Notorious R.O.B.

It must be zeitgeist, a change in the real estate weltanschauung. I wrote a long post back in March of 2008 having a conversation with Mike Farmer on his original Biz 2.0 post on the Bloodhound Blog. He then responded with some additional thoughts. I had a 1500 word draft that wasn’t even halfway finished, then life got really busy.

Fast forward to Inman Connect SF. I’m having lunch with Joseph Ferrara of Sellsius fame, who is also an attorney, and I say to him, “You know, Joe, I’ve been thinking alot about brokerage business models — why couldn’t it replicate how law firms work?” Joe and I talk about this for a pleasant half hour or so. I end up talking to people about the idea of the “Bill Belichick Brokerage” (more on that later). Then I get back home and I see these two great posts by Sean Purcell on Bloodhound Blog on this very topic: Disbrokeration and Super-Teams.

There’s something in the air.

In any case, Sean’s posts are worth reading in full. Disbrokeration strikes me as a decent review of what’s wrong with the brokerage industry today — some of those weaknesses are being revealed by the impact of technology. In Super-Teams, Sean lays out his vision:

Our Goal Model Defined
Yes, greed must be accounted for if we are to design a blueprint for the industry as a whole. Even more importantly, we must acknowledge the premier ingredient in creating real estate success: lead generation. The broker is no longer germane. The ability to create leads is THE most important factor and defines the primary actors in the model that will take us forward. But we are looking for more. If we wish to create a model for the future, let’s charge it with an even higher level of responsibility. Let’s create a model that also rids the industry of loafers and under performing “shoe salesmen“. Let’s create a model that sustains its growth by success rather than law. Let’s create a model that generates its own need and reward for education. Let’s create a model that allows any to enter, but demands dedication and professionalism for success. Let’s create a model without help from rigged tax laws and a “loose” interpretation of independent contractors. Finally, and most important to universal portability, let’s create a model that is achievable now and with our current skill sets. The Basic Real Estate Team model fails right from the beginning. It takes into account almost none of our needs and few of our desires. What about Super Teams?

Super Teams
They look like this: one or possibly two agents are the Team Leaders; they are the Rain Makers (RMs). Beyond the RMs there may be nothing more than a part time administrator; or there may be multiple buyers’ agents, listing agents, lead coordinators, customer service managers, marketing directors and so on. What makes them unique is the fact that they all work on the RMs’ team and directly for the RMs. They may bring in some business of their own (and the splits on that business may be higher) but the primary responsibility of those that work on the Super Team is to benefit the RMs. The entire team exists to enrich the RMs; to help them in their mayoral marketing – to help them become mayor for life. Super Teams do allow for change. If someone on the team decides they can be an RM too, they are free to start their own team (and well trained for it too). But for a great many, the idea of enjoying the profession of real estate without all the messy marketing and concerns over a commission lifestyle makes the Super Team a cozy home.

This model certainly accounts for the greed aspect and literally defines the importance of lead generation. It also quite adequately rids us of loafers and water cooler whiners (RM’s would have short patience for someone not pulling their weight). After that though, this model begins to fall off.

My initial thought was, “Didn’t I write something that is directly on point to this already?” My second thought was, “Oh yeah, but I never published it, did I?”

So here it is, the 1,500-word essay that is swiftly heading towards like 3,000 words. Read more at your peril. You have been warned. Read the rest of this entry »

An exchange with Mike Farmer in the comments section of this post over on Homegain triggered some thinking on my part.  The Reader’s Digest version of what went on before:

• Louis thought there was too much hype about marketing, and not enough attention on the craft of being a realtor.
• I responded that one reason was that there isn’t much of a craft to being a real estate broker, and that the ones I respect were more of a consultant than a realtor.
• Mike thought it presumptuous of someone who has never brokered real estate to reduce the job of a realtor down into only brokering deals, adding:

The advent of the information age doesn’t make agents and brokers less useful, but more useful in a more sophisticated market where information needs to be filtered through specialized knowledge to create a competitive edge for consumers. Not only as consultants do we earn our money, but through all the actions taken to create profitable and hassle-free transactions. However, I wouldn’t mind sitting in a cozy office and giving advice all day.

• Whereupon, I responded that filtering information through specialized knowledge is the essence of consulting, and clarified that pure brokerage — matching buyers to properties — is not valuable in the Internet era.

But that raises a related set of questions.

1. If “brokerage” (herein defined as “matching buyers to properties”) is the business that realtors are in, then what are their future prospects, if any?
2. On the other hand, if “brokerage” (herein defined as “matching buyers to properties”) is no longer the business that realtors are in, then what is?

As to the first question, in my mind there is no doubt that the purely transactional brokerage is going the way of Republicans in academia: rare, despised and getting hounded out of existence.  The one thing that the computer is insanely good at doing is matching things up by a whole matrix of qualitative and quantitative metrics.  Really, when you think about it, a realtor even in the pre-Internet era derived much of her value from being the human operator of a computer network — the MLS. (Well, at least starting in the Computer Era — I know some folks still remember the Book.)

The analogy I drew was to the travel industry.  There is little doubt that the traditional travel agency business of booking tickets for consumers was decimated by the Internet.  This little study (PDF) by the Small Business Administration was written back in 2001, but remains illustrative, since that industry was getting hammered right from the start of the Internet era.  (A funny stat: the SBA study in 2001 estimated that only 30% of travel will be booked online through 2005; according to this article, quoting Forrester Research, 68% of travel was booked online in 2005.)

I think Mike agrees with that big picture statement: if you are in real estate, but all you’re doing is putting listings into websites, and putting up yard signs… your future looks dim indeed.

But I don’t believe the future looks dim for real estate, and for realtors.  If anything, I think the future looks bright.  It requires a fundamental shift in thinking about what service a realtor actually provides, but that shift has been ongoing for at least a few years.

Go pick any random agent website and read about their self-description.  It usually says something like, “I’m an expert on the market.  I can help you understand what to do, what not to do, avoid mistakes, and maximize your sale price.  Or, if you’re a buyer, I can help you get the best deal possible with the minimum of hassle.”  (That the last two statements are in conflict is another matter for another day.)

So let’s agree that pure transactional brokerage is probably not the business that most realtors are in today, shall we?  (There is an exception for ultra high end real estate, by the way, as there is in any brokerage type of industry — see, for example, private placements.)

Because that still leaves the more interesting question.  If brokerage is not the actual business, then what is?

Is it Sales & Marketing?

A good argument can be made that it is — but what do you do about buyer representation then?

Is it Project Management?

Many agents I’ve personally spoken to over the years thought this was one of their biggest jobs — making sure the transaction goes through smoothly.  That requires coordinating a whole bunch of people, most of whom don’t work for the realtor, like attorneys, appraisers, inspectors, mortgage brokers, etc. etc. to get the transaction done.  That sounds an awful lot like project management.

Is it Psychological Counseling?

A few agents talk about how their value is in making clients feel better about the process.  Assuaging their fears, having tough talks with them to bring them back down to earth, instilling sanity, etc.  Buying a home is a pretty stressful process — selling one, even more so.

Is it Financial Planner?

The purchase of a home is usually the largest investment any family makes — a strong argument could be made that the realtor’s actual business is financial planning.

Is it Consulting?

While the term “consulting” is often too-broad, in this case, I mean specifically that the realtor has specialized knowledge and training unavailable to otherwise intelligent and highly accomplished laymen.  For example, a heart surgeon is probably pretty darn smart and knows a lot of things.  But he doesn’t know squat about land use regulations, mortgage financing, and the effect of termites.  Nor does he know much about what’s going on with the market, what is and is not a fair price, and so forth.  The realtor does (or should).

Never having been a real estate broker myself, I really don’t know the answer.  I can prognosticate and opine, but that isn’t the same thing as an answer.  If you are a realtor, I would love to get your take on this, and perhaps I can formulate an answer at the end of the learning process.

-rsh