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September 30, 2014

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Q&A: Kuba Jewgieniew, CEO of Realty One Group

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MONA SHIELD PAYNE / SPECIAL TO IN BUSINESS LAS VEGAS

Kuba Jewgieniew, CEO of Realty One Group, is shown in the company’s Summerlin office. He says staying out of debt and embracing technology have helped the company grow.

Kuba Jewgieniew is under the radar even within his own company, and that’s just fine with him.

The 33-year-old son of Polish immigrants is the CEO of Realty One Group, a fast-growing real estate brokerage. It has grown to 1,600 agents in Las Vegas and has expanded to Arizona and California.

Jewgieniew said he knows only 20 of his 2,200 agents.

“They call me the ghost or the shadow and question whether I exist,” Jewgieniew said. “When I introduce myself to an agent, I see a group whispering asking, ‘that’s him?’ ”

Jewgieniew said he’s shy and doesn’t like putting himself in front of the public, and that’s worked for him. He said he sees his role as someone in the background crunching numbers and looking to grow the business.

“It is a nontraditional company,” Jewgieniew said. “All of my managers and staff are my buffers. They deal with the agents on a daily basis. I am behind the scenes, but that doesn’t mean it won’t change in the future.”

Jewgieniew moved to Las Vegas from California seven years ago. He is a former stockbroker and computer programmer who turned an interest in real estate investing into starting his own brokerage.

IBLV: Why did you move to Las Vegas?

Jewgieniew: I moved here to be closer to my rentals. Somebody told me that for the investment to be successful, you had to be close to your rentals. Vegas was very close, and I wanted to give it a try.

What attracted you to real estate?

I have always been interested in real estate. It intrigued me since I was teenager. The way I got started was to buy investment properties. Back then, it didn’t even dawn on me to open a brokerage. It was a hot topic. You go to the coffee shop at the time in 2003 and you overheard conversations there. I got more and more involved in it.

How did that lead to this business?

I was here about a year, and I got my real estate license so I could have access to the hot deals. I am a bargain hunter. As a Realtor, I was looking at the competition and have an entrepreneur spirit. I researched my competition and then jumped in head first in 2005. I was 28.

How did you do as a Realtor?

I did about $30 million in sales my first year. I was working by myself. I had no team and no assistants. I got burned out on that, and that was another reason I wanted to start my own brokerage.

How did you finance it?

With the sales that I did. I had $30 million in sales, and I got some good commissions. I was buying and selling properties at that time around 2004 when the market was hot. It was a combination of the two.

How did you set it up?

For six months to a year, I was researching my competition and understanding what their models were and how to tweak it and if there was room for another player. I gave it a shot.

When I do things, I don’t sleep. I wanted to perfect it. After the fourth month, I have been profitable since.

When you looked at the competition, what did you learn? What kind of model did you set up?

It was fairly simple. I looked at the franchise system first and quickly saw that they weren’t evolving with the times. They weren’t embracing technology, and that was my background. Franchises are a good system, but I thought maybe there is an alternative to that system. How about more service or less money out of the agent’s pocket? At the end of the day when their commissions go through the real estate brokerage, the brokerage takes their share, and whatever is remaining goes to the agent. The brokerage’s share was less in my model and so we take out a flat fee as opposed to percentages and fees others tack on.

So you have complete control?

I have complete control and don’t have to answer to anyone. We are in Arizona and just opened in California. We are expanding while others are consolidating. I have no debt. I haven’t cut up the pie and have no intention of doing that.

How does work your model work?

We charge a $200 flat fee and another fee of $175 (for a total of $375 per transaction). Ninety to 95 percent of the transactions are $375, and the agent gets to keep the rest, no matter if the commission is $2,000 or $20,000. (Agents also pay a monthly fee of $100 regardless of whether they complete any sales).

Why go your route?

The flat fee is simple. Life is complicated. We have two programs. If you are an experienced agent and know how to do your business, it is 100 percent minus the $375. If you need training, we have a mentorship program. It is one on one with our corporate broker and that is a 70-30 split (with 70 percent going to the agent).

Did that help lure people when you started?

We attracted 100 agents the first two months, and had 300 agents by the end of the year.

How many now in Las Vegas?

A little more than 1,600 and with Arizona, 2,200.

When did you expand to Arizona and what prompted that?

About two years ago. It was a boomtown just like Las Vegas, and we thought, “We are established here and let’s copy the model and see how it works over there.” We have three offices, and it is going very strong.

What about California?

We opened one office in January and we will open two more in the next 30 days.

Do you see yourself expanding to other states?

My focus is the tri-state area, and California is a huge market. There is a lot of money there. It is a big economy, and we can go up and down the coast. We are going to start in Orange County and open something up by the end of the year in L.A. L.A. is the monster. The first six months of this year, we are opening up three offices. I am adding $1 million in yearly expenses.

How do those markets relate to Nevada?

A lot of these agents are duly licensed in different states. It connects all the agents. They may be licensed in California and Nevada or Nevada to Arizona or Arizona to California. That’s where the leads are flowing back and forth. We feed each other.

Why do the expansion in the middle of the downturn?

Our business model is strong. We are cash flowing well. I don’t have an extravagant lifestyle to support. I reinvest the money. I don’t like it sitting in the bank. Over the past couple of years, it has been a challenge to many brokerages, but we have gotten stronger.

How?

Our model works. We aren’t attracting just any agent. We tell many agents that we are not going to accept them. Quality is very important and quality attracts quality. I don’t want any lawsuits. What I am trying to create is the new standard in how a brokerage should be run. The agents are quickly realizing they are the brand, and that the company that is behind them is important. It is not the company that sells the real estate. It is the agent that sells the real estate. They are the brand.

What have your sales been over the years?

We had $102 million in sales in 2005. That was for about seven to eight months.

What about the other years?

We had $1.6 billion in 2009 and $1.1 (billion) in 2008 in sales. In 2006, it was around $250 million and it grew to $750 (million) in 2007.

And this year?

We are looking to surpass $2 billion easily.

How did it come about that Inc. magazine rated Realty One one of the nation’s top 500 fastest-growing companies?

Our agents said, “Look at this publication and look at this award.’’ We took a look and said, “Let’s give it a shot.’’ We provided all of our financials and all of the proof and they chose us. We submitted it again this year, and I think our chances are pretty good as well.

How many transactions did you do last year and how is it going this year?

We did nearly 10,000. The last three months of 2009 we were around 1,000 and the first three months of this year we are about 1,900.

What commission do sellers pay?

The market rate is 6 percent — 3 percent for each agent.

How are agents coping with prices falling and lower commissions?

Some agents have second jobs to supplement their income. Others know how to sell. The median home price was $300,000 and the commission they were used to was $9,000. Now the price is $150,000 and the commission is between $3,000 and $4,500, especially with lower-end properties. If it is a short sale, the escrow can get extended four to six months. Before, when the market was hot and the values were higher, $9,000 was within 20 to 30 days. Now, you are looking at $3,000 commission within three to four months possibly. It is a lot harder work.

How are short sales affecting the industry?

We have noticed that many agents are coming together. They are partnering up. With these short sales, they fill the pipeline. If you were to start now, some of these deals would be closed in three to four months. Short sales are not going away. For the next two years, we are still going to have many short sales. That is the game right now.

Why is that?

Banks are willing to negotiate right now plus with the government providing a helping hand, this is the future. They are not going away.

How is that going to affect the housing market?

Let’s see what happens in the next few months. The tax credit is only going to be available (through the end of April). I think that is an incentive to jump on the market, especially for first-time homeowners. When that goes away, I think it is going to be challenging for many people who have been looking to get in the market but have been outbid because there are 20 to 30 offers on a property they are interested in. They may get discouraged.

What does it mean to the market that foreclosures are declining?

There is that shadow inventory of the government. It is a trickle effect. Who knows what the inventory is? If they flooded the market, it would devalue everything. It is about what’s going to happen with the shadow inventory over the next year.

What are you expecting for the market over the next year?

I think that the right people are controlling these inventories — the banks — and are becoming stronger and healthier. I think we have seen a pattern and that pattern is a positive one. They are going to maintain current inventory levels. The supply of inventory has come down dramatically in recent months, and we have seen in a few areas of town that values have stabilized or even picked up.

Do you expect prices to pick up by the end of the year?

Sometime this year. It depends on the area. Right now as long as it stabilizes and rebuilds the confidence in buyers and confidence in agents to communicate back to their clients, we need to stabilize and regain their confidence. Going forward, I think the worst is behind us and right now we are at a plateau.

Are we going to have a boom in the next five years?

Why not? Let’s see what happens in the market. It is driven by unemployment numbers. We jumped from 3 to 13 percent in a very quick amount of time.

But the economy will be weak for a while?

The future is very, very positive for Las Vegas. Price points are very attractive. Investors have been coming in from California. Prices in Orange County are $500,000 to $600,000, and there are bidding wars there. The same house here can be bought here for under $200,000.

What you have seen in California?

In California, we have noticed over the past two months a trend developing, and the trend is that the prices have started going up. It is healthy and for real. Things have stabilized, which looks good for us.

Is that good for our market to have all these investors?

The market weeded out a bunch of amateur investors who couldn’t separate out the business and emotion side. Maybe their cousin or a family member or a taxi driver recommended a property for them to get into, they got emotional and jumped on it without doing the proper research.

Are you worried about them?

I don’t think it will be as crazy as it was before.

What are the trends in brokerages?

A lot of them are in survival mode. They are consolidating or they are going away or they are merging with other companies. A lot of the smaller companies that have 20 to 50 agents have disappeared. We are the alternative to the franchise system. A lot of these owners of the franchise system — if they don’t evolve with the market and adapt to the changing times, it is a dying breed. Some of these franchises have very good names and they are going to bounce back stronger than they were. It really depends on who is running it no matter if you are in a franchise system or independent. With how their commissions are structured, their rosters are deteriorating.

What is your competition doing wrong?

A few of the brokerages are in desperation mode. They are raising their fees. They are implementing splits. They are taking more money from agents — and agents are loyal but if they are pushed too hard, there is that breaking point. They may have been with the company for 10 or 20 years but at the end of the day, they will do that.

How did some of them go wrong?

Some of the companies that did go bankrupt had huge interest payments that they had on a monthly basis. I don’t like that. I don’t borrow money from friends or family. I don’t like to be in debt. I can’t sleep.

What were you saying about the industry not embracing technology?

A lot of owners who have run businesses 10 to 15 years are running them like they did 10 to 15 years ago. They haven’t embraced it. I have wrapped my arms around it. We have centralized all of our systems. Anyone, agents or staff can access any data anytime, anywhere. It has cut overhead. It started paying for itself. Once the market comes around, the future is going to be very bright.

What about your company’s work in the commercial sector?

We have a division. Other brokerages in the past few years had it, but they are no longer with us because they stretched themselves. A couple of reasons why we have it is because we have a phenomenal commercial broker. We are not competing against (commercial brokerages). Some of our agents have clients who buy land or do commercial leases or buy commercial buildings.

You have a property management division as well. Does that diversification help in this economy?

It has helped. Maybe an investor wants to buy from one of our agents but wants to rent it out — we direct them to property management. If an agent has serviced a client for years and now they are interested in getting into commercial, that agent will work with the commercial broker and keep it in-house.

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