Long & Foster turns 50 with big challenges
Fifty years ago, the median home value nationally was $25,600. Today, that number hovers around $241,000. In 1968, real estate agents updated listings twice a week with perforated pages pulled from thick notebooks and tucked into boxes of 3-by-5 cards. Today, listings are updated in real time online for everyone to see, not just agents.
No one would have guessed that the 600-square-foot office in Fairfax, Virginia, opened in 1968 by Wes Foster, Hank Long and one real estate agent, would, over the span of 50 years, become the largest independent real estate brokerage by sales volume in the United States, with 11,000 agents in seven states and the District of Columbia.
“Back then, all we thought about was, ‘How are we going to pay the rent?’” says Foster, chairman emeritus of the company. “We had no idea we would grow to where we are now.”
Where they are now was big news in September, when the company was acquired by HomeServices of America, a Berkshire Hathaway affiliate and the nation’s second-largest real estate brokerage, best known for being owned by Warren Buffett.
“It’s bittersweet, but Warren Buffett is a fine, honest gentleman, and he will do well by this company and treat our agents well,” Foster said.
The Long & Foster name will stay.
“When we started the company, Hank and I flipped a coin, and he got his name first, and I got to be president,” Foster said. “By the time I bought out Hank 11 years later, the name already had value, so we kept it. Hank became a developer, and we continued to work together occasionally on commercial real estate projects.”
As Long & Foster enters its 50th year, the company’s dominance is being tested like never before. Disruptions within the real estate industry have loosened the grip traditional brokerages like Long & Foster have on the housing market. Upstart companies are threatening to upend the industry with discount commissions and lucrative fees for agents. Some experts say Long & Foster’s best days are behind it. Company officials disagree. Regardless of who’s right, Long & Foster has much to confront as it celebrates its milestone and looks to the future.
Throughout the years, Long & Foster has faced competition within the real estate industry.
“When Re/Max came along and offered agents 100 percent commission and charged them a fee for a desk and advertising, we eventually offered that, too,” Foster said. “We were losing 15 to 20 good agents a year, and we had to meet that challenge head-on.”
A difficult challenge right now, Foster said, is companies such as Compass that are paying agents to switch brokerages.
“They paid one of our agents $250,000, although usually they pay less than that,” Foster said. “That’s tough to compete with.”
Redfin is using the Internet and low commissions to upend the traditional real estate brokerage model.
“If the industry doesn’t reform itself, it’s in trouble,” Redfin CEO Glenn Kelman told the Seattle Times in 2007. “People resent the commission structure.”
Although discount brokers and real estate websites such as Zillow are pushing the real estate industry in new directions, Long & Foster has continued to maintain its market share. Foster’s optimism hasn’t wavered.
“There’s always competition and always a new game in town,” he said. “So far, we’ve adjusted. I think good agents will always be needed.”
Not everyone is as optimistic.
“Long & Foster is a great company ... in a dying industry, sort of like Eastman Kodak or Bethlehem Steel,” says Rob Hahn, managing partner of 7DS Associates, a management consulting firm for real estate companies based in Houston. “The fact is that traditional real estate brokerages are not in the real estate business, but in the agent recruiting and retention business, and there are simply too many competitors and not enough of a unique value proposition for that in the long run. Competitors are not simply tech hybrids, like Redfin and Opendoor, but low-cost operators, like HomeSmart or RealtyOneGroup, not to mention every single tiny mom-and-pop boutique brokerage. I wish them the best, but without fundamental changes, it’s tough to see how any brokerage — even Long & Foster — survives the next decade.”
As with every other industry, tech innovations dramatically changed the nature of the business.
“When I started in real estate, we didn’t have cellphones or GPS, so I used to spend hours mapping a house tour for buyers,” says Carol Welsh, who has been a Long & Foster agent in Reston, Virginia, for more than 40 years. “There was no Internet with photos, so buyers looked to agents for everything, and we had to show them a lot more houses in person.”
Welsh remembers taking her own photos of her listings and waiting for them to be copied at a drugstore before she could glue them to a typewritten sheet with listing information.
“There were no lockboxes, so when we showed houses, we would have to stop by different offices to pick up keys, show the houses and then go back to those offices to return the keys,” says Dale Mattison, who has been a Long & Foster agent in the District of Columbia since 1982.
Long & Foster was among the first companies to produce a website and create proprietary tech solutions in the 1990s, according to Larry “Boomer” Foster, Wes Foster’s nephew and president of general brokerage for Long & Foster Real Estate. As the pace of tech innovations increased, the company used a mix of its own technology and third-party vendors to try to stay ahead of the curve.
Technology has increased the pace of real estate transactions but also added to their complexity, Mattison said.
“When I started, contracts used to be one side of one page, but now they’re 40 to 60 pages in some jurisdictions,” he said. “No one would do that when they were handwritten.”
During its first two years, Long & Foster expanded with a couple of additional offices in Northern Virginia. The company had targeted IBM in Manassas and used the same strategy to expand into Maryland.
“We knew we’d get killed if we tried to compete in Bethesda (Md.) at that time, so we went to Gaithersburg (Md.) first,” Foster said. “We opened an office in Room 101 in a Holiday Inn behind the IBM plant, and it worked.”
By the early 1980s, the real estate brokerage expanded its business to include a mortgage business, now called Prosperity Mortgage, property management services, title services and homeowner’s insurance.
While the business was growing with new divisions, its geographic footprint was also expanding. Today, Long & Foster has offices in Virginia, Maryland, Pennsylvania, New Jersey, West Virginia, Delaware, North Carolina and the District of Columbia.
Of course, a 50-year history in the housing industry means that Long & Foster has faced its share of down markets, including the most recent foreclosure crisis and recession.
“We’ve been through more than one bad market, and we’ve learned to cut back as much as necessary to eke out a little profit,” Foster said. “We never ever lost money.”
During the recession, Welsh said, there were fewer qualified homebuyers, and houses sat on the market for three to five months or longer.
“It was terrible when people had lost so much value in their homes that they had to bring money to the settlement table,” she said. “I remember one guy had to bring $100,000 to pay off his mortgage.”
Bidding wars before the recession and during the current inventory shortage are also painful, Welsh said.
“I hate to tell people that their contract wasn’t accepted, especially when they’ve fallen in love with a house,” she said.
Another particularly tough period was in the early 1980s, when mortgage rates spiked to 17 and 18 percent.
“What kept us in business then was selling property that had an assumable loan,” Foster said. “We’d get the sellers to offer an assumable loan and take back a second mortgage for the rest of the price.”
One of Welsh’s triumphs in that phase of her career was the time a seller paid 12 points to buy down the rate for the buyers.
Despite the challenges presented by its competitors and the uncertainty the company faces as it heads into its next phase as part of HomeServices of America, company President and CEO Jeff Detwiler’s vision for the future is bright.
“I see Long & Foster continuing to grow with its all-inclusive customer experience,” Detwiler said. “We want to build a relationship with our customers for life.”
This long-term relationship, Detwiler said, is similar to the way people work throughout their lives with the same investment adviser or insurance agent through multiple transactions.
“Relationships and highlevel service from real estate agents is still of primary importance, and we’ve never lost sight of that,” Boomer said. “The more the real estate business changes, the more it stays the same.”