Unlocking Potential

LG Fairmont’s competitive advantage revolves around the tool they’ve created for their real estate agents.

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After meeting as students at Columbia Business School, Aaron Graf '08 and Derek Lee '08 co-founded LG Fairmont, which has become one of the fastest-growing real estate brokerage firms in New York City. LG Fairmont uses a proprietary software platform called Beacon, which enables real estate agents to sell beyond the parameters of their personal network. In addition to the many benefits this technology has provided on the client side, it has also served as a powerful recruitment tool for enthusiastic agents from year-end 2015 to year-end 2016, LG Fairmont grew its agent team by more than fifty percent.

The Real Estate Association interviewed Aaron who serves as LG Fairmont’s CEO to learn more about Beacon and how it has given the firm a competitive advantage in the New York City real estate market.

What is the biggest operational inefficiency or bottleneck in the transaction process that LG Fairmont has identified and how is this addressed by Beacon?

Traditionally, real estate agents are tasked with sourcing all of their own business. This is a very difficult task with a high failure rate, and thus, many agents are sitting idle instead of selling. An analogy is a factory with terrible capacity utilization. Beacon sources clients over the internet and matches them with our agents. The result is everyone is working at capacity.

How has the real estate brokerage business in New York City changed over the last five to ten years, and what will the industry look like five years from today?

Today when people look to buy, sell, or rent, they start online. People used to walk into brokerage offices or look at print ads. In the next five years, the industry will change to deal with this reality. We have engineered our process around this view.

What economic or demographic trend will drive the performance of Manhattan real estate during the remainder of this business cycle?

Interest rates. The sales market performance depends on how quickly interest rates rise in this cycle, which is the number one driver of affordability. The sales market from the perspective of a prospective homeowner is driven mostly by the price of rent (and the expectation that rents will keep rising) in comparison to the sales price of a similar unit. Rents right now are high and interest rates are low, so in many cases, after taking mortgage deductions, people feel they are better off owning because there’s upside to it, and they fix their payment into the future (as opposed to dealing with relentlessly rising rent). That said, the sales market can absorb a controlled rise in rates. However, if it suddenly becomes much cheaper to rent something than to buy something similar, people will start to rent. Rates have risen somewhat recently, but this was controlled and expected and the sales market has maintained its performance. On the other hand, a wild uncontrolled rise would cause a problem. Our view is that rates will rise in a controlled manner.

How does LG Fairmont balance technology with the human element in an industry where success is built upon strong relationships? How has technology allowed LG Fairmont to gain a competitive advantage in a traditionally low-tech industry?

It's our belief that the concept of strong relationships in a low-volume transaction business is overestimated. What we’ve found is that a properly constructed online profile, in many cases, is more powerful than strong relationships. This is true across industries, but especially true in cases where a customer only transacts once every few years like in real estate. First and foremost, folks want great service, and we’ve been able to articulate that we can provide that.

We are relentless about improving the agent experience through technology.

Our competitive advantage revolves around the tools we’ve created for our agents. We’ve done a good job of creating technology that is incredibly useful to agents, and we are relentless about improving the agent experience through technology. We have many agents who would tell you that they would never have been able to achieve the success they are having without our technology. We’ve also done a good job with the combination of technology and sales management. Our management is woven into the technology in a seamless way, and our agents feel highly supported. A good agency is the product of good agents, and our technology and support is our draw.

Special thanks to the Real Estate Association for their collaboration on this article.

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