrast, RE/MAX’s structure gives the agents more money but leaves the franchisees unable to cover those costs.

“If I’m paying out 100 percent of the commission to the agent, what do I have left to pay the bills?” Hunt asked. “It just defies any kind of business logic. So they have to extract their revenue stream through a series of fees and rents for space. We’ve chosen just not to go in that direction.”

Indeed, Whitehead noted, many RE/MAX agents lacked cash flow to pay their rents during the 2009 recession, forcing them temporarily to go to more traditional and lower commission splits while they built up debts to their broker-owners. And some RE/MAX franchises have gone out of business across the state.

On the other hand, RE/MAX might pose more competition for agents against smaller real estate firms in the area, including national franchises that lack a big market presence. Besides the market’s big three firms of RealtyUSA, Hunt Real Estate Corp. and MJ Peterson Corp., RE/MAX competes against a host of other national brands, such as Coldwell Banker, Century 21 and Keller Williams, and locally based firms like WNY Metro, RealtyEdge, Gurney Becker & Bourne, Stovroff & Taylor Realtors and J. Lawrence Realty, among others.

“There’s probably more pressure on smaller companies because they just wouldn’t have as many resources to compete,” Whitehead said. “A small independent without those tools would be at a competitive disadvantage.”

Founded in 1973 by Dave and Gail Liniger, and still based in Denver, RE/MAX has more than 100,000 agents in nearly 100 countries, and is ranked as North America’s leading brokerage brand by number of transactions. All of its offices are independent franchises of the corporate brand. But the privately owned company also sold off many of its statewide and regional operations – known as master franchises – decades ago to raise cash to expand.

Now a publicly traded company after an initial public offering three years ago, RE/MAX has been reacquiring many of its regional franchises as those owners aged and sought an exit. Since 2007, the company has repurchased 12 master franchises, including California-Hawaii, Carolinas, Florida, Mountain States, Texas, Central Atlantic, Southwest and Alaska.

Most recently, this month, it repurchased its Long Island-based New York State region from Pierre Titley, who has owned RE/MAX of New York since 1987, and still owns RE/MAX Quebec. That purchase gives RE/MAX more control over its 60 independently owned and operated offices from Buffalo to Long Island, with 850 agents.

“Our goal in New York is to support the development of our affiliates and to expand our presence across the state,” said Dave Liniger, chairman and CEO of RE/MAX LLC. “Our focus is always to provide the tools they need to deliver the best customer service possible to homebuyers and sellers.”

email: jepstein@buffnews.com

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