When Sandy LeVan met with her broker at the beginning of her house search two years ago, he asked her two questions: Where she wanted to live and how much she was willing to spend. Then he began showing her houses. But LeVan, who works at United Tenants of Albany for what she gently calls a “nonprofit salary,” wasn’t finding anything. She was being priced out of a rapidly escalating market that had recently been discovered by investors.
And though her broker was always polite and patient, LeVan says she began to get the feeling that he was “just waiting for me to buy a house already…It was very subtle pressure.” At one point she saw a house with a fire-damaged roof. He told her she could always put a new roof on. “You want to give me the money?” she recalls thinking.
Eventually, “I began to feel bad, like I need to buy a house, I’m dragging this guy around,” she says.
LeVan’s experience in the world of commercial brokerages is far from unusual. Yet at a 2004 planning meeting of the region’s Capital District Homeownership Collaborative, members realized that none of their organizations actually helped their low-income clients find houses on the market.
The collaborative, a group of seven housing nonprofits from the Albany-Schenectady-Troy region in upstate New York, was six months into developing a business plan for a self-sufficient project that would increase homeownership for low-income people and strengthen city neighborhoods. The collaborative had gotten a year-long planning grant from the local Charitable Leadership Foundation to figure out what type of business would meet that need. As part of the planning process, they had done a traditional SWOT (strengths-weaknesses, opportunities-threats) assessment and now were diagramming the process clients go through when they approach their organizations.
The collaborative is a varied group. It includes two land trusts that rehab houses and sell them; the Capital District Community Loan Fund, which finances affordable housing construction and microenterprise; the Affordable Housing Partnership (AHP), which offers homeownership education, credit and foreclosure counseling and mortgage lending; Better Neighborhoods Inc. (BNI), which builds houses and does homeownership counseling; Troy Architectural Project, which helps housing nonprofits and low-income homeowners with building permits and design; and Troy Rehabilitation and Improvement Program, a NeighborWorks organization that covers the gamut from housing development to counseling to downpayment assistance.
Between them the members could say they educated potential new homeowners, connected them with savings programs and loan products, built them homes or fixed up old ones, helped them learn about home repair and prevented foreclosures. Just about everything, in fact, except connecting them with the existing housing market.
It wasn’t exactly news that the collaborative members didn’t provide this service. Susan Cotner, director of AHP, says she was well aware that her group was educating potential homebuyers, connecting them with a bunch of resources, and then sending them out into the wide world alone, only rarely to hear back how things went.
But laying it out on a chalkboard made it clear that of the potential businesses the group had been knocking around, including home inspection, mortgage lending and a real estate brokerage, the brokerage was the way to go.
Working Out the Details
As nonprofit enterprises go, this one aimed to be strongly focused on its mission. “We didn’t want it to be a glorified bake sale,” says Eric Dahl, a former employee of BNI who had been hired as staff for the collaborative. But the seven groups certainly didn’t want to create a new entity that would turn around and compete with them for funding either.
The brokerage, which the collaborative named Community Realty, fit in both respects. It could be 100 percent mission, but it could also earn money as any other brokerage does, without taking money out of its clients’ pockets. Community Realty earns “cooperative broker fees” with each closing, which are a portion of the commission that the seller has agreed to pay their own agent. In the rare cases of owners who sell their homes directly without a broker, Community Realty will attempt to negotiate a buyer’s agent fee into the purchase price. The business plan calls for the brokerage to break even in five years.
The combination of mission and financial independence sounded great, but there were still plenty of details to work out.
Some decisions came quickly and firmly; an early one was to represent only buyers. Of the few nonprofits that have tried running a brokerage, many have gone a different route, using the brokerage to sell houses they’ve built or those of low-income clients, or just regular houses to help fund themselves.
MHA Realty, a project of the Mutual Housing Association of Southwestern Connecticut, Inc., represents sellers and buyers. The southern New Jersey group Salt and Light Co., through its associated Delta Real Estate, offers itself as a sellers’ agent in general, and in particular to clients who are in foreclosure counseling and are not going to be able to avoid selling their homes.
But Dahl says the collaborative’s planning was very focused on serving buyers better, since that was the weakness they had identified in their services, and they didn’t want the business to be distracted from that. (The argument can also be made that any time a broker represents both buyers and sellers, the buyers suffer. There is a small but growing trend of exclusive buyer agents in the commercial real estate world, but there are few if any in upstate New York.)
In order to reduce the pressure on agents to achieve larger sales more quickly, Community Realty decided to pay its brokers by salary, not commissions. To further emphasize its brokers’ special role, they were also advised to stay up-to-date on not just the existence of, but also all the nuances of the various assistance programs and special mortgage products available to homebuyers.
Community Realty is hoping to better serve the collaborative’s existing clients, and bring in new people who might have a use for those services but wouldn’t have found them otherwise. Dahl says they’re envisioning the brokerage, even though its specialty is at the midpoint of the process, as a point of entry. “Who do people go to first when they want to buy a house?” he asks. “A broker.” The goal is that the brokerage will act almost as a case manager for the homeownership process, shepherding a buyer through the various steps and agencies, and taking over directly when it comes to the actual house search and buying process.
Rather than trying to prove to the state that a brokerage would be worthy of nonprofit status on its own, the group set Community Realty up as a DBA of the Affordable Housing Partnership. It made sense for AHP to take this role for many reasons: it has a regional service area and a history of working cooperatively (four of the other six member organizations have representatives on AHP’s board), and it had been the fiscal agent for the planning grant. It was also already in the process of updating its articles of incorporation, so adding in real estate would be easy.
However, policy decisions and oversight for Community Realty do not come from AHP. They come from an “advisory board,” which is the collaborative. The board includes the executive directors of the member organizations, a representative of the Charitable Leadership Foundation, and Dahl.
Other questions were not so easy to resolve. In fact, the collaborative members had to face some of the fundamental questions of the community development field. For example, how were they going to balance the dual goals of serving low-income individuals, who may want to move out of the city, and strengthening city neighborhoods? And how were they going to balance serving the lower-income homebuyers who needed the brokerage most, and the middle-income homebuyers who were also poorly served by traditional brokers and would likely bring a somewhat greater return to the agency?
After much discussion of these questions, their answer was to do all of the above, and make it work out. Community Realty’s official target market is first-time homebuyers earning 80 to 120 percent of median area income, especially (though not only) those interested in purchasing in a city neighborhood. But, notes Dahl, for now this is simply “a target for marketing and mission purposes.” The brokerage is conducting outreach at low-income homebuyer workshops and also sending out print and direct mail aimed at moderate- and middle-income renters.
“If a buyer at 50 percent of median wants our help buying, we’re all ears,” he says. “And if someone at 130 percent of median who has owned a home in the past but wants to relocate to a city neighborhood [contacts us], we’ll help that person too.” The only buyers they absolutely won’t represent are those who are not going to live in the house they are buying. This “requires constant balancing and monitoring to ensure that we are true to mission while keeping an eye on fiscal self-sufficiency,” explains Dahl. “That’s where like-minded staff and a dedicated advisory committee are invaluable.”
As licensed real estate agents, Community Realty’s staff aren’t supposed to steer people toward certain neighborhoods, any more than traditional brokers are supposed to steer them away, so it’s a good thing legally that they are committed to helping low-income individuals find a house wherever they want.
On the other hand, the reality is that many brokers’ lack of knowledge of, lack of interest in, or fear of city neighborhoods act as de facto deterrents for their clients. By instead being most familiar with those neighborhoods and taking on middle-income clients, who might bring some stability to areas that need it without being a gentrification threat, the brokerage may also serve as a catalyst for neighborhood revitalization. Dahl and others have “come to the slow realization that you can’t help low-income neighborhoods by just helping low-income people,” he says.
Filling A Market Niche
While Community Realty was formed to address a service gap within the collaborative, it also fills an underserved market niche. Many of the brokerage’s target clients are looking for small houses, are probably in a time-consuming search and often need to line up various grant or special loan programs. For a broker who relies on commissions, these clients are going to be “a hard way to put bread on the table,” acknowledges Dahl.
“It’s a difficult buyer to work with, in the amount of time you spend,” agrees James Ader, executive vice president of the Greater Capital Association of Realtors. “Some [brokers] may not take on that kind of client. Many will, and try to give it the attention they can, but probably not the attention it needs.”
Because it is taking on those time-consuming clients, and attracting new homebuyers with an interest in urban neighborhoods that sellers sometimes have trouble marketing, Community Realty is being welcomed by conventional brokers. “I’ve heard nothing bad about them,” says Ader. “Someone to invest the time with [lower income buyers] can be nothing but help. It could be a wonderful addition to the market. I hope they succeed.”
Keeping the Bottom Line in Mind
After its year of planning, Community Realty submitted a business plan that had a good chance of receiving funding, given how active Bill Dessingue, housing program officer for the Charitable Leadership Foundation, had been in the process. “It was different for all of our organizations who are accustomed to mailing a grant application to HUD and not hearing from anyone for 10 months, and then a grant agreement appears in the mail,” remembers Dahl. “The result shows. Bill was able to keep us on task in ways we may not have been if they’d just said ‘Here’s some money, come back in a year.’ He was able to prescreen concepts; we were able to share mission concerns with him that maybe the foundation wouldn’t have thought of had we not been working so closely together.”
Community Realty received start-up capital, in the form of a grant, from the foundation and officially launched in the fall of 2004. It got up to full staffing by hiring four part-time real estate agents last spring. Now comes the test. The market conditions in the Capital District mean that the brokerage is needed more than ever, and that earning money will be even more of a challenge. Prices have been rising in the area, especially in Troy and Albany, for several years, but it is still relatively affordable compared with much of the country. This means it has attracted the attention of out-of-town investors.
In this climate, there are still plenty of homes that low- and moderate-income buyers could afford, but they are having a difficult time buying them because of the time and logistics required to set up their financing. Even in poorer neighborhoods there are often multiple offers on a house, and up-front cash (and sometimes disproportionately high bids) from investors usually looks more appealing to a seller.
“That just means there’s even more need for a buyer-brokerage,” says Dahl, in the same breath as he’s describing just how hard it is out there for buyers. But Cotner and Dessingue acknowledge that these conditions may well push the brokerage toward needing more of those middle-income clients to break even. “The market conditions aren’t working in our favor right now,” says Cotner. “We need to be careful of the mission, making sure there’s plenty of room and time for service to everyone. That’s where the pressures will come in: the financial flux versus who we’re serving.”
New Jersey’s Delta Real Estate, which doesn’t set any income limits but “targets” a specific population much as Community Realty is doing, set up shop nearly five years ago explicitly to earn money for the group’s other programs. It has not yet achieved break-even point. “We have to work twice as hard to earn half as much. We spend months with people,” explains Kent Pipes, president of Salt & Light, Delta’s parent organization.
Dahl and the collaborative remain optimistic, even as they wax eloquent about the challenges of the market. Community Realty fills the gap in their services so perfectly, and the response from potential buyers has been so enthusiastic, that the momentum is strong.
More organizations around the country have been discussing launching brokerages recently, and they will likely be watching closely as these “real estate professionals with a buyer’s interest at heart” head into their second year of mission-oriented business.
LeVan, at least, gives them high marks. Her experience at Community Realty was very different from her first brokerage foray. Mary Connair, one of Community Realty’s agents, first asked her “everything short of whether I liked moonlit walks on the beach,” recalls LeVan. Among other things, Connair found out that LeVan needed a place to walk her dogs and preferred quiet, but wasn’t bothered by an edgier (i.e. not considered totally crime free) neighborhood. She had no trouble understanding what LeVan was looking for. “I liked that they understood the whole urban thing,” says LeVan.
And because of the absence of commissions, there wasn’t the same kind of pressure. “I could breathe when I got to Community Realty,” LeVan says.