November 11, 2017

JF1166: From $200 Million In Sales To $2.5 Billion How Did He Do It? With Mike Shapiro

To say that Mike does things differently would be an understatement! Do you know of any other brokerage that employs a full time economist? With a background on Wall Street as a finance guy, Mike can point out correlations between real estate markets and stock markets. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Mike Shapiro Background:

  • Chairman and chief executive officer of HÔM Sotheby’s International Realty
  • HÔM retains a staggering 2 billion dollars in listing inventory and another 500 million in exclusive offerings
  • The leading purveyor of luxury real estate and related services in the region
  • Growing from 36 associates and 200 million in sales to 400 associates and over 2.5 billion in sales
  • Based in Orange County, California
  • Say hi to him at
  • Best Ever Book: The Art of War


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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Mike Shapiro. How are you doing, Mike?

Mike Shapiro: I’m great, thank you so much for taking me on your show, I appreciate it!

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Mike – he is the chairman and CEO of HÔM Sotheby’s International Realty. His group retains a staggering two billion dollars in listing inventory, and another 500 million in exclusive offerings. He’s based in Orange County, California, and he’s grown from 36 associates and 200 million in sales to 400 associates and over 2.5 billion dollars in sales. Holy cow, that’s some big numbers! With that being said, Mike, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mike Shapiro: Well, I am sort of an accidental real estate guy. I was a stock options trader in Chicago, so it’s kind of funny… I was a market maker, so if you remember that movie Trading Places – I was one of those guys. I was screaming, yelling on the floor, and obviously aging quickly. So needless to say I moved when it was sort of going to more of electronic trading, and I stationed myself in Arizona and just traded off the floor, because it had changed dramatically, and my wife and I — it was so warm in Arizona… I bought a home in Newport Beach, California, and I was sort of a relatively young aged, faced with my wife being very ill; she got breast cancer, and fortunately we lived next to a very well-known doctor, and he saved her life in Newport. So she wanted to move there, which we did, and at a relatively young age, we kind of retired in our early forties, which was probably the worst thing in the world for me to do. I went absolutely nuts. [laughs]

I formed a venture capital group at that point, looking for investments and things to do, because when you face [unintelligible [00:03:02].15] at that age… Fortunately, everything’s great now, knock wood, and she’s healthy and thriving, and it was one of my biggest [unintelligible [00:03:10].25] your focus changes as you change, and you get to be at a place where you really should be focusing on what’s most important. I just didn’t realize that I had to do something.

So when I focused on this venture capital idea, a friend of mine in Arizona had owned a real estate company which ironically had converted to a Sotheby’s, he had asked me for financial help. This was in 2007. He wanted to develop an office in Newport Beach, California, and he asked if I could finance that for him. I said, “Well, I don’t really know anything about it. Let me figure this out.” So at that point I spoke with my realtor in Newport that we had purchased several homes from, and asked her how this worked, and subsequently, I got interested in potentially investing.

To make the long story even longer, in 2007 I met this company called HÔM Group, and they were facing some financial trouble even though their plan was excellent, to be honest with you, but the writing was on the wall, and everyone knows what happened in 2008. So after a long negotiation, I effectively recapitalized the company, and didn’t know what I was gonna do… If I was gonna be an investor, or what was I gonna do there. So I took control over HÔM Group, and that’s when it had 36 agents and basically 200 million in sales.

So as funny as this sounds, I just showed up every day because I had nothing to do, and I sort of fell in love with the business, and it was great. It’s been an amazing business, and when you close on a real estate business in March of ’08, and because of my background as a trader, I obviously had the luxury of making lots of mistakes, because as we know now, the low point I think in all financial markets was September 2008. So that’s what I did, I just grew up in there; I [unintelligible [00:04:58].26] with the business, and applied really more of my background to it, which was from the financial business… So I saw something I don’t think anybody else saw, which was that housing was more of an asset; it wasn’t only about the marketing, and my agents needed to be focusing on being underwriters, and that they were in fact in charge of some of those important investments that people were making.

So we focused our marketing on that, on trying to be more like a Meryl Lynch, for lack of a description, than a [unintelligible [00:05:30].24] and it worked. So we grew and grew and grew, and this is where we are today.

I can go on for hours, and I don’t wanna bore your listeners.

Joe Fairless: That’s not boring, it’s really interesting.

Mike Shapiro: [unintelligible [00:05:41].13]

Joe Fairless: Yeah, it’s really interesting coming from where you background was and how you applied it to your current business. Specifically, you said housing was more of an asset and your agents needed to be more focused on underwriting; if I’m a client of one of your team members, what will I notice that they do differently from others?

Mike Shapiro: I think that preparation and that they’re in charge of probably the most important asset that that person owns… So what I mean by underwriting, they’re responsible – legally, actually, as well – for making sure that they do the right thing and they get the best price for that client to sell that property.

And for the most part, I believe the real estate business is really a listing business. I mean, obviously, we [unintelligible [00:06:30].12] but the reality is that (from my perspective) you need to understand the value of that property and why is it that value, how is it that value, and protect that value. So that’s where the difference lies; we’re giving tons of tools to try to produce that result. We are probably one of the few houses on the street that employs an economist, I consistently put out reports about things that are associated with housing, what the value is… I put out reports I don’t think anyone else sees, and I’ll probably just send them if anybody wants to see any of this, where I see correlations depending on the price point with the stock market… In fact, there was a 95% correlation to our market, because we’re in Orange County and we sort of center ourselves into Newport Beach, so it’s obviously an incredibly expensive market [unintelligible [00:07:17].02] and I think our average list price is 4,5 million from our office.

So the behavior is almost mimicking the Dow-Jones Industrial Average, and I saw this huge correlation – it’s like 95% accurate. So I put that out, and say “Look at this. Look at what else is happening.”

So if you see things like the stock market climbing, there’s a high probability that in fact the housing market will continue to climb. So what’s interesting now is what I’ve noticed – and I’m sorry I’m going on a tangent here – is that because I was a stock options trader, I used to follow something called the VIX, which is the volatility index. Now, I looked at the volatility index as a contrarian indicator – do you know what I’m saying right now, or am I running off on a tangent here as far as the volatility index?

Joe Fairless: Yeah, keep going.

Mike Shapiro: So the volatility index, if there’s a lot of turmoil in the market, then the volatility index explodes and it’s an indication of huge turmoil. But if there’s no turmoil in the market and the markets continue to climb, and you see record lows of volatility, it’s highly suggestive – in my opinion, I’m really stressing this – that there’ll be some level of correction; in other words,  [unintelligible [00:08:21].09] they’ll attribute it to either a political event, or something… To some volatility. So I see a probable correction occurring. Now, I don’t think there’s gonna be some massive correction like we saw in 2008 – that’s highly unlikely – but there’s clearly some level of correction that’s occurring. And in fact, weirdly enough, I’m seeing the beginning of that in our marketplace, where there’s significantly less inventory, which is probably what’s pushing the market up as high as it’s gone. However, because there’s a lack of inventory, at some point people will put their houses on the market so there will probably be more inventory than buyers, which of course will push the housing market down. Or if the stock market corrects itself, which it’s too high, then people don’t feel as wealthy, and subsequently it drops prices as well. So that’s where I see the potential.

So I’m putting out research like this so that people can sit down with their clients and they can discuss intelligently what’s happening, rather than just looking at housing as just what people try to do is to make it a science and they try to just look at comps, but there’s more to it than that.

If you really think about it, housing is nothing other than an outlier. What I mean by that is that everybody wants to sell their house with a high comp; everybody, every seller is like “Well, this is the last comp per square foot”, whatever they’re using, and every buyer wants to buy the house with the lowest comp. But the reality is there’s more to this story than any high comp, and there’s more to the story than any low comp.

In other words, on a high comp, perhaps somebody just sold their company for 100 million dollars, and they’re annoyed and they’re looking, and suddenly they don’t care; they’re just gonna pay whatever the price is. And suddenly there’s a new comp. Well, there’s not exactly any science to that, it’s just behavioral patterns that were predicated on somebody’s [unintelligible [00:10:02].21]

And let’s say a low comp occurs because someone’s stressed over their mortgage payment, or there’s an illness in the family, or something’s wrong, or there’s something wrong with the house. So simply a low comp occurs because of some [unintelligible [00:10:15].07] as if there’s nothing dynamic about housing prices or human behavior, so we try to teach them that. Why did that low comp occur? What happened?… So they can explain that when they’re buying. Or why did the high comp occur? What happened there? That’s explained to the selling side, to the selling client.

Joe Fairless: How do you find that story?

Mike Shapiro: You ask. You try to get that story, and obviously, if you don’t know, you can’t tell a story; it has to be truthful. So it’s almost like being a reporter. But most times, weirdly enough, in housing, I think people are pretty honest. If you ask the other agent “What happened?”, like “They were stressed.” Usually, people are pretty open.

Or you see things on title reports, or you can extrapolate. Clearly, if there’s a foreclosure, there’s stress there; they haven’t paid. Or other things like that. But you cannot [unintelligible [00:11:10].28] anything that’s not true or that you’ve investigated, but for the most part usually you can see what happened. And if somebody buys a house that — these outliers occur a lot in our market; in a lot of ways [unintelligible [00:11:22].14] 50 million dollars plus. We have listings at 55 million [unintelligible [00:11:29].17] goes for 55 million dollars – what happened? Well, a billionaire three times over may buy the house. Well, 55 million to somebody who’s worth three million dollars is — do you know what I’m saying? It’s in relationship, so you need to explain that, like “This is who bought the property.”

So I think it’s more than just this sort of walking in, “I’m gonna market a house, I’m gonna stick it in the MLS, and I’ll hear a comp, so this is what we’re gonna do.” You need to be more educated, you need to educate your clients; you need more in your arsenal in regard to why is the value here? What’s happening?

And obviously, you need to do all the other things. This is why we joined Sotheby’s four years ago. I was too old at that point to really grow an international company, so four years ago Sotheby’s continued to ask us to join them – we were sort of the highest end of the companies in our location – and I took it seriously and I said “You know, I see all this international clientele coming in, people are demanding those types of marketing, and that kind of marketing worldwide”, so we joined, and it literally doubled — in fact, we’ve tripled our business [unintelligible [00:12:38].20] It was the right decision, it’s been great for the agents, it’s been quite great for clients, and it produces the desired result. Our brochures are going worldwide, and that’s important.

You can’t be an international company by just having the internet. I think a lot of people think that that’s what’s occurring. It doesn’t work that way. In my opinion, of course, the real estate business – boots on the ground. Are there people in other countries who are representing your property? Are they operating under your brand? So I think there’s more to it than just having internet, or international MLS, for lack of a description.

Joe Fairless: I don’t know of another brokerage that employs an economist; I’m sure there are some, at least not on the residential side. What gave you that idea and with the content or with the findings the economist comes up with, how is that distributed?

Mike Shapiro: Obviously, that’s my background; I was a trader, so I worked correlations. I’ll look at arbitrage, so I’ll look at why are things occurring, I’ll look at “Are there other things that are impacting the real estate market?” When oil was driving all over the place, was that impacting it? Are there correlations there? We noticed the stock market had huge correlations, I was seeing that the VIX had some correlations… So I keep looking at things, and I think that I tell — everytime I sit down with the company meetings every other Tuesday and I sit with agents and we talk about new listings, we talk about what’s happening in the marketplace, we talk about new compliance issues, I always say “Please, everyone, please read the Wall Street Journal every single day”, because if you read the Wall Street Journal every day, for the most part (in my opinion, again), most of the movers and shakers in finance are reading this paper, most political people are reading this paper, so you’ll see what’s at the head of the news cycle, what’s happening, what are they looking at, what are they thinking about, and it’s impacting real estate values.

So why did I hire an economist? Because I think that’s a primary aspect to the underwriting equation. What else is going on that’s moving prices? Why are prices moving? Otherwise, you’re just walking to a listing and say “What? Well, the house next door [unintelligible [00:14:49].27] but what else is happening? Yes, it’s part of the equation, but it’s not the only part of the equation. And I do think over a certain price point the behaviors become more impacted on outside forces. So yes, under a certain price point it’s probably not as impactful to have an economist. Still, there’s a correlation there, but it’s just not as impactful.

Joe Fairless: And how is that content distributed to your community?

Mike Shapiro: We write reports – we usually do one a month – and I distribute it via e-blast, and then certainly they can send it to their clients; if they want, we’ll set up an e-blast for their clients as well, if they’d like to do that. And then we print it off for them to bring to listing appointments, if it’s [unintelligible [00:15:33].00]

Joe Fairless: Okay. Based on your experience that you’ve talked about, what is your best advice ever for real estate investors or professionals who want to do what you do? Either create a brokerage, or have a differentiating feature within their brokerage, whatever comes to mind.

Mike Shapiro: I think the real estate business is a very people business. I think what people don’t understand for the most part is that it’s a highly inefficient business, and while we see all of these groups or internet sites and everything going after real estate and saying “Why is the commission so high?”, on and on, in the end it’s a people business. So I think the most important thing is that you need to identify that and you need to have a culture associated with the trade area that you’re working, so it’s gonna be pretty granular. That is what I think the most important thing is.

Where are you selling? Who are the clients that you’re selling? Understanding that and equating that to your agents. I don’t know if that makes any sense what I’m saying. We have 13 offices at this point and we serve a very large trade area; we serve all of Orange County, we serve South L.A. county – we have an office in Long Beach – and we serve the dessert. So if I go into any one of my offices, it’s like you’re entering another [unintelligible [00:16:49].25] In each office you need to identify what is the clientele, how are they behaving, if I’m making any sense, and you need to address those issues, and you need to have those services that the clients are responding to. In the end, the most important thing are the clients.

Yes, obviously, a real estate company has no assets; the only assets it has is its agents, and the agents are the most important thing to a a real estate company. But really, if you really focus on it, it’s the clients that pay the freight, it’s the clients that are the most important, it’s the clients. So what are the clients saying? What are they doing? What are they thinking? What do they want? What are they buying? And in a way, your real estate [unintelligible [00:17:29].21] should reflect that.

It’s interesting to watch… In Newport Beach, which is a very expensive area, because it’s so expensive, most of the clients are either self-employed, or they’re chairmen of companies, or they’re in sales, or they’re doing something and they’re not just getting a salary… Because how do you afford a two million dollar property, or a three million, or four, or ten million? So it’s interesting to watch that the agents who wanna sell real estate really gravitate or are more entrepreneurial, they’re more independent-thinking, and you need to service that. That’s what it is. It’s not one thing fits all, in my opinion.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Mike Shapiro: Oh, god… [unintelligible [00:18:10].16]

Joe Fairless: Well, that will make it even more entertaining, so I encourage that. First, a word from our Best Ever sponsor.

Break: [00:18:21].16] to [00:19:17].11]

Joe Fairless: Alright, best ever book you’ve read?

Mike Shapiro: The Art of War.

Joe Fairless: What’s the best ever deal you’ve done or transaction? It could be a business deal or a transaction.

Mike Shapiro: I sold a property that I owned [unintelligible [00:19:31].02]

Joe Fairless: You what?

Mike Shapiro: I sold a property that we owned on a paper napkin. The deal was done literally on a napkin.

Joe Fairless: The contract was as well?

Mike Shapiro: Well, we ended up going to contract as we do in the normal way, but it was literally on a paper napkin, and then I’m like [unintelligible [00:19:47].14] It was hilarious. We had to do what was legal and proper, but that was how it started.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Mike Shapiro: This is funny, I’m not a realtor, so I don’t have a license; I just run the company… So I can’t really answer that. From a business transaction do you wanna ask me?

Joe Fairless: Yeah, just any transaction. It could be business, whatever.

Mike Shapiro: Not listening to the other side. As you can tell, the fact that I just ramble… [laughter] Not listening.

Joe Fairless: What’s the best ever way you like to give back?

Mike Shapiro: My favorite way to give back is help people, it’s my joy. My joy is to help young people entering the business, and mentor them and try to establish a great career. I love doing that. It’s wonderful to see them make their money, reach their goals, whatever that is. That’s my favorite thing.

I’m also very charitable and I give to a lot of different charities, however that is my joy – the big focus [unintelligible [00:20:45].14]

Joe Fairless: How can the Best Ever listeners get in touch with you or learn more about your company?

Mike Shapiro: Well, we have a website, which is, and I’m happy to take any e-mail, if you want – I’m happy to talk to anybody; we can start that way. I really answer my phone, and I love listening to what people have to say. I learn, they learn – it’s great. And I really love the business, it’s a terrific business. It’s a wonderful experience. You get to see people at their best, and sometimes at their worst.

Joe Fairless: Mike, thank you for being on the show. There’s a couple lessons I took away, but one of them that really stands out is that high comps and low comps aren’t necessarily telling the story, and that’s why you ask the Why behind the price point (what else is going on here?) and dig deeper, and that is a lesson, even if we’re not agents or have a brokerage… If we’re buying properties for investment reasons, that’s what we should be looking for as well, because it’s gonna help us understand the market more, maybe identify some more motivated sellers, and identify new opportunities, or buy at a right or wrong price, depending on which direction you go. And then also employing an economist – really interesting stuff; I hadn’t heard of that before, I’m glad you mentioned it. Certainly, your background rings true there.

Thanks for being on the show, Mike. I hope you have a best ever day, and we’ll talk to you soon.

Mike Shapiro: Thank you so much. I really appreciate your listeners listening to my ramble, so thank you.

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