By the end of the decade, the small, unaffiliated "mom and pop" real estate companies may be just about extinct. It will have suffered the same fate the neighborhood grocery store did when the supermarkets arrived.
That's what two corporate heavyweights -- Coldwell Banker & Co. and Merrill Lynch, Pierce, Fenner & Smith, Inc. -- would have you believe as they continue to acquire local real estate companies across the U.S. Their goals is to set up national real estate systems that will use the powerful marketing tool of national television advertising and an array of new financial products to help sell homes.
At the same time, such real estate franchisers as Trans World Corp.'s Century 21; E.R.A. Real Estate, Inc.; Red Carpet Corp. and Realty World International real estate concerns for their networks. They say they're the independents' only hope for competing against the big boys.
But the expansion strategies of the nationally oriented real estate companies haven't worked entirely as expected. The depressed real estate market has complicated some of them and surprisingly, aided others.
Coldwell Banker & Co., Los Angeles, whose goal is to have 88,000 real estate salespeople by 1988, concedes it has fallen behind on its acquisition plan because of the slow market. Lack of sales has depressed earnings, causing most residential real estate companies to show a loss. "We don't want to load a lot of red ink onto our books by buying companies that are in trouble," says C. Wesley Poulson, Coldwell Banker's chairman.
The company "is discriminating as to who we'll buy," Poulson says, "We don't want to buy a lot of junk. We want to buy the larger companies in metropolitan areas of more than 500,000."
Since starting to go national in 1969, Coldwell Banker has purchased seven residential real estate companies. It has residential operations in Los Angeles, Atlanta, Houston, Dallas, Kansas City, Chicago, Denver, Portland, Minneapolis and Washington -- with about 10,000 salespeople. Poulson says the company would like to buy real estate concerns in the Northeast, Florida, Ohio and Indiana that would complement existing commerical offices. "Within the next three or four years," he predicts, "we'll have residential offices in every major city."
In contrast, Merrill Lynch Realty Associates, a Merrill Lynch division, says the depressed market has created "an excellent time" to acquire real estate companies. That's when Merrill Lynch's financial strength and resources are "even more desirable" to local real estate companies, says Weston Edwards, chairman of the division.
During the past two years, Merrill Lynch has acquired 13 real estate firms with a total of 5,000 employes. Merrill Lynch Realty has operations in Dallas, Pittsburgh, Baltimore, Hartford, Charlotte, Tulsa, Phoenix, Milwaukee, Fort Lauderdale, Northport, N.Y., and Mission Hills and Santa Barbara, Calif. Edwards says the goal is to have real estae companies in the 50 major U.S. markets.
"The real estate industry is filled with part-timers an people just dabbling," Edwards says. "Their average earning level is under $10,000 a year. Our objective is to have all our salespeople earn at least $20,000 a year. We want them to be professionals.
But it hasn't all been smooth. When Merrill Lynch acquired a Dallas real estate company, 18 salespeople in one 35-person office walked out and set up their own company because they disliked Merrill Lynch's policies. "There have been sporadic negative reactions," Edwards says, "but the same thing happened when A&P entered the mom-and-pop grocery business with its supermarkets."
The slow market has had a mixed effect on the national real estate franchise companies. Century 21 Corp., Irvine, Calif., with 7,000 offices, says its franchise growth is "on target" this year because troubled local real estate firms are seeking help. Each Century 21 franchise holder pays the company 6 percent of its commissions and contributes to a national advertising fund. Although it is still signing new franachises, business has been slow at ERA Real Estate, Kansas City. "The real estate business is a shambles," says Jim Jackson, president.
The franchise companies believe that the entry of Coldwell Banker and Merrill Lynch into the local real estate business frequently has helped them sign up new clients. "It has created a climate of fear," says Robert Prindiville, president of Realty World International. "A real estate broker sees one of these big companies acquire a firm in his town and start television advertising. He is afraid his market share will slip, so he affiliates with us."
"If Coldwell Banker recruits 88,000 salespeople by 1988, it's going to be very difficult for the independent real estate person to provide equal or better service than these large corporate giants spreading across the country," says Jim E. Cummings, president of Century 21. "We may be the independent businessman's last hope."
Coldwell Banker's Poulson sees a possible danger to his national real estate system in the future. It wouldn't come from other real estate firms but from communications companies with their growing data bases. Poulson suggests it might be possible in the future to shop for a home almost entirely through a cable television hookup, reducing the need for all the home visits with real estate salespeople.
"Whether the communications companies will want to revolutionize the merchandising of a home, I don't know," he says. "But we're watching this area carefully."