Wall St. and Business Wednesdays: An Assembly-Line Approach To Real Estate by Stephen Frater
It looks like a 34-year-old former roof cleaner has blown the roof off the Tampa real estate market in just three years.
With 958 homes sold, for $191,661,087, Stephen E. Johnston was the single most successful real estate agent in the greater Tampa area in 2005. The runner-up agent rang up $59 million.
Overall, Johnston's Home Discovery Real Estate Services is ranked No. 2 in the market after Coldwell Banker.
And he's coming soon to Manatee, Sarasota and Charlotte counties, and just about everywhere else.
What a wild trip it's been for Johnston, a self-described "serial entrepreneur."
A decade ago, he managed a Hops, a casual dining microbrewery restaurant, and eventually quit. Until three and a half years ago, he owned a small business cleaning roofs.
He gave it away on a 100 percent seller's note.
Then, in late 2002, Johnston did what everyone has been pussyfooting around for years.
He created a totally different model for home real estate sales, with a flat 2 percent commission, and got big-bucks financing from his "investment angel", Chris Sullivan, chairman of Tampa-based Outback Steakhouses.
Johnston chucked commissions for brokers, opting for fixed salaries and bonuses instead.
He bought a fleet of 55 black Chrysler 300s for his top producers, eliminated the hated "desk rental fees," gave them benefits and a medical plan, and even threw in gasoline and toll booth passes.
Looking at the traditional real estate business in the information age, Johnston pronounces it "ridiculous."
"While 10 percent of the real estate agents do 90 percent of the business, everybody else is starving," he maintains.
Johnston starts off his new, inexperienced employees at $25,000 or $35,000 per year while the more senior productive and experienced agents will earn closer to an $80,000 salary and bonuses. Top administrators earn into six figures.
The Tampa Bay Business Journal selected the company as a finalist for 2005's Best Places to Work in Tampa Bay.
The 6-7 percent standard commission structure that was the norm for decades is absurd, Johnston said. He claims to have saved customers at least $20 million in commissions directly or indirectly.
"If your home has increased in value" by 30 or 50 percent, "why should you share that with an agent?" he asks. "When we came into this market, the commission norm was about 7 percent, now it's 4 to 5 percent.
The industry has taken notice.
In 2005 Johnston was named among the "100 most influential Real Estate People," in the country by Inman News, a respected real estate journal.
He joined other heavyweights including Southwest Florida's Michael Saunders; Alan Greenspan; Donald Trump; Barry Diller, who created Fox Broadcasting and is the owner of Lending Tree.com; and Earl Lee, president of Prudential Real estate Affiliates.
Gov. Jeb Bush awarded Johnston the 2005 Governor's Entrepreneurship Award, and Johnston was selected as a finalist for the 2005 Ernst & Young Entrepreneur of the Year Award.
A new way of doing things
Home Discovery's 250 employees operate out of a 50,000-square-foot high-tech headquarters in Tampa, which fields an estimated 10 million Web visits each month. The company also has Florida offices in Orange County, Lee County and Broward county.
Home Discovery claims to offer technology "unmatched in the industry," and is probably the biggest company in the nation utilizing Johnston's model.
Each Home Discovery listing includes its very own Web page and virtual tour.
Agents are equipped with state-of-the-art vehicles that include laptops with wireless Internet and e-mail, cellular phones, digital cameras, global positioning systems, e-signature technology and a proprietary client relationship management system called "Discoverit 2.0."
What Johnston has done is to streamline and automate the process of buying or selling a home, much the way Henry Ford did with car manufacturing.
Instead of having one overworked broker manage the complicated process from soup to nuts, Home Discovery has functional teams.
There is an "inside listing agent," who determines the value of the home with the assistance of a "home pricing agent," and initiates the marketing process.
Then an "outside listing agent" visits the home to deliver documents and explain the process.
A "home sales agent" is the person who "is there to help "from listing to contract."
Then "a "virtual tour producer" shows up to take photos and install yard signs, while the in-house "loan producer" from subsidiary The Loan Corp. prequalifies buyers and gets the lowest mortgage rates.
An in-house title company called Key America Title and a closing agent take care of the rest, including insurance from an in-house company called Equity Mutual Insurance Group.
re also deals available for clients who use the in-house loan services, which comes with a low price guarantee, to get a year's worth of free homeowner's insurance.
Although Home Discovery is not the first low-commission real estate service, it is among the most successful in the nation.
It has been operating for a few years and it's just getting into its stride with a highly sophisticated $10 million Florida marketing program.
Agents can't dismiss HomeDiscovery as a low-cost, low- service outfit. It's a well-financed juggernaut that might well capture a huge slice of the all-important middle market: homes costing between $200,000 and $800,000.
Southwest Florida is in the company's sights and executives are aggressively seeking a team in addition to about seven local employees already in harness.
For agents who wish to remain with some traditional commission structure, Johnston says he's flexible and is developing another program which could accommodate that goal to some degree, while utilizing the technological backbone of the company.
If he has his way, Johnston will soon have Home Discovery visible in about 80 percent of Florida's markets.
After that, the sky's the limit, Johnston says.
The former roof cleaner says he gets calls from venture capitalists daily.
"I put everything on the line for this.
This article appears in The Herald Tribune
Wednesday, February 22, 2006