Notorious R.O.B.

A 1982 Osborne Executive next to a 2007 iPhone

I’m giving a presentation tomorrow at the Nextgen Realtor Group of the Houston Association of REALTORS. I do believe the actual title of my presentation, as in the program itself, is called Welcome to Dystopia. Somehow, it seems, I’ve become the Cassandra of the real estate industry. But in researching for the presentation, I ran across something that I wanted to think about more. And since writing blogposts is one of my primary ways to think about things… here it goes.

Moore’s Law states that the number of transistors one can fit on an integrated circuit board doubles every two years. (Originally, it was doubling every year, then every 18 months, and these days, the accepted ratio seems to be double every two years.) This principle is taken more or less as gospel within the computer hardware industry, and of course, the computer software industry designs its programs with Moore’s Law in mind. You write code that can barely function on today’s machines, and by the time you finish all the QA testing and roll it out, computers have gotten faster and more powerful.

So a ‘shorthand’ expression of Moore’s Law is that computing power doubles every two years.

Okay, you’re thinking… so what? We knew that. Duh!

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Okay, maybe 1930 is going a bit too far back...

One of the most insightful set of comments I’ve ever read on this here blog (remember, I usually learn more from writing this blog than I ever “teach”) is to my last post about technology-loving agents. As it happens frequently around these here parts, at the same time I was being enlightened by you, the commenter, I was also looking at two other things.

The first is this Mike Ferry vs. Mike Ferrara Smackdown debate (ht: Chris Smith, @TechSavvyAgent) at Coldwell Banker’s recent convention. Watch at least the first 20 minutes or so; it’s pretty engaging, entertaining, and enlightening:

The second is this incredibly well-written post by Jeff Brown, who also takes me to task periodically and teaches me things here on Notorious.

Here’s my point/question: Where is the broker in all of this conversation?

In the entire 32 minute long debate between Ferry and Ferrara, has either gent used the word “broker” even once? I missed it if they did. In all of Jeff’s wonderful post, does he mention the word “broker” at all? No.

Quite a few of the commenters on the technology and agents post expressed all sorts of reasons why technology was so important. And they make some great points. I agree with many of them. But did any of them ever mention the broker? No. And some of them are brokers or managers themselves.

This conversation about technology and the REALTOR reveals that what is at stake is the notion of the real estate agent as a professional saddled with, and deserving of, fiduciary duty. One of two things has to change: the dominant business model of contemporary real estate, or the idea that real estate is a profession.

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At last.

We have arrived at the destination of this series.  (See parts 1, 2, 3, and 4).

In Part 2 of this series, I spoke at length about institutional CRM and why that can be an unbeatable competitive advantage when properly implemented and used. In Part 3, we examined whether an institutionalized brokerage could shift the grounds of competition in such a way as to obtain a competitive advantage.  In part 4, we looked at specialization in real estate.

The culmination of all of these factors is something I am calling “systemic brokerage”.   Systemic brokerage is the future of real estate.

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In a time lost in memory, in a world far far away, I openly hypothesized that the future of real estate brokerage might look more like a law firm than brokers of today:

Everyone else is an employee. They get a salary, they get benefits, and if business is good, and they’re good, then they get a bonus. If they’re not, then they get fired. The firm is legally responsible for their actions in the course of work (respondeat superior) but in return, the firm clearly directs the how, when, what, and where of the employee’s activities. And the firm takes 100% of the revenues, with no splits, no commissions, and so on.

Junior agents in particular are valuable to the firm only insofar as revenues generated > money spent on that agent. What could a junior agent do to prove such value?

1. They can do the actual work, freeing up the partners to go out and bring in business.
2. They can bring in business.

It is a waste of the firm’s time to have a senior partner spend time showing houses; that’s for his associate, who may in fact be better at doing that. He might spend that time either calling on more potential sellers, or speaking at local Chamber of Commerce events, or writing blogs proving how much of an expert he is in investment real estate in the Modesto, CA market.

I went on to theorize further on a bunch of things, and have had some really interesting conversations with realestistas about whether this model was possible.

Now, I see this come across my RSS reader — Independent Contractor Model Outdated; Mimic Teams Instead:

If you could re-invent your company in any way possible, what would it look like?

We would begin with employee agents only, not the out-dated “independent contractor” model currently in place. The premise would be that these brokers can make more money per hour than under the current model, have more time off than current agents do, have more regular hours they could count on, have a team of specialists to assist them, in the form of transaction managers, marketing specialists, etc., leaving the agents free to do what they do the best, i.e., interface with willing buyers and sellers. In this model, employee agents could handle many more transactions than any current agent can, because others on the team handle the ancillary details.

The profile for the employee agent does not exist typically in the current “independent contractor” brokerages; the pool is external, perhaps younger, needing income, prospects in place, and perhaps benefits. The business in this model is created by the brokerage and retained by the brokerage, affording the broker/owner the control of business created and closed by the employee agents. The model for this is not new; we need only to look within our brokerages at the “teams” that exist there and mimic that model right in our own offices! This new model requires a shift from the “agent-centric” past to the “consumer-centric” present and future, which is where our consumer really lives! We need to show up. [emphasis added]

O.O

The writer here is not some random blogger like yours truly spouting off theories.  Nancy Rusinak is the broker-owner of a successful brokerage company in Colorado.  She has the actual ability to make this happen.

The blog she posted this on to share with the world is not some random blogger’s personal playpen either; that’s the official blog of the Leading Real Estate Companies of the World, the largest network of independent brokerages in America.

Dare I think that we may see the whole “Firm as Model” actually happen?

-rsh

I'll cover condos -- you take multifamily! GO GO GO!

“One man cannot practice many arts with success.” – Plato

Welcome to Part 4 of this series of too-many-words. Here are the links to previous parts: 1, 2, 3.

Let us review the situation. Upon deciding that the law firm (although not lawyers themselves perhaps) is a fine model for real estate, you have banded with other rainmakers and formed an institutional real estate practice. You have gone forth and installed a set of uniform, customer-centric relationship management processes, together with the computerized tools (CRM) to help them along. You have recruited people to be salaried employee associates, and have provided the best technical and marketing support. Through your institutional strengths, you have successfully changed the very ground of competition.

The last strategic step to consider is specialization.

In any reasonably complex industry, specialists are bound to arise. The competitive advantage of specialization is fairly large, as customers often want to make sure that they are getting the best qualified, most expert service provider. You are more likely to win business, and to be able to charge a premium for your services because the supply of specialists is lower than that of the run-of-the-mill generalist. On the other hand, the disadvantage of specialization is that your market is smaller than that of the generalist, and the demand for your services is lower as a result.

[I must point out before continuing that I mean true specialization, where someone actually has knowledge and skills that the average practitioner does not have. Simply saying one is a specialist in XYZ is mere marketing, and consumers usually can see past that pablum.] Read the rest of this entry »