Howard Lein

The Meet the CEO Series continued on November 3 and featured a conversation with Howard Lein, Owner of RE/MAX Excalibur Realty.  Lein operates a RE/MAX franchise in the Scottsdale, AZ area comprised of five offices and 230 sales associates.

Prior to RE/MAX, Mr. Lein had numerous successful business ventures in the computer, banking and insurance industries.  The combination of his background and knowledge has proven to be invaluable in the growth of his RE/MAX organization.

The meeting included comments on a variety of business topics related to finance, ethics, marketing and sales, and trauma and distress.  Specifically:

    Lein provided some background on the RE/MAX brand and franchise design.  He stated that the RE/MAX concept was designed 35 years ago and from the outset set out to solve fundamental brokerage-management challenges regardless of the business cycle.  The current structure allows for 100% of the commission in a real estate transaction to be returned to the agent.  The agent pays certain fees to the broker to be affiliated with the firm but the broker does not share in the commission from the transaction.
    Ongoing training, education and motivation are a central component to the RE/MAX business model.  Lein said that RE/MAX offers the commission structure that top agents want and provides the training and motivation that they need. He is in constant communication with his agents and employees, letting them know that management cares and he treats them as his lifeblood.  He described this “belly to belly” contact as an important part of his agent acquisition and retention plan.  Such an approach has led Lein to now have one of the Top 20 offices in the world-wide RE/MAX network of 5000 offices.
    Lein focused a significant amount of time on describing the “Economic Katrina” that is currently in play in the Phoenix/Scottsdale area as a result of the nationwide mortgage crisis.  His firm has lost 120 agents, many of his agents have lost their homes and some can no longer afford to own cars.  Also, there have been 100,000 foreclosures processed in the market and the average value of residential real estate is down 30%.  Such actions have all caused a major shift in the focus of the business.  Lein stated that in the old business model real estate agents had the potential to sell a product with high value and make a great income; however, that model has changed to high danger and the potential threat of bankruptcy.
    Given the need for a new business model, Lein has embarked on three initiatives:

    Expansion into the more stable Tucson market
    Adjustments in operating expenses as needed to have a more efficient operation (ie new office in Tucson is much smaller resulting in lower rent expense)
    Embracing social media as an important part of the real estate business today.  Lein stated that most people are now looking at property via the internet.  Billions of dollars are being spent on various forms of media, marketing efforts and social networking resulting in only 6 of every 10 deals being done based on personal referrals.  The old model of the person-to-person transaction (doing business with a friend, relative, business associate, friend of a friend) to buy real estate is eroding.  Such a shift is causing Lein to abandon the traditional newspaper ad approach and adopt electronic media options to generate leads for his agents such as personalized email, Twitter, and Facebook.

    Lein concluded by saying that this is the best time in decades to buy real estate.  He is not sure that the mortgage crisis/real estate market decline has reached the bottom yet stating that there is still pent-up demand for mid-priced homes.  He contended that the luxury home market is still troubled primarily due to the problems in securing financing for homes in this price range. Lein also briefly discussed the current problems associated with mortgage fraud.  He stated that deliberate action on the part of some real estate agents, bankers and attorneys who are assisting clients to “strategically” escape their debt (“buy and bail”, short sales to preserve credit, mis-statements of income and assets) is destroying the real estate marketplace.
    Finally, when asked the reason for his success, Lein said it is all because he gets up early.  His day begins at 4:30 am and he works at home until 8:30 am on the important issues of the day.  Also, Lein stated that “working hard” does not generally take place between 9 am – 5 pm because other people are making demands on his time.  He said he is working harder now than he has ever in his life in order to meet the challenge of managing in these turbulent times.

Submitted by:  Dr. Lise Anne D. Slatten, Department of Management