Notorious R.O.B.

Riders on the storm....

I’m honored to be asked to give the closing remarks at the Council of MLS conference in Chicago this year at the end of September/early October.  Since I’m supposed to be wrapping up the discussions of those few days, I can’t actually prepare anything ahead of time.  But I can sort of cheat by putting out to the industry some of the bigger issues/questions I’ve been thinking about, in the hopes that the speakers, panelists, and participants at CMLS this year might talk about some of these things.

These Seven Big Questions represent some of the really fundamental challenges facing the MLS industry as a whole.  I do not (yet) pretend to have all the answers, or even any answer (at least, not in public, heh) but I did want to start posing them to my readers.  For those attending CMLS, please give some consideration to thinking about these questions.

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Just got off the phone with a broker friend of mine who thinks I’m plainly nuts with all the fearmongering and paranoia about things that will never come to pass.  My recent series on real estate policy has him alternatively dismissive and wanting not to get out of bed in the morning.  So I’d like to tell all of you what I told him.

The reason why I’m being such a chicken little is not to have the industry up in a panic.  It’s to encourage everyone to start planning.  Now is not the time to be reactive, but the time to be proactive in thinking through some of the issues, making contingency plans, and putting a solid strategy in place so that you will know what to do if any of these things should come to pass.

And if none of them materialize, what have you lost?  Keep on keeping on with what you’ve been doing.

People often ask me what the hell I do for a living.  I do corporate strategy.  Part of that is precisely this kind of contingency planning in the event of X.  No matter how many gurus want to pretend that putting up a Facebook page is corporate strategy, it ain’t.  That’s more in the line of tactics and methods.  Strategy is about looking at the overall environment, thinking about competitive factors, assessing capabilities, identifying areas of strength and weakness, and tailoring a plan for imposing your will on the competition, while making contingency plans.

So some free consulting advice for my readers.

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If you’re responsible for real estate brokerage operations, you owe it to yourself and to your company to read this post by Glenn Kelman at Redfin.  I have said for a while now that I believe Redfin to be one of few viable models for real estate brokerage of the future, and this post helps confirm that belief.  It’s a long post, and worth reading in full, but here’s the money graf:

But outside of calling one agent after another, the CB CEO has no way of knowing what his agents are doing; most work as contractors, for franchises, recording their deals in spreadsheets and notepads. Redfin on the other hand has a system for scheduling home tours and writing offers, which means we also have a system for storing data about every tour & offer. Months before the numbers are recorded at county courthouses or by federal agencies, we know when bidding wars are back, or when tire-kickers have taken over the market. We can see the whole elephant, and we’re minutely sensitive to when he’s about to roll on top of us or stampede through the jungle. [Emphasis added]

Fact is, far too many real estate brokerages pay lip service to the importance of technology.  Even the ones who do invest are putting money and resources towards marketing technology rather than information technology.  In the long run, I think the companies that survive the Great Recession will be ones who invested in information technology, rather than just another pretty website. Read the rest of this entry »

"A" in A-Team stands for Agent?

In 2007, Ralph Roberts, then the “official spokesman” of Guthy-Renker Home, published a brief essay on RISMedia called “How to Soar High with Power Agent Teams“.  In it, he recommended an approach to teaming that is much more based on division of labor and functions:

I was recently flying home from the National Association of Realtors convention in Las Vegas, and I began thinking what would happen if airlines followed the same approach that most Realtors practice. I would call the airline to book a flight, and the pilot would answer the phone. When I arrived at the airport, the pilot would check me in, check my bags, follow me to the inspection point to make sure I wasn’t trying to carry any prohibited items on the plane, and then escort me to the gate to make sure I boarded the right flight and secured a seat.

He also wrote a book on the topic, which I havent’ read so it may be that many of my questions and thoughts are answered there.

Nonetheless, with more and more brokerage companies enabling agent teams of various kinds, and more and more successful agents creating de facto agent teams by hiring administrative assistants, listing coordinators, transactions managers, and the like, it appears that the ideas of “Power Agent Teams” have taken firm root in the industry.

Those ideas, however, have not been fully developed to their logical conclusions — at least not yet by anyone I’ve read or heard from in the past three years.  I’d like to revisit the topic, therefore, to sketch out some consequences of the Power Agent Team idea and pose some questions.

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We worship creativity.  In describing a business, a leader, a product, or a service, I can think of no higher praise than to say it is creative, or visionary, or innovative.  Whether in marketing, or technology, or business process, or a blogpost, all of us admire creativity, strive for creativity, and think about creativity.

The real estate industry in particular has a love-love relationship with creativity.  NAR has its Game Changers, Inman has its Connect Create developer challenge, companies are lauded for their innovations, individuals praise for their creativity in using social media for real estate business (or whatever new creative thing they’re doing).

What I wonder about today is whether people truly worship creativity, or pay lip service to it.  Do you really want innovation?  Are you sure you’re prepared for what creativity means?  Are you certain that you want creativity in your life, in your business?

The Hindu deity Shiva is often said to embody destruction and regeneration, like the forest fire that clears out the dead leaves and old growth to enable new shoots to emerge.  To embrace creativity and innovation, then, is to embrace destruction.  Are you ready?

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One of the best things about conferences is having great conversations with really smart innovative people.  Garron Seliken of M Realty is one such smart, innovative person, and he and I (along with a bunch of other folks like Marie Still, Jay Thompson, Chris Drayer, and Daniel Rothamel) had lunch today at NAR Mid Year.

Which then led to a thoughtseed — nothing fully fleshed out, but an idea I’ll be exploring more in the days ahead.

Basically, the idea is that we are experiencing the transition from the Industrial Age to a New Artisan Age.  The Industrial Age is marked by large organizations leveraging the efficiencies of things like the assembly line, division of labor, vertical and horizontal integration, etc. to create mass-market products.  Levi’s can go from a one-man tailor shop to a global corporation on the basis of the Industrial Age.

The New Artisan Age, however, is marked by at least an homage to craftsmanship, the idea of a more personal, more customized, more intimate product created by a single artisan for a particular customer.  Maybe some designer might offer a custom-made bespoke pair of jeans, at $500 for a particular customer to fit her body and her preferences.

It seems to me that the general consumer behavior is heading in that direction.  Think about the explosion of microbreweries, artisanal farming, and so on.  People are willing to pay a premium for products they believe are more than just the bare product and its functions.

In my conversation with Garron, it seems to me that his brokerage M Realty, is practicing a form of artisanal real estate brokerage.  He spent a lot of time talking about how he works with each and every agent on an individual basis, creating strategies, offering advice, and offering technology that are custom-tailored to that particular agent’s strengths and weaknesses.  The best example is an agent who wanted an IDX website; Garron found that this agent got most of his production from five people in his sphere of influence.  The advice, then, is to forget about the IDX website, and spend more time with those five people, and maybe make that eight people in the sphere.

Customizing activities to the particular idiosyncracies of the particular agent… isn’t that sort of artisanal real estate (brokerage)?

Krisstina Wise of GoodLife Team also does this, in a different way by building a brokerage around the principle of coaching.

If you will, Keller Williams — a company whose mission statement says that it is a training organization that happens to run a real estate brokerage — is a product of the Industrial Age.  M Realty — a company that turns out to be a coaching organization that happens to run a real estate brokerage — is a product of the New Artisan Age.

Something to think about.  When I have more time.

One question is whether this difference between Industrial and Artisanal extends to the relationship between the agent and the consumer.  (Or better yet, a question might be whether the real estate transaction was ever Industrial to begin with….)

-rsh

In Part 1, I explored how large law firms and big brokerages are similar, based on the forthcoming paper by Glenn Reynolds, a law professor and blogging pioneer.  Then in Part 2, we looked at how they’re different in some fundamental ways, particularly compensation models, that makes the size of Big Brokerage appear to be all of the disadvantages with none of the advantages.

In this Part 3, I would like to explore how size could be made relevant again.  There are still areas where size does matter, even in real estate.  And the future of the industry really depends on how big brokerages respond to the rapid changes in the social and economic marketplace.  Up to this point, most have been extremely slow to react, believing that a strategy of evolutionary adaptation makes more sense than a risky revolutionary act.  I no longer believe, if I ever did, that slow evolution will get the job done for the giants in our industry.  The window of opportunity is closing, and quickly at that.  Unless something fairly dramatic is done, and soon, I believe that by 2020, the large brokerage as we know it will be a thing of the past.

So, with that Cassandra moment out of the way, what are the areas where size still matters?  And how might big brokerage respond to make size matter once again?

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I’m working on Part 3 of the Does Size Matter series, but a conversation on Twitter turned fairly interesting and fairly intricate, so a quick little post.  This post is heavy on inside-baseball stuff about the real estate industry and the RE.net.

First, the setup of the debate:

@ProfessionalOne (Michael McClure) whose company has adopted strict standards for its agents says on Twitter that top producers are not necessarily the best agents who give the kind of client service that he expects from his people.

I ask what the average earning of a “RTB Agent” (however one defines that) is.  Michael says it’s between $80K – $100K a year.

I then ask: “don’t you think one issue is that if pursuing a non-RTB path leads to greater earnings for the agent, the incentive is…”

@benjaminbach (Ben Bach, I assume, heh) suggests that #RTB (a real estate industry thing where various people are calling for greater professionalism, higher standards, and the like) is a good thing.  I agree, but then we get into a whole discussion.  On Twitter, which isn’t great for that.

So here’s the point:

Take someone who is the #1 overall producer in a market.  A super-agent who brings in millions in GCI, and personally earns well over the $80-$100K a year that Michael McClure talks about.  Say that agent makes $500K a year selling real estate.

Either that superagent is a supreme practitioner of #RTB or he is not.  This is a binary logical thing.

If that superagent is a true professional, highly qualified, who provides awesome client service, resulting in many referrals and so on, then #RTB should focus on copying the business practices of such superagents.

If, on the other hand, that superagent is not those things (as Michael seems to suggest) then #RTB is in trouble.

Because the argument for #RTB to the individual agent goes something like this: You’ll make less money than you could, but you’ll be happier because you’re a moral person.  Some people might agree and go that route; others, however, will not.  People have different priorities, and different ideas about what “happiness” means.

Generally speaking, however, human beings are motivated more by greed than by altruism.  If joining Michael’s firm means that I’m sacrificing personal income potential… that’s a tough sell.

Ultimately, Ben agrees that it doesn’t much matter what we insiders think about a topic; the real test is in the marketplace.  Do buyers and sellers of real estate see value in what is being offered or not?  The ultimate test, then, is in financial metrics: revenues and profits.

Ergo, my argument is that #RTB has to show that it leads to higher revenues and higher profits for everyone involved, from the agent to the broker.  We can’t simply assume it; we can’t idealize it; we can’t just pay lip service to how wonderful it would be if realtors were professionals who went the extra mile for every client.  We have to see how it does in the marketplace.

But if the incentive structure is setup from the start as “less money, more self-esteem”… that strikes me as a loser in the marketplace.

For one thing, what is the incentive for brokers to “RTB” if that leads to less money?  Maybe the RTB agents all go flock to that shop, but if all of the top-producers are at my shop, and my profits are higher than the RTB shop… why change?

Incentives = everything.

I hope that clarifies what I’m talking about.  Your thoughts?  What am I missing here?  What other proof statements could be used?

-rsh

In Part 1 of this series, I examined a scholarly paper by one Glenn Reynolds(aka, Instapundit, who is a law professor, the author of Army of Davids, and one of the most important and influential bloggers in the United States today) about the future of big law firms and drew some lessons about how big law firms and big real estate brokerages are similar.

In this part, we focus on how they’re different.  And before you say, “Duh, Rob” (or since you’ve probably already said that, before you say it again), of course lawyers are not realtors, and law firms are not brokerages.  But there are lessons to be drawn from some of the fundamental differences as they go to issues of business models.

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Pocket Hercules (Photo by Sam Greenwood/Getty Images)

Aaaaand I can hear the tee-hee’ing going on in Costa Mesa from here.  While I’m not above making cheap jokes in order to erect a logical argument about brokerage performance, business dysfunction, and customer satisfaction, this post is actually about serious issues in real estate, technology, and marketing.  So stop giggling.

We begin with a question: does the size of a brokerage matter in real estate?

I have argued in the past that the Big Broker holds the key to the future of the real estate industry, and that small independents and boutiques will end up surviving on the good graces of the various titans in their markets.  Of course, that argument was counter-factual at the time I made it (over a year ago now) and I conceded that as the industry was then, big brokerages were boned.  What I argued then, and still believe to some extent, is that the Big Brokerage with the will to change has the resources to do so.  But in the almost year and a full quarter since I wrote that post, I don’t know that I’ve seen too many examples of such visionary brokerages.

Meanwhile, technology continues its remorseless march.

Then comes this paper by one of the pioneers of the blogosphere: Glenn Reynolds, aka, Instapundit, the Beauchamp Brogan Distinguished Professor of Law at the University of Tennessee.  If you’re at all interested in the impact of technology and of the Web (and its offspring, social media) on the real estate industry, I urge you to read it in full.  While it is a scholarly paper published in a law review, it’s written in plain English for the layman, and does not deal with legal issues as much as it does with business and social issues.

The implications are profound, and the questions Reynolds raise are significant.  And insofar as law is the epitome of professional services, and one that many realtors look to as an example of client-driven professional services, changes in the legal business model are something we should pay close attention to.

This will be a multi-part post, as the topic is large enough and complex enough to warrant breaking up into bite-size pieces.  This first part focuses on understanding Reynolds’s argument as it applies to law firms, then extrapolating similarities to real estate brokerages.

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