Cendant's timing in creating a luxury-image franchise brand with Sotheby's International Realty, Inc. couldn't be better.

Never has the divide between rich and poor been greater in modern U.S. history, as pointed out by the Joint Center For Housing Studies, Harvard University in January 2004, and it is showing in high-dollar homes.

It's been predicted that by 2010 there would be as many as 20 million million-dollar homes, (an admittedly arbitrary benchmark for luxury,) up from approximately 850,000 in 2000.

In California in 2002, according to the Center, 13,828 homes sold for a million dollars or more, while the previous year, 9,501 homes sold for a million or more.

A survey of Coldwell Banker sales in 2001 found that 31 percent of million dollar homes were paid for in cash. Two-thirds of million-dollar homebuyers are "new money," mostly earned as corporate executives and entrepreneurs.

Just like Wall Street is said to only truly serve the upper three percent of the population, luxury real estate sales is a specialty, too. And with an economy said to be poised for growth, and home prices continuing to rise, luxury real estate is an attractive niche for Cendant's newest franchise brand, Sotheby's.

The name Sotheby's is synonymous with luxury, due to the centuries-old art, antiques and collectibles auction house. Sotheby's International Realty was created in 1976 to serve the wealthy clients of Sotheby's where there is a lot of sensible synergy. People who are moving usually want to get rid of or acquire new furnishings and belongings. A real estate brand that offers the same platinum-level service as the auction house made sense.

Until Cendant bought the brand, Sotheby's affiliated with local independent Realtors who only used the Sotheby's branding and marketing for their most expensive listings. Under Cendant, the independents and the Sotheby's brands will merge.

Mike Good, president & CEO, Sotheby’s International Realty Affiliates, Inc. explains, "What's different is we are moving forward with a full-service franchise model creating a new affiliation relationship where we co-brand the local real estate brokerage and Sotheby's International Realty, and drive the growth of network brokers which will have their logos cobranded. At the same time, NRT-owned Sotheby's offices will continue to look at their expansion."

Will the other Cendant franchise brands, Coldwell Banker, ERA and Century21 be crowded? Good says no. "The fact that there remain independent companies who are focused on luxury marketplace, and that there was a niche that was not being pulled together within a franchise network created opportunity. "The new Sotheby's International Realty will attract different brokers who have affiliated with a major brand, each brand is distinct and we are very competitive with each other. We will attract new people."

Independents will remain independent just like they would with any other franchise brand, but part of our uniqueness is how Sotheby's co-brands with the independent, utilizing their local brand and the International brand in a 50/50 relationship.

Suggests Brien McMahon, executive vice president, Real Estate Division, Cendant Corporation, "It is an opportunity to join a Cendant brand for those who couldn't before, and now we offer another option. We have many applications that have come in rapidly now, but we are waiting until September to make any initial announcements of new franchisees. We want to make sure from a servicing perspective, and that our electronic systems and our marketing programs are in place, so we won't announce people who have been approved until September."

Although Sotheby's International Realty has filed its Uniform Franchise Offering Circular (UFOC) in the states requiring registration, and it is authorized to sell affiliate memberships in 47 states, the executives say the opportunity won't be offered in half the U.S.

"By design, it is a smaller brand," says Good, "but the average sales price will be considerably higher, so we'll make it up in volume."

Explains Rich Green, senior vice president, Membership Sales, Sotheby's International Realty Affiliates, Inc., "We will be working with Sotheby's destination areas and metropolitan markets. We are looking market-by-market for the best opportunities in real estate."

McMahon says the outlook continues to be outstanding, despite real estate bubble bursting talk. "The entire residential marketplace has been very strong, but the demographics are in our favor for the next few years. There will be a large wealth transfer, with the baby boomers inheriting money - the biggest transfer of wealth that the US has ever seen, and then there are the demographics of people who are already buying second and third properties. The other factor is the aging population, that won't get that wealth transfer, but they are buying homes."

At the macro level, the price of real estate, despite some booms and busts, has steadily risen since 1968.

"We can't control what can happen," says McMahon, "and if something would happen, the value of our network increases. When the market slows, franchising sales pick up, so either way we are covered."

And then there is the cross-marketing.

Says Good, "The relationship with Sotheby's holdings, is a terrific relationship that we will build on. They have a stake in this over the next 50-100 years. Cross marketing is a way to try to leverage our client base both ways and to find new ways. There are many luxury properties where the owners have significant value in antiques and paintings, and there are people who are selling those things which also sell their homes. They list properties and they have valuable articles some of which will be marketed through the Sotheby's auction house.

"That's a unique twist that nobody else has."

Published: July 19, 2004

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