Real Estate Consulting and the Residential Brokerage
It should be clear by now that your world has changed – probably in very significant ways and likely forever. Sure, these changes are not hard to understand, given the worst economic climate in our lifetime. But are we just a victim of the times? No. We are also a victim of our own slowness to change. We will change, but it is a certainty that the industry in general and brokerages specifically will be forever changed in very dramatic ways as a result of these times and the convergence of several factors outside our control, whether we elect to modify our strategy or not.
It is my belief that our business has already evolved and will continue to do so to such a degree that nothing will be the same when we look back three years from now. One school of thought tells us that most brokerages today have not made proactive changes to be in position when the market returns to some form of normalcy. We seem to be too locked into reaction to our immediate problem: survival!
- Internet data availability and interpretation
- Off-shore competition (e.g. automobiles, technology, telemarketing)
- Bad management and poor financial decisions (such as banking, investment, automobiles)
- New online competition ( e.g. travel agencies)
- Empowered consumers (a good thing)
- Economic downturn (said politely)
- And more
Our industry is, however, particularly vulnerable. Since most of our practitioners are entrepreneurs; that is to say they make their living based solely on their success in closing transactions, we are experiencing changes the likes of which we have never seen before. A large percentage of the agent population that came into the industry during the heady times of 1999 through 2006 have watched their income shrink to near zero. As a result, many have taken other jobs – often without letting their broker know about it. This is the growing “phantom agent” population that is becoming the bane of the industry.
- According to Lawrence Yun, Chief Economist for NAR: “Pending and closed sales both reflect distressed sales of short-sales (those home sales where the mortgage loan cannot be fully repaid) and foreclosures. If it is in the multiple-listing service (MLS) then it is captured. If sales are occurring outside the MLS such as some of the auction sales and bank-owned REOs then it is not captured in our data. Based on a survey of REALTORS® in August regarding their most recent transaction, we estimate that about 40 percent of home sales are distressed sales.” This from his commentary of 10/28/08
- The level of distressed sales will grow, adding to the problem. These sales are controlled by banks, lenders and loan service companies. Didn’t we just spend the past several years trying to keep them out of real estate?
- Our retained-earning capacity has dropped through the floorboards. This is partly a result of steep declines in sales prices, with outside and inside competition driving commissions downward and an ever-increasing cost of doing business.
- Availability of data and listings has enabled the consumer to take a much more active role in the sale and purchase of real estate. This consumer involvement is a good thing. We all like informed consumers. On the other hand, they give us an almost obligatory need to reduce fees for those who take such an active role. As an example, we are seeing more and more that consumers are no longer shy about asking for rebates, discounts and many are willing to work directly with listing agents so they can get a large portion of the buyer agent commission for themselves. This trend shows little or no sign of retreat.
- Third-party participants (aka non-traditional brokerage) have gained strength. Economy notwithstanding, several outside entities have come on the scene in such a way and with enough initial success that we need to open our eyes to the fact that consumers are more than willing to embrace new business models! Although it is true that these economic times have taken their toll on everyone (including these new-model companies), we have seen enough in the few years they have been in existence to tell us that they are here to stay. This includes models like the home valuation model (Zillow, etc), consumer-participative models (Redfin, etc) and many more. It is very clear, consumers like choice in how they work with us!
Too many of us either practice business with such a strong case of denial or we recoil from the sheer amount of change required that we may never be able to admit that the way we always worked will no longer be acceptable.
Competition to attract and retain competent and committed agents will be at an all-time high. Fewer licenses are being renewed now. Far fewer will be renewed in the coming years. As our ranks shrink, our need to retain and recruit will be more important than ever before. We will no longer be able to rely on the things that worked for us in the past. Agents and brokers will now be looking for those companies who offer them more and newer ways to make a living. Being open to the consulting model is just one of those methods. Any attempt to hold the line on what we today consider to be full service will tell agents that you are inflexible and unwilling to let them venture into the new business model.
You must practice transparency! Consumers need to know what they are paying for, what their options are. Agents need to know that it is alright to become consumer-centered. Our business model will never go back to the one that served us for the past one hundred years. You either adapt or see the same shrinking market experienced by so many other industries who tried to ignore these changes away. Denial will not work.
A world full of informed consumers making informed decisions to enter into mutually-beneficial business relationships is where we need to be heading. If we invest our time, money and energy in restructuring our own business to allow for consumer-directed offerings that make consumer-based informed choice possible, we will be doing the right thing. If not, they will surely get it somewhere else.
Jack Harper is a longtime REALTOR and author who is an avid proponent of the consulting model in today's real estate market. He believes that providing fair and professional service and being paid a fair and reasonable fee for those servces every time I am engaged by a client, whether there is a sale involved or not. He advocates allowing the consumer to have full choice in terms of the services and is an evangelist for the consultoing model.
Check out the RealTown Consulting Group for more information and to ask questions.
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