From the young age of 19, Joe Williams was destined to work in real estate and through a legal loophole became one of the youngest real estate agents in the state of Texas. The rest shall we say is history… In 1983 he established Keller Williams Realty with Gary Keller in a single office in Austin which has grown to become the world’s largest privately owned real estate franchise now operating with over 200,000+ residential agents and 2,500 commercial associates in over 54 countries. Considered by many to be the “Southwest Airlines” of the real estate brokerage industry, Keller Williams is the top volume and transaction producer in the USA with over $1.5 Billion in profit sharing over and above the commissions paid to their agent partners and has earned a reputation as a top training organization and profitable franchise operator.
With 45 years of experience as an agent, broker, builder, developer and fund manager Williams can detect the next explosive growth in real estate drawing on his vast wealth of knowledge and historical experience riding the ebbs and flows of market cycles. “It’s one thing to have fun becoming #1, it’s a whole other thing to be able to remain there. We’ve done that for close to 38 years now,” Williams asserts. Recounting his fascinating journey, Joe Williams speaks to Impact Wealth about building a company from scratch, surviving two major downturns, disrupting the industry, and how the post pandemic workplace is creating new markets with impressive growth opportunities for real estate investors.
I understand you had an interesting start to your real estate career at a very early age?
It started when I was 19 years old, and I fell in love with the idea of sales. I’m a people person at heart. I’d been working retail for three years throughout high school and one of our best customers was a real estate broker. One day, I asked him specifically about the real estate business. He invited me to come by his office on a Saturday morning so we could discuss it as he knew me well. It sounded like something I’d really like to do so he started filling out the state application. But, we both found a catch! Turns out, in Texas you had to be 21 to get licensed! However, a quick call to a fraternity brother revealed a quirk in the law! You see, I’d lost my dad at 10 years old, but the state had a helpful provision that in this case, a surviving spouse’s oldest son could hold contractual majority at the age of 19, thus I became one of the youngest licensed agents in Texas!
I immediately dove into selling houses as a sophomore while at junior college and then transferred to The University of Texas in Austin in 1974 as they had a real estate program they’d just installed at their business school! I’m a very lucky guy as I’ve lived in Austin ever since!
As one of the largest real estate franchises on the planet, did you ever think this was going to happen when you opened in 1983?
We started as a two-man shop and all we were trying to do at the time was just to come up with a better ‘
“mousetrap”. But in 1986 to 1990 the oil market crashed, and oil dropped to $8.50 a barrel which precipitated the S&L implosion. When that happened, Texas, Louisiana, Oklahoma, and Colorado just literally got flushed down the toilet. We lost all but two banks in Austin, swallowed up by the FDIC and tons of empty RE you couldn’t give away. All the builders were taking bankruptcy and the government formed the Resolution Trust Corporation [RTC] and started auctioning off all the bank assets for two years. Even the old timers had never seen anything this bad since the depression.” The local board of Realtors dropped from 6,200 to 2,700 agents! There were no buyers and tons of inventory. It was surreal in many ways.
This made us reevaluate how brokers and agents work together and ended up totally rewriting the rules of how RE Brokers and agents can work together by changing four fundamental ideas about the brokerage business. It wasn’t an overnight fix but by 1989 we franchised our first office and then slowly started to gain momentum. KW hit its stride in the early 2000’s with the classic “hockey stick” growth curve. During the 2007 – 2011 Great Recession Keller Williams was the only major RE Franchise to post positive growth!
What do you attribute your success and growth to?
Our whole philosophy was to teach our agent partners how to become the brand, not the corporate office. We teach them how to run their teams, give them very high commission programs and awesome support all wrapped into a culture of nurturing, learning and sharing that has truly become the secret sauce to our success. We had to teach the agents to think like “business owners”, which they actually are! Once they bought into that, you can truly develop a culture of sharing and caring. People may come to work for you because of the money or commission, but they stay for the culture you nourish. Agents are the ones who have the customers, not us, and we wanted to help them develop their businesses to own an incredible relationship with their clients.
Lately, we’ve taken this culture around the world. For many real estate agents in foreign lands, this is a very new approach creating a caring and sharing culture initiated by their RE broker. We want to empower them to think like “owners” and they don’t normally hear that from their foreign bosses! They travel to our educational events and we are almost embarrassed at the joy they share with us about such a new way of advancing their lives. And that’s a key ingredient, looking out for their welfare and their futures. It’s all about creating opportunity for them and if you have the right environment, they’re not going to leave you. It’s a very holistic approach and it’s worked very well.
Once you realized the pandemic wasn’t quite Armageddon, what was the next realization?
Well, it took a few months for people to get their bearings, I think. We all “battened down the hatches.” Then a funny thing happened, the world didn’t collapse. I do think all of us started to understand how “invasive” the digital world had actually become. If you had your laptop and a cell phone, it almost didn’t matter where you were physically! That was a pleasant shock to most of us. Who knew, right?
All of a sudden, residential real estate just took off, for a number of reasons. For the first time our agents were selling homes “sight unseen” through virtual drone and VR technology. The truth was, it was incredible how far technology had come and if Grandma had not been using Amazon before the Pandemic, now she was.
Since everybody was now working from home, carving out a spot to work from was top-of-the-mind for sure! Many needed more space so finding that was a real priority. All of the sudden workers in large metropolitan areas like NY, LA, or even Houston discovered they could ditch the long commute that ate up their typical workday and still get a ton of stuff done! Many surmised that if this might be semi-permanent maybe they could move out to the suburbs and small-town America where the costs were lower and the living was easy! Silicon Valley operations from Apple to Zillow told their workers just “go home” until further notice. I can’t tell you how many young people are travelling around the world right now, still connected to their offices digitally and doing just fine.
I do think that places like downtown Manhattan and large office communities around some of our largest cities will change forever. When you talk with workers who used to commute an hour a day to and from work they tell us there is no way they want to go back to that. Granted some businesses have no choice, just ask Elon Musk what he thinks. Then again, he is in manufacturing which is physical in nature. The main issue in my mind is that if all of your workers are working remotely, how do you maintain a “culture” that keeps people around? That is a key question moving forward that will have to get answered by some type of “hybrid” formula. Right now, nobody really knows what that looks like.
A rendering of the new Single Family Rental (SFR) type communities springing up all over America where renters all have plenty of ground space to enjoy along with private yards
We talked about the change in housing, what do you forecast will happen in future years?
Density in the United States is going to increase in the major cities and many workers who can enjoy telecommuting with this new definition of “work’ are going to filter into many smaller communities and towns where life is less hectic provided those towns can acquire the basic community needs like schools and healthcare. The pandemic aftereffects will have a significant effect on reinventing small town America in a good way. Small towns close to major metropolitan areas will get a nice shot in the arm!
We’re already seeing cities start to eliminate zoning classifications like “single family homes” in order to allow “granny flats” to be built in a backyard. With real estate costs rising and land being a finite commodity, allowing some flexibility to increasing density is just logical. Cities are starting to realize the old concept of a business on main street with the owners housing sitting on the second floor wasn’t such a bad design. Again though, density has to go up.
We will also see a lot of changes occurring in the residential rental space, primarily because of the general rise in prices that we’ve seen. The issues are that the middle class, as well as young people looking to buy their first homes are getting “squeezed” in terms of what they can afford.
This is a long-term problem that won’t get solved overnight. But we’re seeing alternatives beginning to appear on the horizon. A new category termed “Single Family Rental” [SFR] is becoming mainstream where you are renting a small house or duplex in a master planned community where you can have a small yard and an amenity package spread out on a larger footprint of land. This is an excellent alternative for those having to rent as they save down payment money. Retirees also see a long-term lease as an alternative to owning and maintaining their own home.
Are we in a recession now, in terms of the RE industry?
One of my favorite rules of the RE road are that “Everything changes, except human nature”. We’ve been in a very long (12+ years) low interest rate/expansive market! It’s a natural tendency to fully expect the party to end at some point. Further, when you combine the pandemic world shutdown of manufacturing with trillions loaded into the US Economy a blind man could have seen the inflationary result. Those shortages won’t go away overnight.
But the facts are that real estate is a very local business. If you look at your individual market, you will see a lot of variation around the country. Some markets like ours in Texas are not going to be impacted much at all. Other areas of the country, where there has been a net loss in their population base and jobs are likely to feel it more. Increased costs for fuel and food impacts people on the low end of the economic scale. But we’ve got 11 million jobs we can’t fill with a 3.6% unemployment rate nationwide.
And unlike the stock market, real estate values are driven by a lot of things you can actually measure. Jobs, supply & demand, city & state policies, utility capacity, school scores, are just a few of the variables that make up your real estate values in your community. If you have a big shortage of available housing, which has been the case throughout this pandemic in a whole host of communities, it’s not likely that many of those buyers and renters just magically go away. And if you increase interest rates where the low end of the buyers can’t buy, then they rent. They have no choice so it’s not like vacancy rates are going to change dramatically. The multi-family category has been very stable in terms of demand because of that.
RE values have jumped during the pandemic, what has been the primary driver?
The immediate answer is “shortage” of inventory. We’ve had very low interest rates for 6+ years so almost everyone who could, refinanced their home. So, unless you’re retiring, or getting transferred, or absolutely need more space, you weren’t going anywhere. Thus, for three years we’ve had an acute shortage of homes for sale, and that’s across the country. At the height of the Pandemic, we’d have buyers lined up in front of a new listing like planes at LaGuardia. It was insane. Guess what happens to prices when 8 buyers all submit bids.
The commercial markets have more to do with location. The top ten markets in the US are seeing steady demand with offices being the biggest variable as bosses redefine how much space they actually need. Industrial is all about manufacturing that is moving back to the USA and/or establishing distribution centers that can cover that “last mile”. I had a hard drive crash last month and Amazon was able to deliver a new one in 2 hours due to the distribution center 30 miles down the road. That’s amazing but the new normal for competing today! So, the industrial landscape is experiencing a lot of growth.
What advice do you have moving forward, in terms of real estate investing?
Two variables drive the future of real estate in my mind, 1) the inevitable digital infiltration of our lives as we know it and 2) the real estate asset classes that are necessary to those lives.
Years ago, I remember an airline pilot sharing with me that American Airlines owned SABRE, the computerized system that all travel agents used to help you buy and acquire an airline ticket. We didn’t just go to the internet back then, it didn’t exist. If you needed an airline ticket, you called a travel agent. Then, one day, Southwest Airlines decided to sell its own tickets off their web site and forgo using the SABRE network. Overnight, the travel agency business took a hit it never recovered from. The banking industry is doing the same thing right now, I mean who really needs a physical bank visit to transact your banking needs? Nobody needs real estate who is now caught up in the virtual, digital world.
If one studies Maslow’s original hierarchy of needs, food and shelter come to mind as pretty important! Industries that revolve around those needs often need real estate to accomplish providing those needs. Clearly housing isn’t going away, and commercial uses that cater to that housing or the people in those houses who have physical needs will do fine. The retail areas where you buy “stuff” from will still proliferate. Yes, the big box retailers will do battle with the Amazon’s of the world, but the nail salon and tire store aren’t going away. If it’s physical in nature, it will need real estate in some capacity.
Lastly, I do think it interesting to read where some very smart people are returning to the most important asset category, raw land. We have a lot of people making land investments and that has not stopped at all, because there’s only so much land. There’s a reason Bill Gates has become one of the largest farmland owners in America. What does he see that everybody else doesn’t see? Number one, food is going to be critical. Bill Gates understands that. But beyond that, any asset category in the real estate space first has to start with the ground below it. And we’re not making any more land.
There’s a big reason so much capital is constantly pouring in from overseas to get invested in the United States. We are the most stable economic environment in the world and these overseas investors see owning land in the US as a huge advantage unavailable to them in countries where they reside. I don’t see this changing at all. I’m reminded of Warren Buffets comments on that first farm he bought in Nebraska so many years ago. As he said” “I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside.” At Berkshire’s annual shareholders meeting this year he again insisted that land should be one of two assets he’d buy instead of Bitcoin. His remarks were classic Buffet, “If you said for a 1% interest in all of the farmland across the United States, pay our group $25 billion, I’ll write you a check this afternoon!” He may be “old school” but he’s spot on in his thinking for the future.