Notorious R.O.B.

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.

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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 »

Georg Wilhelm Friedrich Hegel

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 »