Notorious R.O.B.

So this morning, I do something completely unusual for me: I turn on the TV and watch one of the morning shows while sipping coffee.  I normally never turn the TV on except for NFL games, maybe ESPN, or something special I really have to see.  But I did today, and happened to catch a segment on CBS Early Show where a Rebecca Jarvis, on how to avoid common real estate mistakes.  This is the associated web story (I am looking for the video of that segment right now).

In that segment, and the associated story, Jarvis brought up some good solid advice as well as a couple of points that I found… shall we say, “interesting”.

First, she thinks the #1 mistake that sellers make is that they pick “bad agents”.  The advice, then, is as follows (from the web article linked to above):

Find someone who has successfully sold similar homes in your area. When you’re selecting an agent, ask them to show you three recent sales of homes comparable to yours in price and location. You may also want to look at their asking price-to-selling price ratio.

Hmm.

Second, she advises buyers to retain a real estate attorney:

You may want to consider hiring a lawyer. It’s the only person in a transaction that’s not incentivized to get a deal done. A real estate attorney will charge flat fees and offer objective advice.

Uh-huh.

Some questions and thoughts from yours truly follow.

Read the rest of this entry »

In part 1 of this series, I looked at per-person productivity numbers which simply made no sense. Thankfully, people like Russell Shaw and Jay Thompson stepped in to provide at least an explanation. Simply put, there are too many agents chasing the same number of deals.

So despite large improvements in personal productivity of a realtor thanks to technology, sales per agent had to go down as the denominator (# of agents) increased throughout the industry.

Seems logical to me.

So I looked at recruiting and training figures. Oh, how fun!

Show Me The Money

Again, according to the 2007 REALTrends Brokerage Performance Report, the average and median spends (as a percentage of GCI) look like this:

Recruiting

Average: 0.39%, Median: 0.19%

Training

Average: 0.45%, Median: 0.30%

REALTrends thinks that recruiting costs went up “somewhat” over the past few years, while training costs are back to 2004 levels. Then they make this statement:

With the assumption that training and recruiting are linked together, it follows that where brokerage firms are spending less to recruit or have less success in recruiting due to market conditions, then some proportionate decrease in training will occur. (p. 28 of Report)

If true, then here lies another significant issue for brokerages. In this post on OnBlog, I ran through some assumptions to get at what the GCI involved is, and came up with $12.6m in GCI for the “average” or “median” respondent. Let’s go with that for the purposes of illustration.

That means the average brokerage spent $56,700 on training in 2007 (0.45% of $12.6m). We have no way of knowing how many employees that represents, but the company I picked to generate that GCI number (#250 on the PowerBrokers 500 list) had 255 total agents with two offices. That means this hypothetical brokerage spent $222 in training costs per agent. Keep this number in mind.

According to this study by the American Society for Training and Development:

The average direct expenditure per employee in the consolidated sample of organizations rose to $1,103 per employee in 2007, an increase of 6.0 percent from 2006. The average learning expenditure per employee in both ASTD Benchmarking Forum (BMF) and ASTD BEST Award-winning organizations was higher than the consolidated average. For BMF organizations, average direct expenditure per employee was $1,609 in 2007. The BEST Award winners spent an average of $1,451 per employee on learning and development.

In other words, real estate companies spend one-fifth what other companies spend on training. There’s more.

According to this report by Bersin & Associates, “The average spending per learner is $1,273. The highest spending sector is technology ($2,763) and the lowest is retail ($519).”

Because of the jankiness of my data (all sorts of assumptions going on there), I can’t say for sure that real estate brokerages actually spend less than half ($222) of what McDonald’s or The Gap spends ($519) on training. But I think it’s pretty clear that brokerages are closer to retail than they are to technology in terms of training expenditure per person.

But here’s a way to gut check the numbers. Let’s pick a brokerage at random from the PowerBrokers 500 list. (Shake, shake, shake… roll dice — #173) Okay, #173 has 480 agents doing $580m in transaction volume. If this company were to spend the American corporate average, as per Bersin & Associates, its training budget would be $611,040. Does anyone believe that any real estate brokerage company spent $600K on training in 2007?

Our Assets Walk Out the Door Every Day

Back in the day, when I was thinking of law, a senior partner at a major NYC firm told me, “Our assets walk out the door every day.” Which seems obvious. Can’t really have a law firm if you ain’t got no lawyers.

The same holds true for real estate brokerage. Again, this seems obvious. No agents = no brokerage. The best website in the world, the best marketing, the best office space, the most comfortable chairs — none of these things will mean a thing if the people stop showing up for work.

So what gives?

I know a part of it is that the agents are all 1099 independent contractors who can walk at any time. So a brokerage has very little incentive to train an agent only to see her walk out the door and across the street to a competitor. I believe this is a fundamental weakness of the brokerage model — but there are small companies and teams that overcome that weakness.

Perhaps another part is that the training happens prior to someone being hired, as people have to study for the real estate license exam.  But a licensing exam isn’t the answer.  One, licensing exam tests factual knowledge, not sales technique or customer management.  Two, it is a well-known fact that real estate licenses are notoriously easy to get.  Easier in some states than getting a hairdresser license.  So relying on licensing schemes strikes me as a non-good way of getting ‘trained’ professionals.

Maybe a third is NAR training to get the REALTOR designation.  I haven’t heard anyone talk about how hard the REALTOR designation is to get, so I’m classifying this one as “too easy, too many” type of a deal.

From my perspective, the apparent lack of training (if true) really helps me to understand a bunch of things that I couldn’t understand before. Like, why do so many agents suck so bad? Why are so few of them informed about their own market? Why do so few of them do an adequate job of followup and CRM and marketing? Why is it that so few of them can speak intelligently to intelligent professionals?

I had a lot of trouble squaring the number of poor experiences I’ve had personally over the years with various real estate agents with the smart, professional realtors I’ve met over the years working in the industry.

Well, no longer. The pieces are falling into place.  They are not trained.  They are not trained.  They. Are. Not. Trained.

When it appears that the average fry cook at McDonald’s is better trained than the average real estate agent who is handling the most important purchase of a consumer’s life, the claim that realtors are licensed professionals is a joke.

The apparent lack of training — if real — points to a fundamental problem in the industry.  This isn’t something that can be fixed with a blog.  Or a nifty agent website.  When the basis of the business is on trustworthiness, expertise, and professionalism, spending so little on training is going to yield precisely the expected result: crappy agents.

No wonder that the Per Person Productivity numbers are down across the board.

-rsh

In Part 1 of this series, I put forth the notion that a real estate company built on the law firm model — rainmaking partners + salaried associates + support staff — could work. The main requirement is that there is some sort of a competitive advantage that arises from the structure of the partnership such that individual rainmakers would want to pool their resources.

But how does such a competitive advantage arise? In this and succeeding parts, I hope to explore some ideas on how it might be possible.

———————

The similarity between legal practice and the post-Internet real estate brokerage is remarkable. In both cases, you have service providers who provide what is essentially a commodity service in all but the extremes, and yet are of varying qualities as professionals.

The typical lawyer does not do only the extremely complex, novel questions of law that end up before the Supreme Court. The average attorney does run of the mill contracts, wills, real estate transactions, incorporations, and typical lawsuits — the so-called “slip and fall” cases, or breach of contract cases, or some such. There isn’t much to that practice — the law is more or less settled in most of the situations, and all that the attorney is doing is to represent his client in the most favorable light possible. Yet, there is no question that some lawyers are simply better than others. They are more knowledgeable about the law; they are better writers, better researchers, and better negotiators. Some speak better than others, and are more effective in litigation. Still others are just smarter, and can help their clients more than another attorney can.

Similarly, in the post-Internet real estate brokerage, where simply matching buyer to property is no longer seen as particularly valuable, real estate brokerage is a fairly commodity service (except at the extremes). Brokers help sellers list a house, market it using various techniques, price the house in order to move it, coordinate various activities with third parties (lawyers, inspectors, government, etc.), and promote the listing in various ways. For buyers, brokers do inventory searches, work with third parties, negotiate on their behalf, advise them on various subjects, and educate them about the real estate process, about the local market, and so on. Again, there are clearly brokers who are more talented than others, smarter, more informed, better educated, and so forth.

In both cases, the consumer is confronted with a conundrum: How do you select a professional for something of which you yourself have very limited knowledge, but the importance of which is extremely high? Pick the wrong lawyer, and you could end up going to jail. Pick the wrong realtor, and you could end up stuck for years in a house built on top of a toxic waste dump.

In both cases, consumers often end up going with either (a) brand names, (b) recommendations, or (c) gut feelings.

For all three — branding, recommendations, and emotional connection — there are enormous advantages to institutionalization for a service provider. In Part 1, I listed five things a real estate firm (“The Firm” hereafter) must do:

• Institutional CRM: The Killer App
• Systemic Brokerage: Learning from Bill Belichick
• Redefine the Profession: Shifting the Grounds of Competition
• Specialization for Domination
• Outsource Everything But Profit Centers

Three of the five are directly related to institutionalization: Customer Relationship Management, Systemic Brokerage, and Specialization. In this part, let us cover CRM: The Killer App.

[CAVEAT: Before we begin, I feel it is imperative to stress once again that in real estate -- as in law, or any professional service -- the commoditization of the service and therefore the institutional advantage fades. Meaning, if you absolutely MUST have the best criminal defense attorney for your death-penalty trial, you really won't care whether he's with Big Law Firm or a solo practitioner. If your company is involved in some ridiculously complicated international tax case, you are going to seek out the absolute best specialist -- institution be damned. Same with real estate. If you're trying to list a $50 million condo, there just aren't that many people who can service your needs -- finding buyers for a $50m house is in and of itself a valuable service. Traditional "transactional" brokerage based entirely on personal relationships may be the best solution when you're in an extreme situation.

These posts are not intended to address the exceptional cases. They are, rather, intended to discuss the vast majority of non-exceptional brokerage.] Read the rest of this entry »

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 »

So I’m trying to put my thoughts on cluetrain real estate together.  And while all those thoughts are swimming around my head, I read this fantastic interview of Alex Chang, CEO of Roost.com, over at 4Realz.

Specifically, I read this section:

I don’t think it is a stretch to say that the big brokerages are only just beginning to use their websites to create a compelling consumer experience that competes with REALTOR.com. Why do you think it has taken the national brokerages so long to complete on this front?

It’s a question of core competency. It took a long time for retailers to get good at building e-commerce sites which is one reason why Amazon has done so well. Clearly, forward thinking brokers get this and are investing in their own websites. But the bottom line is that building great customer experience online is hard, even if that’s all you focus on all day long. And it’s not cheap. Also, I think it takes a little while to start to be able to measure and see a return from a broker’s site in this industry. So you have to have the appetite to make longer term investments in technology. That can be a tough pill to swallow.

Then I read this:

To date, many of the most successful real estate professionals do most of their marketing off-line. If one of these experienced real estate agents wanted to jump-start their online marketing, where would you recommend they begin?

It starts with your own Web presence. First, create a couple great websites and blogs that get across why you are the best at what you do in some specific ways. Ensure that there are all sorts of ways for consumers to contact you on these sites, and obviously make sure you have some excellent ways for consumers to search for homes on these sites (you knew we were going to say that). Second, get some tools that will help you actually see what return you’re getting from traffic to these sites. Where is the traffic coming from? What leads is it generating? When those are done, find targeted marketing vehicles that send traffic you can actually measure to these sites at budget levels you can afford.

Did you get that?

So on the one hand, the large brokerages like RE/Max and Coldwell Banker lack the core competency to build great customer experiences online.  On the other hand, Alex is recommending that agents create “a couple of great websites”.  Not just one, mind you, but a couple.

Alex’s parenthetical comment above, the “you knew we were going to say that” is actually illuminating.  Here’s my translation of what he is actually saying:

You need a couple of great websites if you’re going to be successful marketing yourself online.  Thing is, building good websites is very hard work, even if that’s all you do every hour of every day.  It’s also very expensive.  In fact, great big companies like Realogy and Re/Max can’t do this right.  Ergo, there’s no way that you, Ms. Agent, are going to be able to.  Thankfully, Roost.com provides you with an excellent search solution and a great IDX-compliant website to you.  You only pay for the traffic you want.

I dig it.  It’s smart marketing on Alex’s part.

There’s a saying in the retail industry, of which my wife is part, that you don’t out-WalMart WalMart.  How do you compete with the behemoth that is WalMart?

If you try to compete on the same basis — price — then WalMart will kill you.  Their operational efficiency is many times greater than yours.  Having invested billions of dollars into their IT system, WalMart knows when a lightbulb in Aisle 4 of their store in Topeka is about to go out.  They know that Store #1422 will run out of Purina CatChow day after tomorrow, so they send the truck out with Purina CatChow with just the right number of units today, to ensure that Store #1422 never runs out, and the customer is never turned away with cash in her pockets.

You’ve got to compete on some different basis.  Target is doing it through designer labels, appealing to higher end customers.  Costco is doing it with more branded merchandise.  Neither competes with WalMart on price alone.  You can’t out-WalMart WalMart.

So here’s a thought for all you real estate agents out there.

Go over to Roost.com, to Trulia, to Zillow, to whatever site you can think of.  Check out what they have.

Can you out-Roost Roost?  Out-Trulia Trulia?  Out-Zillow Zillow?

Those websites have great user interfaces, wonderful data, and trained professionals who spend all day thinking about user experience, information architecture, and human-centered design.  You have none of that.

At the same time… I have a secret to tell you.  Guess what Roost, Trulia, and Zillow don’t have?  That none of the great and powerful websites out there have?

A face.

Not one of these websites has a face.  Or eyes.  Or a smile.

You can’t out-Roost Roost.  But Roost can’t out-you You. 

Cluetrain claims that markets are conversations.  But it doesn’t say, nor do I think it needs to say, that markets are online conversations.  The Internet makes types of conversations possible that were not before.  But there are conversations that predate the Web, and will survive it.  Authentic, human, face-to-face engagement.

There is no substitute for it in business.

And you’ve got a face.  Roost, et. al., does not.

Think about that.

-rsh

The Inman blog asks a question:

What’s interesting is that it points to a need to rebuild some trust between consumers and the real estate industry. Real estate agents even before the downturn suffered a bad image in the minds of consumers, and with emotions flaring in the midst of this housing recession we’re likely to hear more backlash from people looking for someone to blame.

Some agents appear to be finding success in building consumer trust through blogging. What are some other ways to combat this in a down market?

Actually, what’s really interesting is how Inman talks about a need to “rebuild some trust”, then mentions in the very next breath that real estate agents even before all this gotterdammerung had a bad image.

That isn’t called “rebuilding”.  That’s called “building”.  As in from scratch.  And I have the answer.

Start firing agents until you only have good ones left.

1.3 million Realtors in America today.  Those would be the so-called ‘good’ real estate agents, right?  You know, the ones who are members of NAR and have subscribed to a Code of Ethics?  So there are plenty of non-NAR member agents running around out there too.

Find an industry professional.  Find a bar.  Get said professional drunk.  Ask him how many of the 1.3 million Realtors are really professionals who abide by every whit and jottle of the Code of Ethics.

You want to build trust?  Start by being trustworthy.  Want to know who is and isn’t trustworthy?

Try this.

And as you shrink away in horror, ask yourself, “Well, why not?”

-rsh