Pecunia Loquitur

pecunia loquitur

One of my favorite writers/bloggers, Brian Boero of 1000watt, has another gem up on his blog, in which he excoriates an unnamed “large regional company” for recruiting “dual-career agents”. It’s worth a read, and it’s short.

In it, he makes this claim:

Companies with strong organizations, a discriminating approach to recruiting, and standards around service delivery are beginning to pointedly position themselves against the companies in their markets without these things.

It’s resonating.

That’s fantastic news. Now, show me the money.

Todd Waller, in the comments, writes, “Thank you for continuing to be a beacon of sanity in an industry that is easily sidetracked by the siren’s call of the almighty dollar.”

Pam O’Connor, a brilliant executive and longtime veteran of the industry, also comments, “Until our industry becomes about talent selection instead of recruiting, and about standards and accountability instead of churning bodies and hoping some will “take,” consumers will continue to lack confidence, making it an uphill climb for the true professionals who are tainted by the rest.”

Agree wholeheartedly with both Todd and Pam. Now, show me the money.

It’s quite simple. Brokers are not in business to screw consumers. Nor are they in business to bring shame upon the industry. They’re in business to make money, and turn a profit.

The reason why these business models are embraced is because they make money. If the “higher plane” model of real estate that you, me, Brian, Todd, and Pam all espouse made more money than the scrape-the-bottom models, and killed the unprofessional models in the marketplace, then everyone would swiftly abandon those and join the Raise The Bar Brokerage model.

To that extent, I disagree with my friend Todd. The siren’s call of the Almighty Dollar is the reason to be in business. Otherwise, convert the brokerage right now, today, into a non-profit and Do Good.

So here’s the challenge for the critics of the broken brokerage model of our industry: start posting numbers. Don’t just tell me and the world that companies are “positioning themselves” against the crap competition; tell me that those companies are kicking the ass of the crap competition, and by how much: Good Professionals Realty has 62% market share, made $4 billion in sales, at 32% profit margins last year, vs. Generic Crap Brokerage who has 12% market share and lost a million bucks last year, despite having 500 more agents than Good Professionals Realty. That would be welcome news.

Let’s stop banging that same old drum, complaining about how crappy some agents are; we all know. Do let’s start banging the drum of how talent selection, standards and accountability yield superior financial performance. A respected firm like 1000watt can undertake a benchmark study of broker performance, broken down by talent selection & standards ratings, and show us all that indeed, the high road pays better than the low road. A major company like Leading Real Estate Companies of the World can commission such a study.

In fact, here’s a call to action. Send me your recruiting, training, standards, accountability and operating processes along with 3 years of financials. I’ll gladly, and for no charge, do whatever number crunching and happily start compiling data on financial performance of the high road brokerage models. I’ll never release your individual info, but happily benchmark your performance against everyone else who sends me data. I’m probably not going to get the low road guys to send me anything, but at a minimum, if we can show that the high road results in 15% revenue growth year over year, 20% market share growth year over year, and healthy, above-average profit margins… maybe some of those low-road guys might see reason to change.

Because pecunia loquitur, my friends. Money talks.

-rsh

  • Greg Lyles

    Excellent points, Rob. Lots of brokers, myself included at times, like to call out these brokerage “sweatshops” for their lack of training and professionalism. But at the end of the day, it’s all about the money. That’s why they are in business. Until an enterprising broker can develop a model that provides a superior overall experience to the consumer, and an impressive set of financial ratios for themselves, we are stuck with the models that make operators the most money.

  • Cms

    But real estate is an infinite suckers business, is it not? One can get away with having the majority of agents be shit because people only buy a house once every seven years. Sure, a good agent’s going to provide good service and thereby create a repeat business/referral business over the course of a couple decades. It’s not like there’s no benefit to not sucking. But the benefits of not sucking are mostly to the agent — the broker wins by flooding the zone, preferably with less experienced agents from whom they will cream more of the commission.

    The only way that really changes is if the consumer succeeds in cutting the agent out of the transaction for a typical home purchase (which they well may, as control over listing information crumbles in the next decade or so). Then any remaining agents will really be competing on quality of service, because they’ll be going after a luxury customer who is willing to pay 5% or 3% to have the work of completing the transaction taken out of their hands. In fact, I would argue that this whole “raising the bar” meme is a sympton of the industry’s unconscious recognition that technology is swifty eroding their cartel power over listing information, and that was the majority of the reason “real estate agent” exists as a profession in the first place — because before the internet it was difficult and time consuming to find out which homes were for sale in a given area.

  • Jim Canion

    Rob
    Your post makes good points and you hit the nail on the head. I find it difficult to accept claims that
    “Companies with strong orginazations”etc.are able to institute change.. Today almost every broker is faced with a challenge to break even much less be able to “position themselves in the market” against others. With franchise and facility costs that still exist today, the local broker is not able to provide the training and technology necessary to raise the bar much less start a better than thou approach. Until the industry structure moves further along in its evolution of change it will be very difficult for a small or medium sized broker to survive much less make big changes.On the other hand
    It is way to early to sound the death knell for the real estate agent. There will always be a need for assistance in buying or selling a home.That said however, the way those services are provided is clearly undergoing a major change that will soon require major restructuring of the national franchisors who no longer have much of a reason to exist.

  • http://profiles.google.com/4325202 Steve and Jackie Jackson

    On the flip side of this coin, since we all agree that there are many, many ‘bad” (create your own definition) agents, why don’t we all look at the core problems: 1) Ease of entry into the “profession” and 2) the ease of STAYING IN the business.

    What other “profession” can one get into with 7 days of classroom training (at least here in Florida) and a business start-up cost in the hundreds of dollars? Then, it only costs your MLS, Realtor assn fees to stay in business for another year.

    Heck…the barber next door to me needed 1500 hours to get a license and if he screws up what he does, in three weeks, all is good again!

    Attention needs to be given to the disease, not the symptoms.

  • Bhickey

    I’m not sure if our brokerage business is considered the high road or low road? We’re niche players in primarily affluent markets. We used the traditional-like brick and mortar model during the go-go days but since have closed all our offices (San Fran, Rancho Santa Fe, Westport CT, Chicago and Winnetka, IL) and are about to re-launch with a pure Internet based strategy.

    It’s tough to do all the analysis you’re looking for but we can say that our market share in one of our core markets (60521) is about 25% with profit margins that exceed 60%. Our model is scalable and achievable for low cost – I figure if we can operate with these types of numbers others certainly can as well.

    • http://www.notorious-rob.com Notorious R.O.B.

      Those are some amazing numbers, Brian. :) What’s your agent selection criteria? Enforcement of standards?

  • Bhickey

    I’ll try not to bore you with too many details of our business model and at the same time hopefully touch on your questions. Just delete this if it is too long or sounds like an advertisement.

    Firstly, a sketch of our model may help – brokers/agents use our brand, lead generation, database collection, listing formation and dissemination system to sell a specific property type directly to buyers on a local level.

    In the “old days” when everyone wanted in the real estate game most agents actually found us. We did however, prospect for individuals using Craigslist. We (as a licensed brokerage) hired single agents to cover specific markets or territories and paid out 50% of the commissions earned. The Company (brokerage) covered all overheads: marketing, phones and rents (where applicable). At that time our margins were closer to 35/40%.

    By design, none of our agents had any real estate sales experience. We found that it was too difficult to re-program established agents – they just could not get their heads around doing business outside of the MLS or adopt our straight-forward, product-driven institutional-like business approach to transacting real estate.

    Because we specialize in a niche of the market, (property destine for redevelopment), market share is more easily captured. Now, as we morph to a new model for scaling, we are no longer the broker (with the exception of a few core markets). Agents and/or brokers stay at their current firm becoming our Marketing Partner on a quasi-licensing basis becoming the de facto transaction experts in their community through association with our brand and model.

    (It is through this model that a single broker can experience the returns mentioned – how do I know? Those numbers are my financials for Hinsdale, IL in which I am the agent and broker).

    Under the new model, standards are enforced via short-term (1 year) Marketing Partnership Agreements. These Partnerships can be revoked due to lack of production (as defined by database formulation; buyer registration and seller inquiry), behavior or brand abuse etc.

    I always find it rather easy to comment on this subject – mostly because we (as a company) don’t know any different. While we are actively in the business of real estate, we operate almost as a mirror image of the real estate business as its performs today. No expensive rent, one brand, one marketing program, niched out and heavily weighted towards the web.

    Like you I sure would like to hear about other models that are still working out there?