Matthew Blake: Hello, and welcome to “Houses in Motion,” part of the “HousingWire Daily” podcast feed. My name is Matthew Blake, real estate reporter with HousingWire. In our prior episode, we interviewed Shaival Shah, Ribbon, about how Ribbon is trying to change real estate. And recently, I’ve spoken and written a lot about Power Buyers, iBuyers, new brokerages, new companies drawn to real estate’s trillion, gazillion-dollar total addressable market and trying to cash in. This week is something different. I interviewed Howard Hanna IV, better known as Hoby Hanna, the president of one of real estate’s largest incumbent players, Howard Hanna Real Estate Services.

Hanna is the grandchild of the company’s founder, Howard Hanna II, who died in September at the age of 101. Hoby Hanna directs the business and operational efforts throughout Howard Hanna Real Estate Services. He oversees merger acquisitions and franchise sales, and Hanna works closely with the company’s mortgage, title, escrow, and insurance services. Howard Hanna ranks seventh on RealTrends rankings for the biggest brokerages by sales volume in 2020, to give you some sense of how big the company is. They had a $27 billion sales volume and also reported 105,000 transaction sides for the calendar year 2020. So I discussed with Hoby Hanna where his brokerage fits into the current U.S. real estate economy, and how to stay competitive amid competition from new brokerages and also sell-style tech companies and mortgage lenders investing in real estate. You can always email me at mblake@housingwire.com. That’s mblake@housingwire.com.

We are here at “Houses in Motion” with Hoby Hanna, president of Howard Hanna Real Estate Services. Hoby, great to have you on the show.

Howard Hanna: Oh, thanks, Matthew. Glad to be on the show. Appreciate the offer.

Matthew Blake: Yeah. So really good to have you on. Howard Hanna Real Estate Services is a major brokerage in the United States that frankly, maybe I don’t report on as much, we don’t cover as much. And what should a national audience know about Howard Hanna Real Estate Services?

Howard Hanna: Yeah. That’s a great lead-in question. So what I would say is our company, Howard Hanna Real Estate was started by my grandfather, 1957 in Pittsburgh. Today, the Hanna family of companies is the largest independently-owned real estate company in the United States. We’re still privately-owned, family-owned. We’re in 12 states. I say the family of companies that we…and most of the markets we trade under the Howard Hanna brand, Howard Hanna Real Estate brand. However, in our family of companies, we also have the Allen Tate Company is owned by us, which is a Carolina’s company and one of the largest companies in the country, and then the F.C. Tucker Company in Indianapolis. We are fully integrated real estate brokerage firm, and have been since the early ’80s, meaning that we do real estate, mortgage, title, and insurance. So all parts and pieces.

When you see a lot of companies today figuring out how they get into the mortgage space, or mortgage companies thinking about getting into the real estate space, we’ve been one company fully integrated since the early ’80s. And we look at ourselves, although we’re third generation, a lot of our growth has happened through a lot of mergers and acquisitions and the noble growth into new markets since really the 2000s. And we’ve done that with a lot of innovation creating a lot of disruption in markets. We have, I think, one of the best marketing technology stack in the country, what we’ve built and put together. And, you know, we have that mix of, as I say, traditional, you know, basic blocking and tackling real estate brokerage and sales tied to bringing the most innovative technology and marketing programs to the forefront, and all on a basis of helping our agents be some of the most productive agents in the country.

Our average agent sells about 10 homes a year. That’s our, you know, per agent per sale basis. And so we really focus on how do we provide everything for an agent to really provide for themselves, their family, and their customers. So that’s a little who we are, and I hope that answers some of that perspective.

Matthew Blake: Yeah, for sure. I think it’s really interesting that you started mortgage and title back in the early 1980s because that’s something that I look at a lot in terms of, you know, for example, Compass as we’re getting into mortgage now, we’re getting into title. Other real estate shops are saying we need to be more of an all-around player in all the different components of the housing transaction. Could you say a little bit more in terms of…I mean, obviously, you’re a private company and I respect that, but could you say a little bit more about like how important the real estate, you know, sale is in terms of generating revenue versus title and mortgage? Is it like a third, a third, a third, or is one kind of more important than the other?

Howard Hanna: Yeah. We look at it that they’re all as important into the whole transaction. I guess, to answer that question, I back up the sort of always like to look at the why we did something. So we entered the mortgage space in the early ’80s. At that time, we were a smaller Pittsburgh-based company and really reliant upon the savings and loans. In the late ’70s, ’80s, most mortgage business was done by savings and loans, local savings and loans. And in the early ’80s with rising interest rates and not as much return on the savings side…of the savings and loans with the more emergence of the commercial bank, getting financing for houses was very difficult and you might stand behind the line or only how much one of those savings and loans had for sale to give out. So my dad and my grandfather at that time realized that we could be most innovative sales organization and we could have great sales agents, but you need to have financing. And if we just rely on cash sales, so how do we better control our destiny with financing?

And so they bit the bullet and cobbled a bunch of money together and went out and borrowed from a teacher’s pension fund that was doing mortgage loans at I think 16% interest rates when the prevailing rate was 18%. And when we started that, we said, we’re only gonna…our mortgage company was set up to service the customers and clients that were working with Howard Hanna agents. And that’s still what we predominantly do. That’s our culture is that we’re not looking…we’re not a really aggressive refi shop, we’re really focused on the purchase money business. And in traditional market, we do about 8% refi. Maybe over the last couple of years, it’s been about 15 of our total mortgage portfolio. But we’ve grown to be a mortgage bank where we’re doing over $3 billion in mortgage lending. It’s a core competency of our business. Our market still is. We don’t really advertise to the public as much as we do to our agents and their clients and customers, our offerings, and our rates, and product and service.

And it is as important as all the other pieces, same with title in the markets where we have title companies to be able to help the cost and the transaction and the process. So we think we’re driving some really competitive total pricing down. In terms of distribution of the company, brokerage, and this is, you know, a focus for us, the Hanna’s all started in the real, like I started in real estate sales, everybody… So the brokerages are probably the core love to begin with. So we look at it and say that brokerage is never to be a loss leader for one of the other businesses. Like, still the largest revenue source we have is the brokerage business, and the other parts and pieces. So we’re probably globally about 36% of the revenue comes from brokerage, and then we’re probably another 15% from mortgage and then title, insurance, and some of our other business operations make up the balance of the total scope. So it’s brokerage first, and then everything drives off the brokerage business.

Matthew Blake: Yeah. And you’ve made, obviously, some huge brokerage acquisitions with Allen Tate, for example. Have you done the same with mortgage at all?

Howard Hanna: We have, but mostly it’s been through acquiring the affiliated mortgage companies that are tied to a brokerage firm or that they had maybe a joint venture partner with and said, “Hey, why don’t we buy a mortgage group and put it all together?” So, you know, that’s where we… We’ve bought, you know, a JV mortgage brokerage firm in Cleveland that was affiliated with Wells Fargo years ago and rolled that into our existing mortgage company. We acquired an independent mortgage brokerage firm in Buffalo and Rochester and added that to our existing mortgage firm that we had there. So we’ve done probably over the years, three or four mortgage acquisitions, as well as brokerage acquisitions.

Matthew Blake: Yeah. And one more thing on the mortgage, if I’m understanding you correctly, it sounds like predominantly purchase, it sounds like a lot of this is dependent on sort of like, I guess, as they say, an attach rate where like you’re basically able to successfully persuade Howard Hanna Real Estate agents to nudge their client to the mortgage. Hoby, is that an accurate, fair way to say it?

Howard Hanna: That’s accurate. I mean, it’s interesting, we nudge based on having great loan officers and service. It’s interesting our real estate agents hold our affiliated mortgage company to a higher standard. By that I mean, if we don’t do a good job, they don’t let us forget because they look at it as it’s called Howard Hanna Mortgage. So they feel like it’s a direct reflection on them and their business. So we have to like always up our service game and our pricing game as much as possible. And then the other thing is that what we really try to do is every one of our branch offices is more or less set up like a mortgage branch as well. So they see the loan officer, they’re integrated, and we’re able to do a lot of things around…

Where I think part of it comes to play is that when we build that culture and it feels like one team and people are really connected, what we’re able to do is get the mortgage process early in the funnel and not by having to buy leads and redistribute things. If you’re really creating the culture, it’s that our loan officers through their relationships with the agents, they know when an agent has somebody in their car looking at houses. So we’re getting the preapproval earlier. They come to an open house or they walk into an office. So we’re really early on getting that top of funnel without having to, like, try to do it all through lead generation and so on and so forth. And so, it’s a nice complimentary. You know, really we use an internal concept of one team, one dream, which is really that we’re all tied together to create thi value of homeownership and help it be effective for all consumers in all markets.

Matthew Blake: A couple of questions about where Howard Hanna operates and like, well, first off, maybe…I mean, you guys obviously started in Pittsburgh, you’re now big in North Carolina, big in Ohio, Indiana. What is the median home price or what can you say is sort of the “average client” that Howard Hanna might work with?

Howard Hanna: I’d say probably across the board medium we’re probably about $240,000 in terms of sale price. We in a lot of markets are really strong luxury. I think in, for example, like both Pittsburgh and Cleveland above $1 million, where around 60% of the home sold above $1 million. We’ve really grown up focused on that luxury without it being a boutique luxury brand. We just have agents and programs that really tie to that. But our bread and butter in most of our markets is that $230,000, $240,000 price point. Now, it varies. The Virginia Beach, Charlotte, Raleigh, price points are higher. You know, w’ere in New York, New Jersey, Westchester, Rockland, Bergen counties where the sale price is significantly higher than it is in Detroit, Pittsburgh, Cleveland. But so we sort of, you know, have as many markets as we can cover, but we haven’t just tried to be a niche, we’ve tried to be able to service all price points, whether it’s first-time buyer, where the person moving into their luxury, you know, dream home, it’s everything in between in a core city and a core market.

Matthew Blake: Yeah. I think the markets you’re in are really interesting to look at because they’ve gone through a lot of changes, good and bad economically. And so, like, you’re specifically are based in Cleveland, and which Cleveland is known perhaps unfairly as an economically depressed region in the country. What can you say about the area’s housing market? Does it have the same high demand and low inventory as the rest of the country, and what is different about Cleveland?

Howard Hanna: I grew up in Pittsburgh and moved to Cleveland in 2003, and somebody might say, well, Pittsburgh and Cleveland are pretty much the same city. They’re two hours apart. Other than having an intense football rivalry, they are very similar cities. They’re cities like a lot of the markets we’re in that have reinvented themselves coming out of the ’70s and ’80s big steel and, you know, automotive in some of the American industries. They’re cities that are tied to healthcare. I mean, Cleveland might have some of the best healthcare in the country with the Cleveland Clinic based here, university hospital system. And same with Pittsburgh as an example, same with a lot of those markets. It has technology that’s emerging with some of the universities like Case Western Reserve, you know, Cleveland State doing some incredible programs. John Carroll University, the Akron, Kent State, you’ve got a great college population, so a lot of people are staying here with new innovation. And those universities sort of looking at how they embrace new technology, a new startup. A lot of strong banking businesses in these markets.

PNC, KeyBank to name two that are pretty national players based in cities like that. And then you’ve got a of people that just are passionate about being from Cleveland, who are family generational businesses, privately held companies, you know, multi-generational privately held companies. So because of that makeup, it might from the outside look like a depressed market, but it really is an emerging growth market, more than one may think, and has a lot of excitement on its future. From the housing perspective, it looks like everybody else. You know, we are seeing a low, low supply, high demand. We have a lot of those people from those colleges and universities that have decided to stay here who might have been renters are now buying, but we still are very affordable. So you could look at a first-time home and you could still find something in a great street, great neighborhood, great house with a backyard between, you know, depending on the neighborhood, you want $150,000 to $350,000. You still have that entry-level product, which has pushed its price, obviously, because of the demand and the lack of supply.

We have a real challenge in a lot of our markets of lack of new construction. You know, and that trails different ways. It’s because of the lack of some of the national builders being in a market, the smaller builders never recovering from the recession, and then a lot of entitlements and, you know, just like every city, communities that it’s slow to get development done and it’s costly today. I do think, like every city, we’re seeing a challenge of what I would call real affordable housing. You know, that under $200,000 coupled with same thing with newer rental housing for shelter and demand in certain neighborhoods. But, you know, I love cities like Pittsburgh, and Cleveland, and Detroit, and Buffalo, and Rochester. You know, markets that everybody else who’s probably watching your podcast is like, “Why would they be doing business there?” Well, we’re still, you know, selling 130,000 homes in those markets. And then you add in the greater New York tri-state area with our markets there, and then you add Charlotte, and you add Indianapolis, and you know, Raleigh and a lot of great emerging markets. So we’ve done probably 25 M&A deals that’s taken us into markets in the last 10 years. And we’ll continue that. And we think we are a consolidator of brokerage firms that maybe are looking for an exit in a lot of targeted cities that are out there that we’re not in today.

Matthew Blake: I mean, like, I’ve been to Cleveland several times myself and there’s whole areas that seem, you know, like they could really use new construction and it’s sort of an older housing stock compared to…you know, a lot of times I’m reporting on, you know, Phoenix, Atlanta, Tampa, or something, you know, Cleveland’s completely different story than that. So could you just elaborate a little more on like why supply is low in Cleveland? If the demand is there as you’ve described, like, why haven’t builders come in and constructed in some of the more vacant areas or less developed areas in Cleveland?

Howard Hanna: Cleveland as a region is really sort of quite interesting that you have the city of Cleveland, which was one of those unfortunate post-World War II great migration cities where suburbia got built up. People started leaving the city neighborhoods themselves going into the new suburban markets. And then with the change in the economy and industry of Cleveland, what happened is that there’s the city of Cleveland and then there’s the surrounding suburbs of Cleveland. And if you look in the surrounding suburbs of Cleveland, where they were grown, those first-ring suburbs, the suburbs that are sort of feeders into downtown with the professional jobs and so forth, both going east and west…there’s no north to go in Cleveland because of the lake. So you could go south, east, and west. You only have three ways to go. And those desirable first ring suburbs or areas, they were either developed with large parcels, like community I live in that was developed post-Second World War, you can’t have less than, I think, it’s three-quarters of an acre on ground.

So there was a patch of land you couldn’t put density, so a developer might not be able to say, “How do I get greater density, therefore, gaining greater affordability?” Then you go to the city itself, and unfortunately, over the years and we’ve got some good leadership now, but in the past some leadership wasn’t focused on how to develop the city itself and those neighborhoods. So if you come to town, it’s almost like a tale of two cities. It’s like you could see parts of downtown Cleveland that are close to the city that it’s just a shame what has happened. And it hasn’t happened like over the last five years. It goes back since the ’60s that you saw these neighborhoods just be vacated and left. And that’s where we need more growth. That’s where we need more… And it’s not just housing. It has to be the retail and the transportation and community, and the city’s doing some great things to improve that. And now it just takes those developers and builders to take that chance.

I think, you know, my hope is that within some of the infrastructure bill for housing, I don’t know that we need more subsidized first-time buyer loan product with today’s interest rates and down payments. I think we need something for builders and developers to say, “Hey, if I come in and develop housing in a marketplace, how do I keep the pricing down so it stays affordable for what’s new?” And I think that’s been our challenge the last few years is that it’s just so expensive to build in any market. And we don’t have Phoenix where it’s just, okay, one swap of land and another, and having population increases. I mean, our population’s sort of what it is. We’re not having huge migration like you might see in the south and Southwest. You might see it reverse when everybody runs out of water and they need The Great Lakes. But, you know, that might not be in my lifetime.

Matthew Blake: Yeah, no, The Great Lakes, amazing resource. I’m right by Lake Michigan, Lake Erie, you know, you do have a good water supply there. So let’s transition into a couple of big-picture issues in [inaudible 00:20:06] brokerage. The first you mentioned at the start, the technology stack that you have for Howard Hanna agents. And technology is a frustrating word for me because it’s used so readily to mean so many different things. And so generally, this is like my understanding is that like technology means for agents platforms, perhaps in the form of an app or an internal company website that can organize data for them, that makes lead generation easier, or connecting with clients easier, or it provides the means to make so-called paperwork easier for closing a deal. What is your definition of technology as it relates to brokerage? And what kind of technology does Howard Hanna provide to its agents? And I guess my third question is, how might that technology differ from your competitors?

Howard Hanna: You led into like a really good point, the frustration of the use of the word technology. And I think if my CMO watches this, she would get really upset with me for earlier saying that I think we’ve got a great PropTech stack because she even says, “Let’s stop.” The industry always wants to call everything technology because that’s a buzzword. It makes it seem disruptive or sexy or whatever it may be. When the reality is, you’re right, there’s two pieces of technology. There’s the back-of-the-house technology that allows something to work, but really for the brokerage business, it’s really marketing. Years ago, we had our own TV shows that were Sunday morning TV shows. And, you know, it was like a Sunday morning open house and you could sit, have your coffee, and see, “Here’s the houses that are open today, and here’s four or five photos.” Okay. We never referred to that as technology. Well, there is technology for us to produce something and put it on a television, right? But we just called it marketing. We called it TV marketing. We didn’t get into that we were using technology to work with the studio, to film it, put it together, and then feed it from a satellite beamed into people’s houses.

You know, and somehow with the advent of the internet, you know, everything has to be technology. Everything has to be a buzz like, “Oh, we’ve got great tech. We’ve got PropTech, FinTech,” you know, okay. Well, to answer your question, here’s what I say. Technology, yeah, you’re right, is the ability for network systems, connectivity, data transfer. And that we do as well as anybody else. We really have over the years because of the background in mortgage and title and insurance, and because of some of the security, because of some of the need and the necessity of technology transfer being in that space to build out of whether it’s loan operating systems and so forth, back of the house feel really, really comfortable of our whole technology.

Front of the house, we need to move away, and the whole industry does of referring to technology because is the CRM really technology or is it a Rolodex that’s better organized that allows you to contact your clients? How do you use the data that’s there using artificial intelligence to give to the consumer? Here’s we can give you signals and codes to why you should be contacting this buyer that’s in your CRM or potential seller because we’re finding data points that are telling us that for different, reach out. Whether it’s what their footprint’s doing online, whether it’s because we’re finding that people who’ve been in houses in Cleveland Heights, Ohio for seven years have a propensity to list their home right now. We have so much of that data and we’re able to distribute that through CRM products to our agents.

But when I say our marketing stack, what we chose to do around the use of technology to support things is that I would say probably seven years ago in earnest, we made a decision. We looked around the industry. We saw people that were building their own technology and calling it proprietary. And we saw a lot of friends, brokerage friends, 10, 7 years ago, you know, putting so much money into that and putting so much capital expenditure. And then we’d find that they might not be in business three years later, that they were draining what was already a tight margin business to try to develop something that quite honestly is pretty ubiquitous and you could buy off the shelf, and that maybe there’s a lot of technology companies that that’s what they do best. They don’t try to be real estate brokerage firms. They try to develop software and technology that’s based in marketing solutions. So what we chose to do as a directed choice is we said, we don’t wanna build, we’d rather buy, but based upon our buy and creating partnerships that have a technology suite that we could use that’s really marketing, we said our goal has to be completely integrative.

So seven years ago, we said we’re gonna create a platform that has single sign-on. And it’s really a marketing platform. Our hub, which we call it marketing platform, is single sign-on. And within there, we connect a CRM, within there, we connect automated marketing pieces, within there, we create the ability to post or boost on social media, within there, we create lead management flow and make sure it flows. We partnered as a vendor product like Spacio. It was the old open house sign-in sheet digitized, and it had some bells and whistles around a great product. Well, when we took that product and we said, “We’re gonna buy it from you and give it to all of our agents.” We said, number one, it has to be able to connect to RealScout, another vendor we use so that it creates that RealScout. And it helps to all three have to create back into Moxi, which is what we build a lot of our platform on, so that it directly goes into our MoxiEngage CRM. So we take three vendors, dispersed vendors that didn’t work together prior to that and we said, “If you all want our business, you all figure out how to make it talk, sync, and connect.”

And so that’s been our model. Every vendor we use, a marketing product that comes to us, could be a listing presentation tool, it could be a boost product for social media, for Facebook. No matter what it is, we say, “Hey, if it can’t all integrate and live on one platform, we don’t care. If you don’t have the open architecture, we won’t buy your product.” And that’s what served us really well so that when we go to our agents, they’re not going to different dispersed products. And at the same time, we’re not spend a lot of our capital and resource and time trying to build something to say it’s proprietary. Now what we have done, which I think is unique, is we’ve invested as we’ve looked at some of these products. We’ve taken sort of the OEM automotive company model and said, you know, “Do we wanna have a cash drain getting into technology,” or are we better to say, “Hey, we really like your product, so we’ll invest in your company.”

And by investing in your company, we have a little more seat at the table, influence, look at how we do it, and make sure, you know, that we’re giving some direction, but we really therefore then look at that vendor, that company as a true partner, not just as an investment, but as a partner. And so that’s why I think we’ve built an incredible…we’ve built an infrastructure that’s around connectivity. And then the agents, it’s all at their fingertips. So they’re not using dispersed products and we’re able to connect it for them. And I think that’s what makes our product unique.

Matthew Blake: How would you say that real estate agents, because of what you just described, how are they better able to, let’s say, for example, leads, how are they better able to either get a lead or follow-up on a lead in late 2021 than say 1991?

Howard Hanna: Because we take every lead source, you know, and we’re driving that lead back into the CRM, a single dashboard where everything is, and then that automatically connects to whether it’s, you know, a campaign for drip marketing, a follow-up, says we score a buyer lead. This is somebody really active. So let’s be a little more proactive with what we’re dripping out to them and sending out to them in an overlay. It at least to the agent puts everything in front of them. Now, you know, versus 1991 where a market would’ve been different and somebody might have got a call from a newspaper ad and they might have gotten a little pink slip of paper that said, “Here’s the caller’s name,” you know, “Here’s Matthew Blake, and here’s his phone number and he is interested in 123 Elm Street.” Well, okay, I could call you back, but as an agent, what was I gonna do with that piece of paper? The good agents had everything from little index cards, to Franklin Covey planner, to all kinds of different systems to follow-up with people.

And basically what we’ve said is those were marketing systems and now they’re here for you on a platform, on your computer, on your iPad, on your cell phone, within an app-based product. And you just go in and pick and choose. What I’d say hasn’t changed is that no matter how much you use technology to simplify marketing for people and make it automated and make it easy to use, there are so many real estate agents that, you know, we show them, we tell them this could make their life easier because they hear technology…because our agents go from 20 years old to 70 years old, you know, they hear technology and they get a little overwhelmed when they hear the word technology, which is why we try to bring it back to marketing and a system.

And then we have other agents that, I mean, you know, I think one of my top agents who probably does $100 million worth of sales a year, I don’t think he uses a CRM whatsoever, you know? And he sells a lot of…his CRM is this guy going out publicly to sporting events, you know, country clubs, you know, nightclubs, restaurants, and work in a room. And everybody knowing that you wanna get your house sold, here’s who you call, you know? And so there’s still a lot of that in the business and I think sometimes when we try to force marketing or force technology on our agents because we think it’s a balance of, you know, we’ll get there as an industry, but nothing moves that quickly. And you gotta remember that a lot of successful real estate agents are doing it without technology or within a marketing system that works really well for them. And that’s what makes this business beautiful is that it’s not automated to such a degree there’s people of all, you know, size, color, shape, weight, look, gender that do great and they do it in their own way.

Matthew Blake: Do you think COVID has pushed more people to have a tech-focused approach to their leads?

Howard Hanna: Oh, I think without a doubt, with leads and even just communication. I think when everybody was shut down specifically, just a call like this, a podcast like this, or, you know, how many agents today that still do have virtual open houses, that they’re not comfortable meeting clients and customers at a traditional, you know, 1 to 4 open house on a Sunday afternoon, but they’re promoting on our website that they’ll do it virtual and you can just sign up and they’re at the house walking around showing you, answering questions in a Zoom-based field. Or, you know, a lot of times agents are even pre-showing houses or doing a pre-listing appointment using technology like this. You know, having their leads come in and understanding how to score them a little bit more so they’re following up on the right people. So I think it definitely has pushed, but then again, I still see a lot of agents that, you know, we feel we got great adoption on programs and I’ll say, “Why aren’t you using this?” And they just don’t see the value to it because they think their business every year is having a trajectory of growth and it’s working for them.

Matthew Blake: One last big topic I wanted to do is the level of competition in brokerage right now. Compass has grown in a money-losing way, but they have grown, partly by recruiting talented agents, including as you’re well aware of talented agents in the Pittsburgh area. eXp has grown, eXp is growing in North Carolina, big area for Howard Hanna. Then outside of real estate brokerage, there’s iBuyers, there’s the so-called Power Buyers. There’s a number of companies, mortgage lenders, [inaudible 00:31:49] better. They claim they can do something in real estate, catapult real estate into a new business era. My question for you, what is the level of competition today? Is there more competition than when you started in real estate and how is competition different?

Howard Hanna: You know, that’s a great question that we think about all the time. There’s always been competition and growing up in the business, you know, as an SOB, son of a broker, and, you know, watching my dad and my aunts grow the business through the ’70s and, you know, sort of from a mom and pop business to a regional business in Pittsburgh, and then in 2000s growing it, as we all grew it, more regionally, I would say that there’s been waves of new competition that have come into the business. Today… And it may have been a while since we’ve seen…like, you know, seeing a couple of those companies that you mentioned that have entered the business, it’s a shakeup, but it’s…how do I say? It’s no deference to them. I don’t see anything new. And what I mean by that, if you look historically, many people who…especially young people who are in the industry don’t know Merrill Lynch was the largest real estate company in the country at one point in time.

Matthew Blake: Yeah. Yeah.

Howard Hanna: They came in and said, “Oh, we’re gonna be able to cross-sell stocks and bonds and mutual funds off of the home purchase. How do we get to the home purchase first?” They did that and ended up sort of unwinding that. And I think if I’m not mistaken, they sold it to Sears. And Sears came along and said, “Oh yeah, we’re gonna get all the home sales and the home product sales.” And then that got spanned out to Prudential. You know, I sort of lose track of where all that went or maybe, you know, Realogy came in and Coldwell Banker bought one of them. I mean, then Realogy came in and said, “We’re gonna buy multiple brands,” in the early ’90s. And it was the first time a publicly-traded company said, “We’re gonna take Century 21 ERA. We’re gonna multiple-brand to get market share in cities and do crossover.” You know, HomeServices of America, you know, Warren Buffet, I mean, somewhat of a disruptor you could say, coming in and buying good legacy branded real estate brokerage firms and making an impact. They weren’t publicly traded as a separate entity, but it was, you know, the disruption of saying Warren Buffet has money, Realogy‘s publicly traded. Here’s what they’re doing.

Merrill Lynch being in the business, Prudential being in the business, GMAC came into the business. We’re talking some really big entities that entered the real estate brokerage business. And every time that all those folks came in, I think it’s been great because it’s forced everybody’s game up. It forces…and who wins in the end of the day to me is the consumer that, you know, does new money and the fuel of money make the process easier? I mean, even Zillow and Microsoft, I remember we were all gonna be out of business. You know, that Microsoft was gonna put us all out of business. They were gonna get rid of the real estate. I mean, it’s like these disruptors have been taking place for my whole career and then even before looking at the real estate brokerage industry, which is…and part of the disruption comes in as I think because it’s very fragmented industry, franchise companies, independent companies, mom, and pop.

And so, you know, the companies today that are disrupting, yeah, they’re doing it with cash, but we’ve seen companies for years that have moved the model to high commission payout. I mean, that was RE/MAX and Realty Executives. They’ve been around for a long time, that was a disruption to how the business was done. You know, seeing mortgage players say, “Hey, we can come into this,” that hasn’t surprised me. You know, and as I said to all these people with a lot of capital, “Hey, the water’s warm, come on in.” But you also go back and if you study real estate and you look at some companies that have been around since the ’50s, ’40s, ’60s, ’70s, you look at companies like ourself, you look at companies like Shorewest Realty, Sibcy Cline, Baird & Warner, Crye-Leike, you know, Windermere Real Estate, I mean, I can go on and on, that are privately held companies that have seen all this disruption. And I think the commonality is that if it’s our core focus in our business, some of these disruptors, I don’t know that they’re in it for the long run. I don’t know that their leadership really is passionate about real estate agents and the brokerage.

And, you know, you’re already seeing it. Sometimes it’s over-promised and under-delivered. And, you know, looks like the shiny penny and it’s a flash in a pan for a moment, but, you know, is it sustainable? Is it sustainable for the next 50 years? And I think in today’s day and age, you know, you and I have talked about this before, Matt, is that I think sometimes the real estate reporters, not you necessarily, but the industry that reports the trades, that report our industry, there’s an excitement about something new. And as I always say, I guess if you were selling real estate as a company prior to the advent of the internet, that you must be old and been left behind and you’re not doing anything to advance. But yet I look around most of the city in this country and some of the major brokerage firms are ones that were here before the internet, after the internet, and I think they’ll be here and survive no matter what disruption comes into play in the next year, 5 years, or 10. That’s just my perspective.

Matthew Blake: Yeah. I think that’s a really good, helpful perspective. And I think that talking about, you know, the trajectory of Merrill Lynch, GMAC getting into it, all that stuff is a really good historical perspective. And, you know, I’m in Chicago, I mean, you mentioned Baird & Warner, I think they’ve been around since the 19th century. And they’re still one of the biggest…I think second-biggest brokerage here in Chicago. So I think that your criticism of the reporting of real estate is probably accurate. I mean, I think that in reporting, reporters like me, I think any reporter, I mean, is new. So you look for what’s new and you look for what, you know, hasn’t happened before and you look for what’s changing. And I think, you know, I’m learning on the job sort of the history that you were just talking about. I guess, it can be hard for me to parse, you know, what is new and what isn’t new.

So maybe my one specific question from all that is, is the commission pressure that brokerages face new at all? I know that you mentioned back in the ’70s, RE/MAX started doing really high splits for agents and Keller Williams followed suit. And so I know it’s not new in that sense, but those are franchises and they have like slightly different business models. A place like Howard Hanna that has, you know, the full-service brokerage model, are you facing maybe downward pressure on what share of the commission you get that maybe you didn’t face 10 or 20 years ago at all?

Howard Hanna: Yeah. I mean, that’s been happening every year for the last 10 years, I would say. And, you know, in my opinion, when a market’s really good, which is what we’re in today, right? And so you’ve got…it’s still a challenging market in its own right for the agents. And I don’t mean to sound like it’s not, but, you know, when you’re in a market where things are selling in a day, multiple offers, there’s challenges to that, but it’s not a market where we’re oversupplied, not enough buyers, lot of pressure from sellers, lot of marketing pressure, lot of expense that comes… Like today, you don’t have to spend as much to advertise your house because things are selling quickly. When you have a market period where it takes six to eight months to sell a house, and that seller, that homeowner’s expecting, they’re paying you for marketing and advertising. And they’re saying, “Where are you advertising me? I need more of it.” And your dollars start to come to play more, well, that’s where things ebb and flow.

Agents will be like, “Well, the market’s changed. So can’t you pay for more of the advertising for me?” Well, yeah, that comes in a trade-off of how much am I paying you in a split. And then it ebbs and flows the other way so that, you know… So I’ve seen this cycle we’re right now because of the strength of the market, we’re definitely in a pressure condition. We’re definitely in a condition where brokers have to say, “What is our value proposition,” and be addressing that and looking that to say, what are they supplying for agents? You know, if a model is succeeding by saying, “Well, we don’t need bricks and mortar, and you can work from your house.” For all brokerage firms, that’s a big expense. Now, I look at our bricks and mortar and say, that’s part of our culture though, too. That’s part of like, you know, our agents being able to have connectivity and we still believe in sales managers and motivation and communication.

So, you know, isn’t there some value for that and to learn from other people in that branch environment? Now, maybe we don’t need 10,000 square foot branch, maybe we need a 3,500. So we have to adjust. You know, and that’s one area that I think that when I look at things on the commission is that we’re all looking at reinforcing our value proposition, where are fixed costs, and can they be more in line if the agent payout goes higher? And the other thing I’ll say is that we’ve always been a company that’s believed in capitalism. And it’s like, okay, our top agents, we’re paying them very, very handsomely. And giving them choice and saying, “But here’s the services. So at this level, here’s the services we can provide you. At this level, we can’t.” And what we’re finding is that when they do investigate and they look, no matter what the brand or model, you have to weigh the whole picture. If it’s just split that matters to you, then, okay, I can pull a lot of resources away so that I can make a margin. And that’s what still has to happen is you’ve gotta, at the end of the day, be able to make a margin off of your gross income that makes it profitable, if profit matters in the world anymore, so that you can be sustainable.

Now you’re privately held, it matters. You know, the shareholders I answer to are family members and they have high, high expectations of what we do. Maybe Wall Street and the venture capital world just believes that unicorn real estate brokerage firms are gonna….where’s the business plan to make it profitable? Where does it change? And, you know, because if it’s not part of the plan today, when the market shifts, when things aren’t as good, how are they gonna have to claw back? Where does a company claw back and get income from? Are they gonna charge the customer more commission and fees? Are they gonna get it from the agent? And so, at some point in time, you have to prove that you can do well in good markets and in bad markets and in, you know, equalized markets. And that’s just how I feel. So it’s always been a pressure and you have to look and say, “Are you offering fair commission plans for people to grow their business?” And that’s why we’ll pay handsomely and support our top people. And, you know, as you’re growing through the levels, we think we pay very, very fair for all the service and products that we provide.

Matthew Blake: Hoby Hanna, president of Howard Hanna Real Estate Services. Thank you very much for your time. I thought that was…

Howard Hanna: Matthew, thank you. Appreciate you inviting me. Thank you.