Brokerages step up battle for luxury billings

Westchester County Business Journal, Mar 07, 2005 by Philippidis, Alex

The value of national affiliations in marketing Westchester's toniest properties will face its stiffest test as the county's top two luxury real estate brokerages step up their battle for billings this year, each taking an opposite approach.

Houlihan/Lawrence Inc. will end its 28-year affiliation with Sotheby's International Realty on April 15, in a dispute over Sotheby's conversion to a franchise system with higher fees. Houlihan/Lawrence will instead expand its Luxury Country Properties division by opening three new Westchester offices and by hiring three new marketing people and an undetermined number of new brokers.

Julia B. Fee Real Estate, on the other hand, will play up its affiliation with Sotheby's archrival Christie's Great Estates. And instead of growing a separate luxury division, Julia B. Fee says it will expand through acquisitions in areas where it lacks a presence, as it did in January when it purchased Vannier Real Estate of Armonk.

Nicholas R. Wolff, president of Century 21 Wolff Real Estate, said the luxury real estate battle that looms will illustrate the importance of national affiliations to local brokerages and their home-buying customers in the ever-consolidating world of residential real estate.

"I think Houlihan/Lawrence is making a mistake. I think they may regret this someday," said Wolff, whose brokerage generated $433 million in sales last year from offices in White Plains, Thornwood, Yonkers and New Rochelle.

Not so, said Houlihan/Lawrence spokeswoman Rebecca Fretty. She said Sotheby's referrals only accounted for 13 of the 92 luxury houses sold by Houlihan/Lawrence last year.

"We kind of outgrew the affiliation," Fretty said. "We realize it is no longer the same luxury property market it was 28 years ago. And through our Luxury Country Properties division we have set a standard for luxury market sales we plan to maintain and improve on in the future."

Luxury properties helped Houlihan/Lawrence last year generate more than twice the sales volume of Julia B. Fee - $3.3 billion to $1.5 billion. Houlihan/Lawrence is also Westchester's largest seller of luxury homes valued at $2 million or more, with a 29 percent marketshare, compared with 27 percent for Julia B. Fee.

But when sales of $3 million and above are measured, Houlihan/Lawrence sold fewer of those properties than Julia B. Fee, 32 percent to 25 percent.

George Stone, co-owner of Julia B. Fee, said his firm's link to Christie's has proven valuable in selling the highestend homes by exposing the firm's listings to people living outside the metro area who would be unfamiliar with Julia B. Fee or any local brokerage.

"The luxury real estate customer knows the brands associated with high quality. They're going to see the Christie's brand and they will probably notice that it will mean good, high-quality services," Stone said.

Sotheby's, an auction house with 260 years of history, sold its real estate unit last year to the nation's largest owner of residential brokerages NRT Inc., a Parsippany, N.J.-based subsidiary of publicly traded Cendant Corp. At the time, Sotheby's annual sales volume was $4.21 billion; no updated figure was available.

NRT has begun changing Sotheby's relationship to local brokerages from a marketing affiliation to a more extensive franchise model with additional support services like consulting and broker education. NRT is spending $2 million on a new Web site and several million more dollars for services.

"We're building a very strong, quality referral network that will assist brokers in helping their clients around the world," said Michael R. Good, president and chief executive officer of Sotheby's International Realty Affiliates Inc. which is franchising the Sotheby's name.

Good would not discuss details of Sotheby's franchisee requirements, except that they involve the same combo of upfront fees and percentage royalties collected by franchisors in other industries. A real estate professional speaking on condition of anonymity said Houlihan/Lawrence objected to paying Sotheby's a $25,000 annual fee for each of the brokerage's 32 offices in addition to a larger percentage royalty on property sales.

"The fees definitely did not make it attractive. But the bigger issue we had was the philosophical differences," Houlihan/Lawrence's Fretty said.

Houlihan/Lawrence fears that a Sotheby's tie to expanding its franchisee network would inevitably follow the same mass-market course of other NRT companies like Avis Rent-A-Car and Days Inn.

Sotheby's insists it will remain at the highest end of the luxury housing market, even as it expands its national brokerage network well beyond its 30 companyowned offices. During the past three months, Sotheby's announced affiliations with 20 brokerages, including William Pitt Real Estate in Stamford, Conn., and Ellis Realty of Nyack.

"We have more than that number in the pipeline. And you can rest assured we will have a new brokerage franchisee within the Westchester market," Good said.

Or more than one, Good added, if Sotheby's cannot find a brokerage that sells homes throughout the county. Brokerages pursuing a Sotheby's franchise must be a leader in sales volume or market share where it operates.