Failure of Real Estate Brokerage Is Elementary
THE BUSINESS: Real estate sales
FOUNDED: In 1966 as Sherlock Homes; joined Re/Max in 1987
PRIMARY CAUSE OF DEATH: Franchise agreement was not renewed
SECONDARY CAUSE OF DEATH: Owner filed bankruptcy
Re/Max Sherlock Homes was one of western New York's most successful real estate offices. In 1996 its 16 agents recorded gross sales of $55 million, the fourth-highest sales volume in Erie County, N.Y., surpassed only by three multioffice firms with six times or more the number of agents. But earlier this year, within a span of eight days, the agents learned their broker's Re/Max franchise agreement was not being renewed, that he would not be operating Sherlock Homes, and that he had declared the company bankrupt.
With the Buffalo-Erie County market more bust than robust for the past two years, bankruptcy might be a logical choice for a struggling office. Nationwide 2,604 real estate firms failed in 1996, according to Dun & Bradstreet. But Re/Max Sherlock Homes had been thriving.
The downward spiral started April 29 when Joseph A. Borzillieri Jr. abruptly resigned his position as president and regional director of Re/Max of New York. On May 2, Borzillieri called an office meeting at Re/Max Sherlock Homes, which he had taken over when his mother, Dorothy, the company founder, died, the previous December. He told the agents that the Re/Max franchise wasn't being renewed. Agents present at the meeting report that Borzillieri spelled out their options: they could remain Re/Max associates under another broker, they could stay with Borzillieri at Sherlock Homes, or they could join another non-Re/Max real estate company.
The agents, many of whom had joined Re/Max when Sherlock Homes did, a decade earlier, had grown accustomed to the Re/Max way of doing business and decided to remain Re/Max loyalists. Since they wouldn't be staying with Borzillieri, he would have been stuck trying to make money with no stable of agents. No agents meant there would be no cash flow to cover his expenses.
On May 9, two days after the Re/Max franchise had expired, Borzillieri put Sherlock Homes into Chapter 7 bankruptcy. As a result the Sherlock Homes agents and some of the biggest names in western New York real estate, including Re/Max rival Hunt Real Estate, are out thousands of dollars they may never recoup, because they're unsecured creditors in the bankruptcy filing. The amount owed to secured and unsecured creditors stands at roughly $1.2 million, with secured claims, including a mortgage on the office building and property taxes, totaling $663,527.20.
Out of hundreds of customers, only about a dozen were harmed, since Re/Max agents ceded their own commissions to make customers whole, according to Elayne Nowak, a broker who was brought into Sherlock Homes as office manager by Dorothy Borzillieri one month before the founder's death.
The 16 sales agents, who voted to stick with Re/Max, opened Re/Max Allstar Team in August, with Nowak as office manager. By early fall, Allstar was already third in sales volume in the Buffalo market. Borzillieri could not be located for comment.
"I worked with Borzillieri for 19 years," says Barbara Baker, one of the Allstar agents. "He taught me the business. I had absolute, undying loyalty. If you had asked me whether I expected this, I would have said, 'Absolutely not.' I was shocked."