Inside the WRA
Inside the WRA with Bill Malkasian
 Last month I shared some of the statistics that were compiled as part of our strategic planning process. This month I've included the second part of that information, gleaned from focus groups in April. We found that housing sales throughout Wisconsin continue to be at or near record levels through April of 2003. While participants reported that there was some softening in the higher price ranges and an increase in foreclosure activity in several markets, overall housing sales are brisk at all levels and in all regions of the state.
Other issues included profitability, which continues to be a challenge for many Wisconsin
RealtorsŪ; the incidence of discount brokerage firms was noted in several regions; some firms continue to cite problems with the quality of sales associates and their conduct in the market; and the area of risk management is causing greater concern than in the past. Smaller brokerage firms are feeling the pressure of the growing complexity of the business. The challenge of staying aware of all the issues involved in managing a brokerage business while also performing listing and selling personally are becoming more of a concern for small firms.
Participants noted that there has been a large increase in the number of qualified persons desiring a career in real estate. Recruiting in most market areas has been relatively easier than in years past and the overall quality of persons desiring to enter real estate is higher than in the past.
Profitability
A majority of brokers indicated that this was an area of great concern. Continued pressure on commission rates, the increase in both the level of referral activity as well as the price of referrals were cited as significant causes. Following these issues were the continued rise of commission costs and the increase in general business costs.
Many firms have responded to these pressures by adding related services and products to their business. This is especially true among larger firms in the focus groups. Others indicated that they are trying to recruit and grow their firms while containing overhead. While margins for larger firms are usually smaller than those for smaller firms, it is the smaller firms that are expressing the most concern over the direction of profitability in pure residential brokerage activities.
Pressure on commissions from discount brokerage firms is moderate to increasing, depending on location. Some regions reported little issue in this area while others reported a growing concern with the number of firms offering formal discount brokerage and the amount of the discounts. Many brokerages confirmed that their own associates are seeing an increased number of discounted commissions.
Referral fees are rising for most brokerage firms and the number of assignments with a referral fee requirement are increasing and are impacting profitability. This is an area of growing concern, particularly when considering the issues of online referral fee models and the operation of Virtual Office Websites
(VOWs).
Quality of sales associate and brokers
In every region save one there was considerable comment about the rise in issues between sales associates. Procuring cause issues and lack of proper conduct were the two most frequently mentioned here. Many indicated that they felt the problem was primarily caused by lack of supervision by brokers or by the lack of willingness of brokers to work together to resolve issues arising between respective sales associates.
A majority of participants said that they felt the qualifications of education and experience required to attain a broker's license were too low. It was felt that many of the problems associated with poor sales associate performance would be solved with more experienced brokers.
Most commented that the overall quality of people entering the real estate business was of a higher quality, generally, than had been the case in the past. There were some who said that generally they were younger as well.
Risk management
A growing problem in all regions is the availability and pricing of homeowners insurance. Due to changes in the market for such products and the reliance of most providers on the CLUE (Comprehensive Loss Underwriting Exchange) system, consumers who have filed a claim in the past or properties that have had a claim filed in the past are having difficulty in getting coverage. This is causing some distress in the housing markets in Wisconsin and most other states as well.
Brokers are somewhat aware that they are facing rising risks in the ownership and management of their firms. While there is no difficulty in getting errors and omissions insurance at this time, and price hikes are moderate, brokers are aware that elsewhere in the country availability, price and coverage have turned very unfavorable to residential real estate companies.
Brokers are also aware that the total risks of the business are climbing as they face more complex issues ranging from employment issues to environmental, agency law issues to IRS provisions as they pertain to the independent contractor safe harbor provisions.
There was some interest, particularly among small to medium sized firms, for assistance from the WRA in assessing risks across the board and policy formation as to how to obviate such risks in their business. Larger firms having in-house counsel did not indicate as great a need in this area. Many are in close contact with WRA counsel on these issues on an ongoing basis.
Housing market
Broker's comments generally supported recent consumer research done for the Wisconsin
RealtorsŪ Association by NAR pertaining to homebuyers. Wisconsin brokers said that they noticed that many of their buyers were first time (study said over 52 percent were first time) and that there was a marked increase in the number of single women homebuyers, whether they were single heading a household or single without a household (study said 24 percent were female-headed households).
Brokers indicated that the Wisconsin housing market is healthy in most respects. Virtually all regions reported that housing sales were brisk, whether first time, move up or vacation/second home communities. Softness was reported only in the upper price ranges.
Participants noted that there is a measurable rise in foreclosures around the state. They also noted an increase in the "gifted down payment" programs now becoming more prevalent for first time homebuyers.
VOW (Virtual Office Websites)
Brokers indicated a high degree of concern about the use of their listing data by new model referral companies. However, this issue is ameliorated by certain rules inherent in Wisconsin law that protect Wisconsin brokers and sales associates from the illicit use of their data.
Future views
While brokers indicated that they are concerned about the profit squeeze, most brokers remain very optimistic about the near term, two to three years out. Despite the issues raised in this report, we found most brokers feeling comfortable about their businesses over that time frame.
Regional Summaries
Eau Claire
Business remains strong in this region. Major issues for brokers revolve around the quality of associates and the relationships between brokers in the market. There is also a remaining issue due to the consolidation of several local boards of
RealtorsŪ which has resulted in brokers and associates working together where no such cooperation had occurred before.
Profit pressures were pronounced in this region. The incidence of referral fees, lower commission incomes and rising costs were also more a factor in this market than in any other. There were varying feelings about risk management issues in this region, with some seeing a large and growing problem and others who felt that it was not yet a large problem.
Other concerns related to the "no-call" regulations and the influx of new people into the business without proper field level training. There were also comments about the lack of broker supervision. Many feel that getting and retaining a broker's license is far too easy.
Stevens Point
The state budget deficit and possibility for increased real estate related taxation was an important topic of discussion. There is recognition that real estate is one of the few healthy parts of the Wisconsin economy and that new or elevated taxes may be one outcome.
The issue of quality of sales associates and brokers was also discussed. It was the feeling that while the quality of new people coming into the business has improved over past years, the quality of their training and their supervision had not kept pace and needs improvement. The ability of brokers to work out problems was being inhibited because of this issue. There was a comment that training courses that had previously been delivered by national franchises had been discontinued by most and that insufficient educational offerings had been put in place to replace them.
Profitability and the pressure on commissions were also mentioned (as they were in almost every region). The costs of doing business seemed to be paramount here as well as the increase in referral related activity.
Appleton
Profitability topped the list of issues in this region. Brokers said that pressure on commission pricing, rising commission costs and increasing business costs were all moving to reduce profitability in the brokerage business. Particularly, the cost of technology was mentioned in this region.
The market is very strong in the region in virtually all price points and listings are low compared to demand from buyers.
There is strong incidence of increased referral activity and continued presence of non-traditional real estate business models. Comment was made that both referral fees and the number of deals with referral fees were increasing consistently. New discount models were also making their presence felt more than in the past.
New people coming into business are at record levels and the quality of such people is higher than in the past. Current associates are more experienced and more knowledgeable as well and make for a better market. Some commented that brokers need better education and higher requirements to make the market work better.
Risk management issues are starting to weigh on some participants. Specifically, the market for homeowners insurance is getting much tougher. This has caused new stress on getting and keeping deals together.
Madison
Brokers report that their market is extremely strong in most price ranges. They also reported that more transactions are carrying a referral fee than ever before with more conditions attached to them. Commission are being pressured as well from consumers.
VOWs are a concern, but again are not as large as elsewhere due to Wisconsin statutes. Technology costs are not as significant a problem as they were in other regions.
Business costs and pressures on commissions are creating pressure on profits, but these are offset in some larger firms primarily due to settlement services and product sales.
Risk management issues and the problems in the homeowner's insurance market are also on the rise in this region, but not at a critical stage. Deductibles on errors and omissions policies have gone up, but not substantially.
Brokers are very optimistic about the near term for their businesses over the next two to three years. There is increased incidence of gifted down payment programs, but no significant increase in foreclosures in the Madison market as there are in other southern Wisconsin markets.
Milwaukee
The deterioration of relationships between market participants was noted in this region as a primary concern. Brokers feel that while sales associates have maintained or even increased their professionalism, supervision by brokers has fallen, making the market more difficult to operate within.
Concerns with the direction of the use of the Internet were expressed here to a higher level than in other markets. VOWs were seen as harmful developments while IDX was seen as very positive. Some said that the Internet is now moving away from a content model to a referral model with potentially destructive outcomes for traditional brokerage firms.
Foreclosures are on the rise as are the use of gifted down payment programs. Otherwise, the market is strong and appears to be very healthy for the rest of the year.
Risk management was raised as an issue and, as in other regions, homeowners insurance was a primary issue with the spread of other new risks for brokerage firms becoming more apparent.
Other
The issue of the "no-call" provisions of state law was an issue for every participant. It is clear that current regulations have the potential for causing serious harm to the brokerage industry's ability to provide common services to their clients.
Opportunities
There appear to be three areas where the Wisconsin RealtorsŪ Association could participate in meaningful ways. They are as follows:
Revise and restructure rules pertaining to the issuance of a broker's license;
In virtually every region, brokers said that the quality of associates, both new and existing, was getting better, but that the critical problem was that brokers had not increased their level of expertise, and that current rules pertaining to getting and keeping a brokers license were not well related to the actual day-to-day requirements of being a professional in today's market.
Work to amend the "no-call" provisions of state regulations;
The ability of sales associates to stay in touch with current and existing past clients is severely restricted by these provisions. WRA has plans to address this. The members support such efforts without reservation.
Establish risk management assessment tools for brokerage firms and for associates.
Brokers are aware that, although errors and omissions costs and coverage have not changed substantially over the past few years, in most other parts of the country they have done so. Further, there is a realization that most brokerage firms do not possess access to adequate counsel to identify and correct deficiencies in their company policies in terms of all of the various business risks faced by owners of a brokerage business.
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Chairman's Corner with Bob Weber
 As I sit here writing this article, it is a beautiful day in Madison. Looking back over the last few weeks, there is certainly much to reflect upon. The "No Call" lawsuit has been filed, we just returned from our annual May visit to Washington D.C. and we are preparing for the
RealtorŪ and Government Day on May 22.
By now, you should have received information, through several different mediums, pertaining to the "No Call" lawsuit. The action was filed May 9 by a coalition of similarly interested parties, one of which was the WRA. The action is not against the legislation, but rather the implementation of the law. The rules far over reach the legislative intent and, after exhausting all other possibilities, the board of directors felt that the pursuit of a legal remedy is the only resolution.
In Washington D.C. last week key issues, the most prevalent being VOW's or Virtual Office Websites, dominated the conversations. By now, most of you are familiar with VOW's. The NAR Board of Directors followed the VOW Committee's recommendations and allowed for broker "opt out", both collectively and selectively, and allows State Law to prevail in those states where VOW's would be considered advertising. This result allows for maximum flexibility by participants and provides guidelines to develop this new business model.
The Hill visits proved once again successful with one-to-one visits with all of the Wisconsin delegation. The issues of note were banks in real estate, national disaster insurance, the American Dream Down Payment Act, and the Affordable Housing Production Tax Credit. The responses were generally positive and truly emphasize the value of such visits. For detailed information you may e-mail myself or Bill Malkasian from the WRA.
I had the opportunity to have my wife and two sons on some of the Hill visits. Alex Weber was able to bring lobbying to a new level when Senator Herb Kohl asked him for his question. He promptly responded, "So...why did you trade Ray Allen?" You can imagine the response from Senator Kohl, as well as, 20 or so other Wisconsin constituents in the room. Relationship building and a little fun made for a memorable trip.
I hope to have an opportunity to talk with you at our RealtorŪ and Government Day. It is an exciting agenda. Thanks again, and enjoy the warmth and excitement of the changing season.
Sincerely,
Robert Weber, WRA Chairman
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WRA Board of Director Regional Representatives Announced
The WRA Board of Directors, at their May 9, 2003 meeting, voted to elect the following Regional Representatives for service on the 2003-05 Board of Directors.
| Region |
Regional
Representative |
Term |
| One |
|
(no open positions) |
| Two |
Susan Mathews - Mardi O'Brien Real Estate |
2-year term |
| Three |
Peter Ogden - Ogden & Company |
2-year term |
| Four |
Jeff Jones - Adashun Jones |
2-year term |
| Five |
|
(no open positions) |
| Six |
Stacey Haley - Edina Realty |
2-year term |
| Seven |
|
(no open positions) |
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