I know Joe Rand, the Chief Creative Officer and Managing Partner of Better Homes and Gardens Rand Realty. I think he’s one of the smartest guys in the industry, and one of the nicest. I can’t go quite as far as to say he’s a friend, simply because we haven’t gone and done drunken karaoke together, but I respect the man a great deal. Maybe if we’re lucky, we’ll do that drunken karaoke together soon and I can count him as one of my friends in the industry. I would like that.
The fact that he wrote a new book on the industry called Disruptors, Discounters, and Doubters only increases that respect. And he was nice enough to send me a copy, which I received yesterday… and devoured in one sitting. I figured, and I assumed he’d figured, I should review it and comment.
First thing I’ll say is that you should go order a copy. Especially if you’re in brokerage management or a strategy role in the residential real estate industry. And I say that despite the fact that in the long list of “brilliant advisors and consultants” he names in the “Who is the Industry?” section, yours truly does not appear. Well, despite my lack of brilliance, I endorse this book wholeheartedly.
For those with short attention spans… TL;DR version:
Joe identifies all of the problems, and I love some of his prescribed solutions because of confirmation bias: they’re many of the exact same solutions I’ve been advocating for years. So I’m inclined to stand up and cheer. But, he ascribes the wrong fundamental reason for the problems (the “original sin”), tries too hard to defend the status quo, and ends up recommending a confused and contradictory set of solutions that ultimately fall short.
Let’s get into it.
A Brief Summary
The overall thesis of Disruptors, Discounters and Doubters is that real estate is built on an “original sin” misconception of the real estate agent as a salesperson, rather than as a salesperson-counselor-project manager-advisor.
That has led to a focus inwardly on the needs of agents-as-salespeople rather than the needs of the consumer. Since salespeople are all about making the sale, Rand ascribes the immense effort and focus on lead generation to the short-term need to make sales. That in turns leads to widespread incompetence, undifferentiated marketing where everybody says the exact same thing and offers the exact same thing (“I’m going to give you great service!” is a sentence he quotes at one point, noting that everybody promises great service at the listing appointment.), vulnerability to Discounters, and so on.
The solution, Rand believe is a C.O.R.E. for Client-Oriented Real Estate. There are five “Keys” to C.O.R.E.:
- Stop Thinking Like (Just) a Salesperson
- Be Great at Our Jobs
- Modernize Our Value Proposition
- Improve the Transactional Experience
- Stop Doubting Ourselves
He has a number of suggestions under each of these Keys and quite frankly, I love many of them.
For example, he says that agents should turn listing presentations into consultations. That means thinking of the client’s needs in selling rather than you own need to get the listing:
We need to stop thinking like salespeople and start thinking like service professionals. We’ve always taught the listing presentation as a sales opportunity, as a pitch to try to convince the seller to list with us. We have to flip that mind-set, to think of that listing appointment as the first chance we have to start servicing our clients’ needs: to find out what their home is really worth, to learn what they need to do to get their home ready for the market, to calm their concerns about the process, to prepare them for what’s ahead, and to inform them of the services we’re going to provide them.
That’s wonderful! It would be wonderful if the industry were to follow Rand’s advice and start doing things this way.
Ultimately, he says that the industry needs to “stop giving permission” to disruptors and discounters. That means adapting the value proposition as the client’s needs change, focusing more on improving the real estate transaction than on lead generation, and “losing faith in ourselves and in what we do.”
His final sentence: “No one can take our industry without our permission. So let’s stop giving it.”
It’s a stirring ending, and one intended to buck up the spirits of brokers and agents everywhere, get them inspired and get them moving. I felt like standing up and applauding.
Problem is… none of it will actually change anything.
The Bad Assumption at the Heart of it All
The problem is that Rand has mis-identified the “original sin” at the heart of the industry’s problem.
He thinks it is that we all think of the real estate agent as a salesperson. That’s the original sin. One might, following Joe’s lead, call it S.O.R.E. (Salesperson-Oriented Real Estate).
Except that’s not the original sin. Real estate isn’t a new industry; it’s been around for as long as land existed. The old urban myth about Manhattan being sold for $24 of trade goods is an example, especially if the island was sold by Indians passing through with no claim to the island, to a bunch of Dutch rubes. If true, that would make those Indians the first “curbstoner” real estate broker in history of the U.S.
It is strangely contradictory to say that we’ve forgotten about the client’s needs then turn right around and suggest that clients are wrong and mistaken about thinking of real estate agents as salespeople. Because that’s what consumers do: think of real estate agents as people who help them buy or sell a house. They think of agents as salespeople.
But even more fundamentally, you can call real estate agents whatever you wish — counselor, advisor, consultant, shaman — but if you pay them on commission, they’re salespeople.
No job anywhere in the world pays on commission except for sales. Period, end of story, done. Rand brings up lawyers at one point, but lawyers taking on cases on contingency fee basis aren’t collecting a commission: they’re investing in the outcome. Lawsuits are enormously expensive (read the classic work A Civil Action for a great example). Lawyers would much rather you pay them by the hour for that class action lawsuit, but since the plaintiffs often can’t afford it, they invest in the outcome… and take a third or more of the payout.
That’s not taking a commission anymore than a venture capitalist is taking a commission when the startup he invested in goes public.
If Joe really wanted to move away from S.O.R.E. into C.O.R.E., one recommendation has to be to get paid by the hour, rather than by commission. Professionals and advisors get paid for their time, for their expertise, not for results. Only salespeople get paid for results.
Furthermore, the idea that being “just a salesperson” is why the industry is plagued by incompetence, lack of training, brokers going bankrupts, discounters, terrible transaction experiences, etc. is… well… let me put it this way.
Some of the most pleasant, most professional experiences I have ever had was in an environment absolutely filled to the brim with “just salespeople”. I refer to Bergdorf Goodman, one of the very best fashion retail stores in the world, where I once worked.
This right here is “just a salesperson” who refers to herself in the video below at one point as “I’m a clerk.” I give you the legendary Betty Halbreich:
Salespeople can be amazing, wonderful, utterly professional, knowledgeable experts who not only help you buy (and help their employer sell) stuff you want, but make the experience absolutely delightful.
You know what’s true about Betty Halbreich and the rest of the delightful world-class salespeople at Bergdorf Goodman? They’re all W-2 employees of the Neiman Marcus Group, who owns Bergdorf Goodman.
By the way, it isn’t just salespeople. The wonderful concierges and staff at Four Seasons and Intercontinental hotels are W-2 employees. So are the waiters and waitresses at Nobu, Le Bernardin, CUT Steakhouse, Kata Robata, and dozens of other restaurants where I have had some of the most memorable and amazing customer service experiences.
The True Original Sin
Fact is, the real Original Sin of modern real estate is the Re/Max revolution in which brokers chose to abandon their clients, the consumers, to serve their customers, the agents. Remember, when Re/Max came along and upset the 50/50 split apple cart, brokers could have chosen to hire their agents as employees to service their clients. They chose not to.
Joe’s book comes close, so close, so tantalizingly close, but then fails to breakthrough because he is so invested in the post-Re/Max world that residential real estate has become. I don’t blame the man; his day job is as one of the owners of a 1,000-agent brokerage.
So he correctly identifies most of the major issues and problems: short-term thinking, focus on lead-generation, widespread incompetence, lack of training and education, managers incentivized around recruiting and sales of affiliated services, terrible, undifferentiated marketing and value propositions, and on and on. He nails the problems on the head.
But he falters when it comes to solutions. It’s as if he wrote down all of the problems, looked into the abyss of what solutions those problems demanded, gulped, and then stepped aside to go down a different road more traveled.
He even recognizes the problem as the “independent contractor” issue… at some level, at least. He writes:
Basically, in most businesses, you get systems that guide you about how to do your job. But we don’t do that in real estate. Part of the reason is the independent contractor model, which legally restricts brokers from mandating how agents perform their work. So as a broker, I’m not supposed to be able to tell my agents how I want them to show a home, or negotiate a deal, or manage a transaction. And that’s incredibly frustrating.
He then goes on to point out that his brokerage offers wonderful systems and support to his agents, but he can’t make them use any of it. So a consumer walking in has two different experiences, depending on which of his agents she gets. He proclaims that “we need to change that, from the top down” and then… steps back from the obvious logical conclusion towards which he’s been driving.
The obvious conclusion, as we outlined in our recent Future of Real Estate Brokerage Black Paper, is to hire the agents as W-2 employees. Absolutely nothing in any license law of any state prevents the broker from hiring agents as W-2 employees. That way, you can tell your agents how you want them to show a home, or negotiate a deal, or manage a transaction. Frustration, gone! Client experience? Uniform! Voila! La solution, mes amis!
But that’s too difficult to do when you’re running a 1,000-agent brokerage. It’s too difficult for the industry, built these last forty years on the Re/Max agent-centric headcount-driven model, to accept.
So instead, he talks about “setting up systems and standards and protocols.” GOD! SO CLOSE, and yet so far….
Because left out of that “standards and systems and protocols” idea is how you enforce them against independent contractors who source their own business, work their own deals, have their own clients, and really don’t need you for much other than cheap liability insurance. After all, Rand just got finished telling us that he can’t get his agents to use any of his systems, that he “can’t oversee what the agent is doing and help her along the way to make the right decisions.” So how is he going to enforce these wonderful systems and standards and protocols?
By “firing” top producing agents, who generate 80% of the volume for his brokerage, and will find a “job” at the brokerage across the street before the day is out?
I’ll believe it when I see it.
Deck Chairs on the Titanic
As a result of that fundamental flaw, the rest of the suggestions and Keys to Success mostly read like notes of the guy charged with rearranging the deck chairs on the Titanic. Because so much of it, if not all of it, is preaching to the choir.
For example, Rand suggests that the industry redefine pricing as a primary service. It’s a great idea… for an agent who is already experienced, already professional, and already hard working.
Since he can’t get his agents to do anything, including getting good at pricing, rather than a “system or a standard”, this great suggestion will become yet another beg, cajole, plead, and exhort element that the vast majority of agents will simply ignore.
A more concrete, more courageous solution to raising pricing as a primary service might have been: “All real estate agents must complete the apprentice Appraiser program.” But again, that would imperil the headcount-driven business model of contemporary real estate brokerage, and be written off as an unrealistic fantasy. (Ask me how I know.)
His suggestion to raise staging to a primary service is similar. If staging really were such an important service, then brokerages would only hire agents with a design/staging/interior decoration background or at least do a test: “Here, stage this mockup living room.”
But Rand knows, as I do, as you do, that a brokerage who does something like that would find itself at a huge disadvantage in recruiting and retention, and all of those dollars would be walking out the door, not in.
What about this one? He says to “Emphasize the Complexity of Transaction Management.” He thinks that agents don’t emphasize transaction management because it’s not sexy, because it might scare clients away. What he leaves out is that agents don’t emphasize transaction management because many of them don’t do it. They hire $8/hr Transaction Coordinators to actually manage the transaction. In many cases, said Transaction Coordinators are located in the Philippines.
So just how complex and difficult could transaction management be if an $8/hr temp can do it from a different continent?
Granted, later on he says that agents don’t actually need to manage the transaction — just communicate about it. Fine, but then why talk about elevating transaction management to a primary service offering?
Again, if this were a real Tier One value proposition of the modern C.O.R.E. brokerage, then Rand should be recommending that brokerages forbid agents from hiring transaction managers because of the importance of getting their hands dirty in the gritty work of holding the deal together. Well now, that’s a step too far, isn’t it?
And so it goes.
Fact is, once you identify the wrong original sin, you’re stuck with the problem of non-compliance. You cannot get the agent to do anything, not even these wonderful suggestions. So no matter how great the suggestions are, they’re just that: suggestions.
The problem of the industry isn’t leading the horse to water; it’s to get the horse to drink the water. On that point, there is no answer here.
Where’s the Data? Where’s the Case Study?
One of the more interesting absences in the book is a total lack of data and case studies.
I’m a consultant and blogger. I’m bound by confidentiality both legal and ethical. I can’t and won’t talk about initiatives and programs my clients have or are implementing. Because they’re not my initiatives and programs. Joe on the other hand is the broker/owner of a major brokerage affiliated with a national franchise. He has no such problems.
Where are the case studies from his own brokerage? Where’s the data from the decades of operations from Rand Realty?
For instance, at one point Joe writes:
I think that most responsible agents understand that the brokerage needs to retain enough company dollars to pay for the services that are necessary to help agents do their job for the client. And I think that most of them recognize that the brokerage needs to make a modest profit on the business to justify the commitment that those brokers make and the risks they take.
Okay… so what have his own agents at his own brokerage said? What is Rand Realty’s Company Dollar, especially from their highest producers? What profit margin for his risks and commitment do his responsible agents agree to? There’s no confidentiality problem here: it’s his own company. If he wants to tell the rest of us that as a result of these responsible agents recognizing the broker’s need to turn a profit, Rand Realty operates at 35% Company Dollar and 10% Net Income margins against GCI Revenue… now we’re talking!
Absent that, if Rand Realty is operating at the industry average of 3% Profit Margin on 15% Company Dollar… well… then no, I don’t know that “most responsible agents” understand anything of the sort. In fact, my experience is that responsible agents will express great sorrow and regret at having to leave the brokerage for a competitor offering higher splits… but they’re still going to leave. “I love you guys, and let’s stay friends, but you know, I have to do what’s right for my family!”
I have never heard of a single top producing agent turning down higher splits upon reaching whatever production level required. “Hey, I know I’m at 60/40 now, and I qualified for 80/20 with my production, but… you know what, Joe? You keep the 40%; you deserve it for the commitment you’re making and the risk you’re taking.” I have literally never heard of that happening anywhere in North America.
What about all of the Keys to Success? Joe runs a brokerage. Has he implemented them in his 1,000-agent brokerage? If he has, what has been the result?
Are his agents required to follow Rand Realty’s systems and standards and protocols? If they do not, does he fire them no matter what their production level? He might — he’s a man of integrity, so he just might. But he doesn’t tell us that in the book.
Do all of his agents elevate staging as a primary service? If so, he doesn’t tell us, nor how that has worked for them or for his brokerage.
Are Rand Realty’s managers and agents incentivized on client satisfaction results, as Redfin’s managers and agents are? They might be, but Joe doesn’t tell us, nor does he detail out how that kind of compensation plan works and what the positive financial benefits are from that.
One interesting peek with a kinda-sorta case study comes from the section in which Rand talks about helping the clients actually move. He writes:
As a broker, I look at moving and think, “Okay, so now I have to deal with angry phone calls every time someone breaks a lamp on the truck? No thanks!” Hawking loans is enough trouble as it is.
But he just spent that section talking about the importance of last impressions, and how defining the client responsibilities as ending the moment that title transfers as the bad old way of thinking like a salesperson.
So why no thanks? Why not embrace the low margin, high headache business of moving? That’s client-oriented real estate thinking, instead of the salesperson oriented thinking, isn’t it (And for the record, I don’t know how low the margins are in moving, but I’ll bet they’re higher than the 3% average margins of real estate brokerage….)
Instead, Rand Realty signs people up for Updater, a startup that helps people move. That’s better than nothing, I suppose, but “outsource key value propositions to third parties” doesn’t strike me as a revolutionary act that changes the old salesperson thinking paradigm or results from such changes.
For all we know, Rand Realty is the poster child of the C.O.R.E. philosophy, and they do all of the things that Joe Rand recommends in the book. And they have story after story, case study after case study, drawing on their own experiences and own implementations that showcase the business benefits of C.O.R.E. With such stories and case studies showcasing the amazing financial benefits of the C.O.R.E. model, brokerages and agents everywhere would flock to adopt it.
But no stories and case studies and data exist in the book, and I think that’s a real missed opportunity.
Conclusion & Wrap-Up
With all of the reservations, I still think everyone should buy this book and read it. It’s only 130 pages or so. You can read it in one sitting.
Joe nails the problems down cold. He sees them clearly. His suggestions are solid, and every agent and broker in North America should adopt them or at least consider them. Changing the mindset of the industry from the salesperson oriented thinking to a client-oriented one is a truly positive change.
But the work is flawed by the misidentification of the core original sin. It stems from either the inability or the unwillingness to confront the true original sin: the 1099 independent contractor status of real estate agents, coupled with the Re/Max agent-centric headcount-based model, and the resulting abandonment of the client by the broker.
And I can’t help but feel that Joe is invested in the status quo, quite literally, since his family’s brokerage firm is operating under the traditional headcount based independent contractor model. He sees the problems, and sees the logical conclusion coming at him, and chooses to step aside rather than tackle it head-on. That’s too bad.
As a result, Joe is preaching to the choir. Some brokers and agents will adopt some of his ideas, and that’s a real positive. But the vast majority won’t, because they’re not interested in working hard, not interested in getting good at their jobs, not interested in being more than “just a salesperson” and not interested in the longterm.
More fundamentally, it is not clear that even those brokers who do adopt the C.O.R.E. way of thinking will see real improvement in their bottomline. Even if you do all of the things that Joe recommends, there’s no data, no case study, no nothing that then says to that broker, “If you do these things, you will take your profit margin from the pitiful 2.5% you have today to 11%.”
This is an industry. It’s a business. Brokers aren’t doing what they’re doing for charity, or for their health. Without a clear roadmap from the low-margin, everything sucks, present of S.O.R.E. (Salesperson Oriented Real Estate) to C.O.R.E. (Client-Oriented Real Estate), I don’t know that Joe has made the business case for brokers and agents to adopt his platform.
Nonetheless, the suggestions are really good. They’re the kinds of things that conscientious agents would implement, which means that conscientious brokers would support those efforts. And even if it’s only 20% of the agents who implement his suggestions, that’s 20% better than today, so it’s an improvement.
I recommend the book! It’s worth your $9.99 on Kindle.