Take a walk around the leafy, geometrically precise streets of Chicago’s North Side, lakefront neighborhoods and you will see one @properties front yard sign after another.
The Chicagoland market’s no. 1 residential real estate brokerage by sales volume – and no. 8 nationally, according to RealTrends – is now expanding. On Tuesday, @properties announced a franchise in Dallas helmed by Dallas businessman Jerry Mooty.
The new franchise “has commitments from a number of founding agents,” the press release reads, and “Mooty is in final negotiations for @properties’ first local office.”
The franchise is a risk for @properties, which for years has comfortably dominated Chicago without spreading its wings. Quad-C, a private equity firm based in Charlottesville, Virginia, invested an undisclosed stake in @properties back in 2018. But the move has had little noticeable effect, save perhaps prior announcements for @properties franchises in Detroit and LaCrosse, Wisconsin.
Just before the Dallas announcement, HousingWire sat down with @properties co-founder, and co-CEO Thad Wong in the companies’ Chicago headquarters (Wong leads the company with Michael Golden). The office lies in a somewhat sparse locale, northwest of downtown. It is appointed with an array of contemporary art, windows with views of the city skyline, and, during a late Monday afternoon, only a few people.
Here’s an edited version of HousingWire’s conversation with Wong:
HousingWire: Quad-C has owned a stake in your company since 2018. What has changed because of that that?
Thad Wong: Really nothing has changed.
HW: My understanding – and this could be wrong – is that it was the impetus for you to look at franchising?
TW: Well, it was the impetus to figure out how to scale our technology. I also know that selling software to brokerage companies is fruitless because I’ve done that too. Brokerage companies, unless it’s a lead, they’re not willing to pay for software unless it’s an absolute necessity like Lone Wolf’s accounting software.
Because of the technology, we can grow a franchise and that’s far more profitable than it is selling software. They can significantly reduce their costs with our end-to-end platform.
HW: Back in February, you said that you were looking at half-a-dozen franchise announcements this year. Is that still a goal?
TW: Oh yeah, that’s not a problem. And we have some others that we will announce next year that are bigger.
HW: Will these franchisees take up the @properties brand?
TW: So far, they really like our brand and our logo and they feel it will resonate well in their market. It’s a technology brand, so it’s very forward.
HW: What is it specific about your technology that you believe is an asset?
TW: It’s effectively a deal-management system integrated with our CRM (customer relationship management software). It’s also integrated with our open house tools and digital listing presentation. So, it’s really the best set of software right now on the market for agents, from contract to close, in the country. And it will be consumer facing probably by the end of this year. So, if you’re a seller or buyer you will use it as part of your transaction to do, say, your title insurance – the things associated with buying or selling a home.
HW: Do most of your agents use the @properties platform?
TW: All of them do. It’s required. You can’t get paid unless you use it.
HW: Compass agents are often well-established and have some name recognition in their market. RE/MAX agents may work less lucrative markets, but they are also typically more experienced. For eXp, the agents are not necessarily as accomplished but they have bought into that company’s virtual brokerage and agent incentive program. What’s the typical @properties agent like?
TW: You want to have an agent for every customer. If you pigeonhole yourself and say, ‘I have one type of agent’ you’re not able to provide an agent that’s the first choice for every type of American. So, you have people of all shapes and sizes, all age groups represented and everything.
We do have cores values involved – relationships, innovation, the pursuit of excellence, love. So, we try to invoke that culture among our organization. I would say that the common denominator is that are agents are kind, but we have a few that are not so kind (laughs).
HW: Most of the brokerages larger than you in terms of overall national sales volume are now public including Compass and eXp. Does @properties plan to go public?
TW: I don’t think so. It’s possible but I would have to bet against it.
HW: Is @properties profitable?
TW: Oh, yeah, we have very good financials. You know I’d put our financials up against anybody’s. We just need to be meticulous about our growth.
HW: Do you feel pressure from Compass, eXp and other brokerages to give your agents better commission splits and does that threaten your profitability?
TW: It’s been called the Compass effect. Compass came in and their only value proposition was giving the agents a higher commission split. And so, you only had agents go there for the higher commission. They really speeded up commission suppression among other companies. And that’s why Compass is universally hated in the brokerage community right now.
And, so, you will always have agents that will leave for extra money or whatever it may be, but I would argue that there aren’t that many. Like I think that was Compass’s biggest misjudgment because they assumed that if you offered every agent more money that they would go. The reason that they had to start pivoting and buying more companies (Compass’s acquisitions include Pacific Union and Alain Pinel Realtors, both based in San Francisco) is – Guess what? – all the agents didn’t go.
HW: Still, many did go, and Compass is now the second biggest brokerage in the country based on sales volume. Only Realogy, which is a conglomerate of numerous name-brand companies, does more business. And they grew here in Chicago including poaching big names like Jeff Lowe.
TW: Yeah, they took a decent number of agents from Coldwell Banker, Baird and Warner, Berkshire Hathaway. But they haven’t had a lot of growth lately.
HW: This is a nice office space. Is this @properties only physical location?
TW: Oh, no, we have over 30 offices, here in Chicago and in Wisconsin and Michigan.
HW: Oh wow, are you planning to keep all those offices?
TW: Yes, in fact we just opened a new office in Crown Point, Indiana and we opened one in Valparaiso (in northwest Indiana). And I’m negotiate a lease right now in Hyde Park.
HW: Why do you believe in offices? They seem like an expense many brokerages can’t afford.
TW: I think having a physical presence in a market that you serve shows a commitment to that community, adding and building a culture. It’s always nice to have physical space where you can serve your agents. It gives you the opportunity to have front desk staff and leadership in a physical space. Even if the agents don’t use it as much, there’s a place that they can always go to see people that understand what you’re all about. Without it, it’s very difficult to develop or maintain your culture.
Also remember signage is some of your best advertising and marketing. If you have a billboard and you pay $5,000 a month for the billboard, you can instead have an office and pay $5,000 a month for the office. The only thing that you are doing [extra in terms of money] is putting some of your salaried support staff in the office right now.
HW: What’s the biggest challenge to expanding beyond Chicago?
TW: It’s brand recognition. If you’re Coldwell Banker, everybody knows Coldwell Banker, if you’re Better Homes and Gardens, people know that brand. We’re a big deal in Chicago and the Midwest. But if you go out to Denver, California, Kansas, people don’t know @properties there.
HW: One last question and a broader one. Let’s say an agent has made a name for themselves and is thinking of moving to a new brokerage. But what if they just decide to not join a brokerage at all, and be independent? If you’re a good real estate, why, in 2021, do you need to be affiliated with a brokerage?
TW: It makes no sense to be independent anymore. Because the cost to operate your own business is more than the split that you can negotiate. It makes no sense unless you’re looking to build it and hire your own agents and build your own company early on.
You know, 20 years ago when the splits were lower and there was less technology, sure, you could do it. But it’s cost prohibitive now.