Today’s New York Times carries an article entitled: “Jobless and Staying That Way” by Nelson Schwartz.  In the article Schwartz considers the possibility (probability according to some) that low growth and high unemployment will be the “New Normal” and that with 1.4 million Americans out of work for more than 99 weeks, and 14.6 million Americans out of work for more than 6 months, the economy, on the very brink of Depression at the beginning of 2009, may be in for low growth at best and Deflation at worst (like Japan for over ten years) for the foreseeable future and certainly no less than the next three to five years.  Schwartz quotes former top financial aids to both George W. Bush and William J. Clinton as agreeing to this possibility, and – possibly more importantly, noted investors Bill Gross and Mohamed El-Erian (managers of Pimco, the World’s largest bond fund, as believers in this economic prophecy.

So where does that leave you, the men and women who have invested your time and treasure in real estate, building good companies and nurturing strong brands in your local markets?  What can you do to avoid the bad effects of such a reality (if it is a reality, which only time will tell)?  What does that mean for your personal economic future, the futures of those you support with your brokerages, and the futures of your families?  How will low growth or even deflation hurt your business?

Better yet, let’s turn the question on its head and ask this: “If, indeed, that is the future of our business for some time to come, then what can I do to benefit from that economic climate”?  I think that is the real question we need to address: to do otherwise is to give in to despair, and that never helped anyone.

If you own a great deal of rental property, or manage that for your clients, the value of that will go down, or at the very least not rise as rapidly as previously.  On the other hand, mortgage money – at least if you have equity – may be significantly cheaper and the ability to reduce your single greatest expense in investment real estate property ownership can be greatly reduced, allowing you to earn more money on your rentals, which probably will also find a better market because there may be (will be in that scenario) more people who can’t afford housing on their own and may have to rent.  If you have equity, it may even be a great time to add to your portfolio since you are in an ideal position to identify good property that could have attractive pricing.

There may also be a great opportunity to attract top-drawer talent to your brokerage since the unemployment rate, under this scenario, will exceed the historic 5% American model by eighty to one-hundred percent: not a happy time for your country, but probably an excellent opportunity to find some really excellent talent that you can mentor and who will be very pleased to find a good home where they can work for themselves and show off their talents.  They certainly deserve that chance.  The other day I noted on my calendar what would have been the one-hundredth birthday of a good friend and personal mentor.  He was an Italian immigrant who came to this country at the age of eleven and worked his way from a Fuller Brush salesman working the poorest districts of Philly and Camden to the senior vice president of sales for the largest direct marketing company in the World.  He saw me through some very difficult times in my early career by reminding me that every coin has two sides, and that, in his case, for example, he would use those more difficult economic times to hire the best people (on commission, of course) and train them to be killer salespeople, reaping the rewards of his farsightedness for many years to come.

Is this the time to use your economic farsightedness to purchase some of your competition?  Is this the time to grow and take your business to the next level, while your economic enemy is hiding under the desk biting his/her nails? 

I’d be very interested in your feedback.  We are firm believers in listening to our customers, and you are the professionals in the field.  I want to hear how you are planning to approach this new dynamic.  We’ll share your thoughts on our Web Site’s Blog, but if you are not interested in seeing your name in lights, just enter “Anon” for your name and that’s how it will appear on our Blog.  Don’t worry about your competition getting your plans, they aren’t the ones reading this article!

At Title Alliance we are in the business of making your title operation work well for your: to help you further your dreams and to help you cement your relationship with your agents and their clients through excellent service delivered in a personal and friendly way.  We make your title operation better received and more profitable, and we take it as a personal challenge to help you grow your business.  We like working with successful people, and our job is to help you be successful.  How can we help you grow?

Bill Cotter, Partner

Title Alliance, Ltd.

Bill Cotter founded Title Alliance in 1983 and is one of six title insurance professionals who are partners in the company.  Title Alliance companies operate in 15 states and produce over 10,000 title policies each year.  Their companies consistently rank among the highest in the industry in profit margin and in client satisfaction.

Title Alliance has developed title insurance agency joint ventures since 1983. Our very first joint venture finally closed in 2007 (24 years after opening) when our original partners began retiring – the normal life cycle of any business. That statistic alone is very meaningful: it is a tribute to our partners and their long-term vision. They recognized the need for excellence in service for their clients – their agents, and for the clients of their real estate company – the buyers and sellers who make their businesses prosper. Building a company on good service and a long-term vision yields excellent profitability and longevity.

Title Alliance specializes in co-creating branded, separate and distinct Independent Business Units that enhance the value of our Partners’ businesses by providing efficient and effective ancillary title services to their clientele. This is our differential: This is “Who We Are and What We Do.”

Each venture is its own unique Independent Business Unit, and as such is worthy of our best efforts to guide and manage it. We currently have 35 joint ventured title operations, most of which are thriving in spite of the poor real estate market conditions. So what is it that we do – our partners and us –that allow us to have the strong success that we have had? What differentiates us from some others? We believe it is our Partner selection.

Our target partners are Trend 500 Realtors, as well as banks, credit unions, mortgage brokers and builders who have been in their respective businesses for ten years or more, have excellent reputations and are large enough in terms of probable volume to support at least two full time equivalents in their title joint ventures. We only want partners who intend to obey the law: not just RESPA, but the various state laws that might be applicable.

We constantly find ourselves replacing other title-side joint venture partners: most of our ventures are with real estate companies or lenders that are replacing their previous title partner – at times because of fear that the partner is not being RESPA compliant, but most often because the Realtor or lender does not feel they are the most important item on their title partner’s “To DO” list each day.

Many years ago a commercial banker I knew and admired said that commercial lending is all about the “Three Cs:” Character; Capacity and Collateral. When we began envisioning Title Alliance we decided on our own “Three C” criteria: Character; Capacity and Commitment. These have served us well since 1983, and will serve you well should you wish to follow them, regardless if you are the potential title-side partner or the potential real estate/lending-side partner.

The first “C” is Character. Character represents that which is indelibly engraved in the very soul of the individual. A person with “Character” is one who possesses moral strength you can count on: someone who will not waiver for momentary gain. This is what you want in a business partner. You may first look to capacity and say: “This guy is a find,” but if you are not able to trust him or her, then the person is a bad choice for a partner. Choose companies with whom to work that are well known for their ethics and fine reputation: “He who sleeps with the dogs wakes up with fleas.”

By Character we are also looking for someone who is communicative and willing to listen as well as willing to speak. Too often a partner does not speak up when they are dissatisfied, and if they only would be more communicative, the overall relationship would be enhanced. We survey our partners each year and try to ask probing, open-ended questions that help us manage better.

Several years ago, for example, our partners advised us they were basically unhappy with our profit and loss reporting. After probing we found they didn’t like the degree of detail and they didn’t like our format. We tested several approaches, and now we send our statements electronically by the tenth of each month in a very simple format that allows the Partner to quickly see the key items they look for, such as order count, closing count, gross revenue, net profit and net margin. Because the information is in Excel, they can do “what ifs” should they care to. If they want more detail, they know they can get it from us by making one phone call.

Listening, as we all know, is a critical element to good communication, and that is why we have regularly scheduled meetings with our Partners. These meetings allow us to listen and to discuss issues important to the Venture. Although our operations are almost all LLCs, and in almost every case we are the sole Managing Member, the fact is that the input from our Partner is invaluable in building a strong company. We meet with each Partner monthly for at least the first three months and then quarterly thereafter in a “Board of Directors” meeting. There is a set agenda (that will vary from Venture to Venture) and always a “New Business” category to allow for input from our Partners.

Our budgeting process is also very Partner-centric. We manage our annual budgeting process by meeting with our Partners to gather their views on expected business conditions. We then help the Manager of the Venture create a budget and a formal Marketing Plan for the next year. After we run the budget through the process we meet again with the Partner and get their feedback. The end result is a greater commitment on the part of all three parties: the Venture’s manager, ourselves, and our Partner.

Capacity is the next “C.” Capacity implies more than just a level of business volume available: it includes the ability to deliver that volume. People always ask “What’s the magic number?” I can only say that I have been actively doing this for 27 years and have been in the title business since I was 16 – which is a very, very long time, and I have yet to be able to identify “the magic number”. The only way to tell if a venture has the ability to do well is to put the information into some sort of a Proforma template and look at it. Our template requires “stressing” so we can see the break-even point, which isn’t a bad idea either.

The key to the Proforma, however, is in assessing if the Partner can deliver. There have been many venture opportunities we have seen where the total available business to a venture was large enough to more than be profitable, but the ability to deliver the business was not there. Why not? It can be as simple as the proper chemistry is not there between the Realtor broker-owner and his or her sales associates. It more usual that the historic delivery system has someone making the referral other than the Realtor or lender and therefore creating a joint venture with a Realtor or lender simply will not work. The capacity is really not there.

The most frustrating, however, is the case where everything should be working fine, but we find the Partner is really unwilling to attempt to push for the business. This introduces our last “C:” Commitment. There must be a reason for a loan officer or a real estate salesperson to give their business to an in-house title operation. The quality of the service must be superior to service available elsewhere. That is a real fact of life that few understand when they first set out to create a title operation: some feel they can “short-sheet” the agents or LOs by providing inferior service delivery. That never, ever works. Top business analysts, like the late Weston Edwards, have proven time and again that a joint ventured title – or mortgage – company must provide the best service, not the least service. In addition to that the Partner has to expect to get the business. Absent that expectation, the venture will not succeed.

One of the first things we do, after accessing the Partner’s real commitment and the Proforma is to do a Focus Group with the agents or LOs in order to better understand their vision of what they want in “their” title company. We write a summary of our findings and return it to those who participated and ask for feed-back to ensure we got it correct. We then meet with the primary sponsor – the Partner – and ask if he or she will commit to doing whatever it takes to have the items requested on the list from the Focus Group.

If so, we create a Vision Statement from that list – a statement the Partner and we each commit to achieving. If the proposed Partner is unwilling, then the venture will most likely fail, and there is no point in us going any further. Commitment! Commitment to Excellence! That is what makes a great Partner. One of the things we have learned over the years is “A.B.L.” – always be leaving. If the proposed Partner does not have the Character, the Capacity or the Commitment – get out!

I have been privileged to work with some really wonderful Partners. Our “Capture Rate” from the independent sales associates and Loan Officers in our joint ventures is about 75% on average. We keep pushing for 100%, as well as pushing for as much outside business as we can get. That constant effort keeps us at the top of our game and keeps the venture a positive and profitable operation for all involved and all the customers of the venture. I understand, based on published surveys, that our joint ventures have unusually higher capture rates than most.

What differentiates? I believe the difference is the Character of our Partners and the Commitment we each bring to the table.

The Japanese word for “joint venture” translates along the lines of: “same bed, different dreams.”  Each party to a joint venture brings not only their contribution in terms of ongoing support, but also their dream and all the human baggage we each carry with us daily.  Each has a specific expectation, and often – too often – that expectation is never spoken and therefore goes unrequited.  We’ll discuss expectations in more detail another time.

Building a strong joint venture is a lot different from building a great title company.  Over the years I have had the privilege of doing both, and while neither is easy, building the venture is infinitely harder, and certainly radically different from building a title operation.  The local title guy is excellent at building that company.  He or she knows the business inside out and understands local custom better than almost anyone in town.  He is able to identify a title problem just be touching the brief of title, and can do a closing with his eyes shut.  The problem usually is, however, that he not only doesn’t know how to do a joint venture – he really doesn’t care to know how to do a joint venture.

From the standpoint of a local title company, doing a title joint venture is often a “lose – lose.”  How can they do a venture – something that they are not really trained to do – when it is a conflict with their other business?  If the title partner feels he or she is imposed upon by the venture rather than elated they were asked to be part of it, then you have a classic example of “same bed – different dreams.”  One partner is already unhappy, and this marriage will never work!

Whoever you pick to do your venture, ask yourself two important set of questions: First – “what makes this company competent in the development and management of a joint venture; what experience do they have; and who can I ask to verify they are competent?”  Second – “what motives this company to do a joint venture; are they worse off or better off doing a venture with my company; and how will it affect their core business?”