A Glut in the Market for Homes
Joseph Petralia is cold-calling Silicon Valley homeowners, politely inquiring whether they’re planning to move anytime soon.
No? Well, he asks, how about the neighbors? Do you know them? Any of them thinking of leaving town?
The real estate agent waits a maximum of three rings for people to answer -- any more and he figures they’ll be irritated at having to come to the phone. But even when they pick up, most promptly hang up. Sometimes they yell at him.
It’s difficult, dispiriting work. But if the former auto parts salesman is serious about making it as an agent, he needs to find people who will let him sell their houses.
That’s a formidable task. One of the few things increasing faster than house prices in California is the supply of agents licensed to sell them.
More than 22,000 applicants took the state’s real estate exam in April, nearly three times as many as in April 2003, according to the Department of Real Estate. To handle the surge, the department has rented six test centers around the state to supplement the five it already has.
The last time so many people wanted to sell real estate in California was in 1990. In what might be an ominous sign for the current boom, that year marked a peak in the housing market.
There are 437,000 agents in California, enough to form the state’s eighth-largest city. With only 680,000 home sales a year, competition for listings can be savage.
New agents call every person they know or might have met once. They “farm” neighborhoods, which means blanketing them with brochures. They knock on strangers’ doors. They call people who are selling their homes without an agent and try to sign them up. They swoop in just as another agent is about to sign a client and steal him away.
Petralia works the phone for days at a time.
“Hi, I’m Joseph Petralia from Coldwell Banker. I’m doing a survey in the neighborhood.... “
That’s his standard opening line. Petralia is working ZIP Code 95118, a middle-class neighborhood in San Jose with 7,752 single-family properties. His database, a commercial product that has been filtered through the National Do Not Call Registry, supplies numbers for 985 of them.
It’s Monday morning, a good time to catch people after the distractions of the weekend. Within minutes, Petralia is chatting with a homeowner. Unfortunately, not a sympathetic one. “Hell, no, I’m not moving,” this fellow says. “I was born and raised on this street 85 years ago.”
Cold calling is a straightforward numbers game: the more calls, the greater the chance of a breakthrough. In February, for instance, Petralia called 1,823 people and talked to 557 of them. Five of them qualified as leads -- people who said they were thinking of selling.
He dials another number. A man hangs up on him. Another. A woman hangs up.
“I’d rather have them hang up than not answer,” Petralia says with a salesman’s unquenchable optimism. “At least I know I’m getting closer to success.”
He’s 28, a native of nearby Campbell. Though he grew up in the shadow of Intel Corp., Apple Computer Inc., EBay Inc. and hundreds of other technology companies, working with computers or the Internet never appealed to him.
“I didn’t want someone else to get rich while I did all the work,” he says. “I’d rather put in the effort and see the results myself.”
Justin DeSantis, his buddy in the next cubicle, concurs that tech is a bad bet: “Only one out of 20 dot-coms makes it.”
A former personal trainer, 31-year-old DeSantis likes the unlimited potential of real estate.
“The most I ever made as a trainer was $60,000,” he says. “As an agent, I’m just about there now.”
Some of the thousands of people getting licenses have only one client in mind: themselves. When they sell their houses, they’ll keep the commission. But many others will pay dues to join the National Assn. of Realtors, a requirement at many brokerages.
There are 165,000 Realtors in California, an increase of 49% since 2002. Only a handful of other fields is growing faster, including debt collection and waste collection, according to the state Employment Development Department.
Kyle Berube trains agents how to use the Multiple Listing Service that inventories homes on the market. Petralia and DeSantis are typical of what Berube sees as the new breed: more entrepreneurial, more aggressive, more sophisticated about technology and, above all, younger.
“A lot of new Realtors used to range in age from their late 40s to the early 60s,” Berube said. “Now they’re as young as 19.”
A large part of real estate’s increased attraction is the exploding price of houses. A middle-class home can easily fetch $1 million.
At the standard commission rate, the homeowner pays his or her agent 3% -- $30,000 on $1 million. The agent’s brokerage will take as little as $6,000 of that (if the agent is experienced) and as much as $14,000 (for new agents).
The buyer’s agent also gets 3% from the seller. On either side of the table, it amounts to a fair chunk of change for what looks like easy work. Houses practically sell themselves these days.
The appeal is heightened by the lingering effects of the dot-com bust. Subscriptions to the local Multiple Listing Service are up 53% since widespread tech cutbacks began in 2001.
“Everybody loves real estate now. It held up when many people were losing money in stocks. People talk about real estate in the grocery stores. That drives interest in the industry,” said Janet Case, executive officer of the Silicon Valley Assn. of Realtors and herself a tech refugee.
Lori Kowal didn’t think about a career in real estate until she was laid off from Arrow Electronics Inc. four years ago. “The downturn was really tough here, an absolute nightmare. I lived off my savings, my 401(k), and then a friend who worked in real estate said, ‘You’d be awesome at this,’ ” she said.
The high cost of living in the communities south of San Francisco was another factor.
“You ask yourself, where can I make money to survive in this valley?” said Kowal, a 43-year-old divorced mother of a teenage son. “You can’t do it on $20,000 to $30,000 a year. So where are the quote-unquote big bucks? People seem to think it’s in real estate.”
The big bucks are certainly there. The half-dozen top agents in Petralia’s office sell more than 30 properties a year and take home more than $500,000 each, branch manager Ed Graziani said. In neighboring Saratoga, which is wealthier, they can make more than $1 million.
But it’s not easy to become a top producer. Many people who want to sell their houses either already have an agent they’ve worked with before or, increasingly, have a friend or a relative with a license.
Agents representing buyers, meanwhile, have to contend with a sellers’ market. Many houses draw multiple bids -- a dozen is typical, and 25 is possible. If a would-be buyer doesn’t get the house, the buyer’s agent doesn’t get paid.
“Seventy-five percent of our membership does between zero and one transaction a year,” said Jim Myrick, president of the Santa Clara County Assn. of Realtors.
A lot of the new agents have “unrealistic expectations,” said Peter Aiello, who manages 67 agents in a Cashin Company Realtors office in San Mateo. “They just see the price of houses going up. But they don’t see that there’s none to sell.”
Two years ago, Aiello said, the number of active listings in San Mateo and the five communities surrounding it was 364. “Last year, when we were crying about low inventory, it was 163,” he said. “As of last Sunday, it was 145.”
Some new agents have already made a U-turn. Duard Slattery, a former engineer at FMC/United Defense in San Jose, switched to real estate in 2003, joining Coldwell Banker in Los Altos.
“In a year and a half, I wasn’t able to get any listings,” he said. He recently got another tech job.
The allure of real estate is so powerful that stories like Slattery’s aren’t much of a deterrent. Neither is the industry’s uncertain future.
On one side, the agents are pressed by the rise of Internet firms that skimp on traditional service but charge much lower commissions. On the other side are their own customers, whose houses are frequently in such demand that the owners can insist on a reduced commission.
Yet the new agents keep coming. Six years ago, people gave up good jobs for the excitement -- and stock options -- of Internet start-ups. Now some are leaving good jobs with tech companies because they find more thrills in real estate.
Cheryl Hu, who recently emigrated from China and in one year earned her MBA from San Jose State, said she planned to give up her job in high-tech corporate finance.
“I make about $100,000 a year,” she said. “But I had to ask myself, do I want to continue to lead a comfortable life and climb the corporate ladder or do I want something different, something exciting?”
Hu got her license and recently started part time with Coldwell Banker. “Either I’ll have negative cash flow, or the sky is no limit. But I’m only 30-something -- I can take a risk and recover if it turns out to be a bad decision.”
Petralia has no doubt that becoming an agent is the smartest decision he ever made. He dismisses any competitive threat from the hordes of newcomers.
“They come here, they leave. They come here, they leave,” he says. “You’ve got to treat it like a 9-to-5 job. Most of the agents just show up on the days there’s a free lunch.”
Last year, as he was breaking into the business, Petralia acted as a buyer’s agent for a $1.6-million property. He netted $32,000 -- more, he says, than he had made in the entire previous year stocking auto parts at a Mercedes dealer.
That’s the kind of score that brings new agents into the profession, but Petralia confesses that the clients were his sister and her fiance, successful Internet entrepreneurs.
This year hasn’t seen a payday like that. He’s made only $4,000 in commissions, all from the sale of a condo in San Jose.
That listing was a referral from a colleague who sells commercial properties. Petralia’s thousands of cold calls brought him his second listing, a three-bedroom in San Jose that he’s putting on the market for $620,000.
The first thing he did was put a sign out front. His hope was to attract an agent-less buyer before the house was listed in the Multiple Listing Service and discovered by other agents. Representing both sides of a deal, called “double-ending,” doubles an agent’s commission.
Two other cold calls got him tantalizingly close to a deal.
In one case, the couple was Chinese, and even though Petralia took along a colleague who spoke Cantonese, the sellers ultimately listed with a Cantonese-speaking agent.
The other time, he was supposed to meet the sellers on a Wednesday. Another agent showed up the day before and signed them. This is called “swooping.”
The deeper the relationship with a potential client, the less likely the agent is to be swooped. Accordingly, Petralia doesn’t seek information from homeowners so much as conversations. He tries to ask open-ended questions. Not planning to move at the moment? Well, what if you were? Where would you go?
“Oregon,” he repeats approvingly to one homeowner. “A nice area. I don’t blame you.”
You never know, he says. “A contact might pay off 20 years from now.”
The other day, a man said he planned to live in his house until he died. Petralia made a note to call him back in six months. When he inquired of a woman, “May I ask if you’re planning to move?” she snapped: “No, you may not.”
“I’ll call her another day, maybe she’ll be in a better mood,” he says.
Says his colleague, DeSantis: “This is so brutal, people try it for a week and then say, ‘I can’t do it.’ ” He jokes to Petralia: “Didn’t you cry the first time someone yelled at you?”
“No, but I said I would never do it again and look -- I’m doing it,” Petralia says.
The new agents’ cubicles are in a former chiropractor’s suite next to the main Coldwell Banker office. Across a narrow hallway are two empty, windowless offices. Graziani, the boss, said Petralia and DeSantis needed to do $6.5 million in business to get one.
DeSantis might get there first. A few days ago, he cold-called his way into an appointment with a couple who were auditioning agents. On Saturday he spent an hour and a half with Raymond and Mary at their Los Altos home, “just trying to work it.”
The house is worth at least $1.2 million. As a new agent, DeSantis would pay about 45% of his commission to Coldwell in overhead. But he’d still net about $20,000.
The couple wanted more information about their selling costs. DeSantis wants to keep making a good impression so he decides to hand deliver it. He includes a handwritten card declaring how nice it was to meet them.
“Come back with that ink,” Petralia says, meaning a signed contract for representation. Meanwhile, he keeps calling. His allergies are killing him. The wastebasket is piled high with tissues. But he keeps calling.
Suddenly, he gets a live one. It’s his 21st call of the morning. An unemployed engineer says he’s thinking of selling and then renting, hoping prices fall enough so he can get a better house at a cheaper price.
“You’re looking to cash out?” Petralia says, sitting up straight. “Are you aware of the market right now?”
Is there a homeowner in California who isn’t? The engineer, who bought his house three years ago for $480,000, wants $700,000.
Petralia scans his computer for sales in the neighborhood. A slightly bigger house around the corner, he discovers, sold for $749,000 in just six days. The engineer’s hopes are within reach. Petralia promises him all the details within 24 hours.
It’s time for lunch. He brought in a can of clam chowder and a can of peaches to eat at his desk. “You go out for an hour and a half, and you’re not going to get anywhere,” the agent says.
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