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Tuesday, May 28, 2024

Pimco Manager Sets Sights on Real Estate

Nic Johnson began his career designing rockets for Mars while at NASA’s Jet Propulsion Laboratory, and then switched to managing billions of dollars for Pimco, including running the largest commodity fund in the world.

For his latest gig, he’s started ListWise, a Newport Beach-based company that aims to help home sellers get the best possible price.

“There is a common thread,” Johnson told the Business Journal.

“With engineering and financial markets, you’re just building models of a system. Same thing with this. All are intellectually interesting.”

Leaving on Top

In 2021, Johnson’s funds at Pimco turned in a performance for the ages.

Three of them ranked in the top five at Newport Beach-based Pimco, one of the world’s largest money managers with $1.8 trillion in assets under management.

Johnson’s Real Estate Real Return Strategy Fund (PRRSX) returned 54% in 2021, the biggest gain among the 96 funds at the wealth management giant. Morningstar ranked the fund No. 1 out of 253 similar funds.

Johnson, who managed more than $30 billion in assets, decided to step away while he was on top.

“It felt like I had contributed as much as I could professionally,” Johnson said. “I left because I’d done that for close to 20 years.”

“I was interested in other adventures.”

Two Problems

Years ago, Johnson began thinking about why home sellers don’t always get the best price.

“There is a lot of research that shows that homeowners get suboptimal results from the current system, and I am trying to fix that by increasing competition and creating better alignment of financial incentives between homeowners and the agents they hire,” Johnson said.

He points to two problems for sellers.

First, homeowners too often pick the first real estate agent that they interview.

“The idea that when you sell your home, you call one person and go with them is crazy, but that’s what 80% of people do.”

The second problem is an agent is incentivized to close a deal quickly rather than seek a higher price.

For example, a house that is estimated to sell for $1 million may provide the selling agent with a typical 2.7% gain of $27,000. If the agent puts in an extra effort to sell the home for an extra 5%, or $1.05 million, the agent would receive an extra $1,350.

“That’s really nothing,” Johnson noted. “It’s in the agent’s best interest to sell your house quickly.”

“These two mistakes mean that people sell their most valuable asset for lower than they could have.”

The Incentive System

In the ListWise system, about four agents are invited to participate. Each agent would suggest an “incentive price” about 5% to 10% below the expected sale price. The agent would collect 20% above this agreed upon incentive price.

A listing agent would then collect a “base payment” of 0.75% of the estimated sale price to cover basic selling costs such as a listing.

Using the prior example of a home estimated at around $1 million, a 10% incentive price would be $900,000.

If the home sells for $1 million, the agent receives $7,500 from the base payment and $20,000 for topping the incentive price by $100,000, for a total of $27,500, or 2.75% commission, in line with typical agent fees.

If the listing agent can sell the home for 5% more, or $1.05 million, the agent would earn an extra $10,375 for a 3.6% commission. The homeowner in turn picks up an extra $40,000, while the agent gets an extra $9,525 above the typical fee structure.

“Now that agent has a much bigger interest in getting the homeowner a higher price,” Johnson said.

“This newest venture leverages incentives, which I understand very well.”

ListWise says it receives compensation from agents; when a successful home sale occurs, the agent pays ListWise a fee.

Thus far, Johnson’s invested about $200,000 in his company. He is working with Newport Beach’s Tyler Kropf, who has his own real estate brokerage working with family offices on their real estate needs.

Johnson said agents from Coldwell Banker and Compass are also participating.

“Most agents who are good are fine with this. It’s about making the system work better for homeowners and agents.”

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Sonia Chung
Sonia Chung
Sonia Chung joined the Orange County Business Journal in 2021 as their Marketing Creative Director. In her role she creates all visual content as it relates to the marketing needs for the sales and events teams. Her responsibilities include the creation of marketing materials for six annual corporate events, weekly print advertisements, sales flyers in correspondence to the editorial calendar, social media graphics, PowerPoint presentation decks, e-blasts, and maintains the online presence for Orange County Business Journal’s corporate events.

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