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What Will You Need to Cut in the Next Downturn?

Morguefile.com

Morguefile.com

In 2006, as the collapse of the housing market set in, real estate franchisor Realogy was carrying $2.7 billion in debt. The darkest days of the meltdown were still to come — and the company knew it. Painful cuts were cruelly necessary if Realogy was going to stay afloat.

So over the course of the next five years, the company reshaped how it worked, Realogy CEO Richard Smith said at the Real Estate Connect conference in New York on Thursday. Realogy was forced to reduce its staff by 30 percent over that time and cut its costs for office space. It once had 1,200 offices worldwide, but for many of them, the company either moved the operations from a physical space to all-online or dramatically reduced the office size.

What Realogy learned — and what brokerages should, too — is that bricks-and-mortar businesses stand to be at a greater disadvantage during economic slumps because of the extra costs of operating a physical space, Smith said.

That doesn’t mean that Realogy doesn’t still have some storefronts, he noted, but they aren’t as expansive as they were historically.

“I don’t think we need 8,000-to-10,000-square-foot offices anymore,” Smith said. “The fixed costs of brick-and-mortar don’t allow us the flexibility to be successful in good and bad times.”

With mobile becoming a larger part of the online experience, and more consumers turning to their mobile devices to search for real estate, brokerages would be smart to encourage more of their agents to untether themselves from the office and operate online, Smith added. That would mean fewer agents needing to come to an office, and brokerages could downsize their space — and their costs.

“Arguably, consumers don’t need to go to real estate offices anymore,” Smith said. So why should brokerages throw away money on them?

Graham Wood

Graham Wood is a senior editor for REALTOR® Magazine. He can be reached at gwood@realtors.org.

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