Halstead Property

Property Market Cools Even If Broker Job Market Doesn't

Brokerages still growing despite slowing market; still-high prices allow firms to stay big

By Vanessa Londono

Buoyed by higher sales prices over the last few years, brokerages have been able to keep and to add to their broker ranks. But as prices flatten out and inventory rises, questions have cropped up about whether bigger brokerages can keep hiring -- and keep the brokers they have now happy.

An analysis from The Real Deal last month (Top Residential Brokerages, May 2006) showed that all but two of the biggest 10 residential brokerages in Manhattan added agents between May 2005 and May 2006.

At the same time, unsold apartments are piling up. The number of Manhattan apartment listings increased 16 percent from the fourth quarter of 2005 through the first quarter of this year, according to appraiser Miller Samuel, and listings spiked 60 percent from the first quarter of 2005.

Some say brokerages still trying to grow while the market cools are asking for trouble.

"You attract brokers by offering certain services and the bar gets higher and higher," said Paul Purcell, a former Douglas Elliman president and now partner in the real estate consultancy Braddock + Purcell. "What happens when the market changes? Can you continue to feed the monster you've created?"

Brokerage heads insist that despite rising inventory, new and existing brokers can find sales with satisfying commissions.

Century 21 Kevin B. Brown & Associates recently took on three agents, two of whom are new to the real estate industry. In April alone, Citi Habitats, a firm with more than 7,000 agents in 16 offices across the city, hired 56 new agents. And Kevin Kurland, president of Kurland Realty, hired 15 people in April and May combined, adding at least 10 desks to the brokerage's Chelsea office that currently houses 30 agents.

"I need agents and I love the fact that they are coming fresh," said Century 21's chairman Kevin Brown.

Even with an increase in agents competing for a smaller share of the business, Brown says he'll keep hiring. While it might seem counterintuitive to add agents as the market recedes, there may be a good reason why it's not foolish: prices remain high.

Firms can, indeed, afford to hire fresh talent when more and more sales in Manhattan have a $1 million-plus price tag, according to Jeffrey Jackson, chairman of Mitchell, Maxwell and Jackson.

"Brokerage firms can add more agents because they are using less people to do the same work and bring in the same amount of revenue," Jackson said. "It takes fewer people and less desk space to sell the same amount. When it would take five agents each selling a $1 million apartment, now it takes four agents who are selling at $1.25 million and the same revenue is coming in."

In the first quarter of 2005, Manhattan apartment listings were on the market an average of less than 100 days, according to Miller Samuel. The lack of supply caused rapid price growth, a trend that has ebbed in the current market. It now takes 138 days to sell an apartment. As a result, not every broker is pulling down commissions on $1-millionplus sales. Far from it, in fact.

The income of the sort of buyer who can afford this average sale price is a bigger factor than any inventory numbers, says Jackson. "It takes the same amount of work to sell a $2 million apartment as it does for a $500,000 apartment," he said, "but the commission is four times as great." As long as people continue to make more money -- for example, if Wall Street bonuses stay high -- Jackson doesn't see prices going down.

But a recent report by Halstead Property shows the median sales price for Manhattan apartments declining. From March through April, the price went down to $722,500, a 3.9 percent drop.

Still, the optimism remains, however cautious.

"We are not in any way alarmed," Brown said. "Our sales are increasing, not in the same rate from a year ago, but they are still increasing."

In the past 20 years, Brown said he has seen listing inventory as high as 8,000 units. "As a rule of thumb," he said, "a healthy marketplace is 6,000 to 6,500 units. Right now, we are [higher]. But it's not an overabundance of units when you consider all the new development properties."

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Thursday, June 01, 2006