Is the End in Sight for Brick-and-Mortar Real Estate Companies?
A year and a half ago at the very height of the real estate boom I sold my six-office, 200-REALTOR, 2,000-closings-per-year, $300 million-gross-sales-revenue-per-year, real estate cmpany. Then, at only 54 years of age, I tried to retire. However, I got extremely bored. And then, when I found myself mopping my garage floor twice a week, I really knew I was in trouble. (I will say, though, it was the cleanest garage you have probably ever seen.)
So, when total boredom set in, I decided I needed to start a business again. And, since real estate is the only business I’ve known since I was 19 years old, I decided to open a real estate company again. My first obstacle was a “non-compete clause” that covered the entire southern half of Florida that was part of the agreement when I sold my real estate company. So how was I going to open an office and not violate my non-compete clause?
I started thinking long and hard about the business and realized that to start another real estate company using the old formula was really crazy, since it’s becoming almost impossible for an owner/broker to make a profit anymore, let alone in this current slow market of 2007. I spent a lot of time analyzing how the industry had changed from when I got into it 35+ years ago, and we all know there has been meteoric change.
Remember when it was a 50/50 split between the REALTOR and the broker, and the REALTOR would spend the entire year trying to sell enough to get up to a 75% split (which he or she would usually reach in December and then on January 1st , it would roll back to a 50/50 split)? Then the industry started changing and the REALTORS wanted more, so it became the mantra for brokers that they needed to retain 35% in order to make a profit. Now even those days are long gone.
When I owned my brick and mortar office, I was always upset with the REALTORS because they wanted more and more and never even cared if I made a profit. I guess that’s just human nature. However, when I really started to look at the situation from the outside, I realized that it wasn’t just the greed of the REALTOR that had brought on these changes. There were several factors involved in this evolution. The Internet is obviously the big one. REALTORS no longer count on their brokers to drive the business to them. You can “Google” any area in the country, and several REALTORS' web sites will come up before the brokerage web site appears. So the Internet has given individual REALTORS the marketing power they use to rely on their brokerage to provide for them.
IRS changes regarding home offices have also been evolving. I remember back in the early 1980’s, when I tried to take a deduction for a home office, it caused me to get audited by the IRS. The IRS now recognizes the fact that more and more Americans are working out of their homes. This will continue to be the case in the future.
There are several other expenses that the REALTOR, not the broker, now shoulders. Brokers now require REALTORS to buy their own signs, postage, cards, and do their own advertising. In the past, these were the responsibilities of the broker. The brokers have to pass these costs on to make a profit in today’s market.
Brick-and-Mortal Business Model Is Obsolete
So where does this leave the old model of brick and mortar offices? In my opinion, this model is DOA and hasn’t even realized it yet. For years, all of my peers have been saying the industry has to change. So the question is this: How is it going to change?
This is how I see it changing. Most REALTORS now spend more of their time working out of their homes than going into the office. The old concept of floor time just doesn’t work anymore. Since almost all REALTORS have their names and phone numbers on their signs, calls from buyers no longer go to the office. This issue was always unfair to the listing REALTOR, anyway. If they worked to get the listing, they should get the calls. So agents currently work out of their homes, they pay for their web sites, they pay for their advertising, and they pay for their own business cards and a host of other expenses. Why should they pay 15% to 40% to their brokers? It’s a heck of a good question that my broker peers really don’t want to think about.
Since you can now conduct office meetings online, scan, and review contracts with a click of a button and, quite honestly, allow the broker to supervise as well or better than trying to run down REALTORS in the hallway of a brick-and-mortar office. Why do they need a brick-and-mortar office? I see the future REALTOR paying a small fee to a broker for placing a license under a broker’s license and then making one's home a “branch office” where municipalities allow it. In some areas this is not allowed, ut most cities now have “virtual office buildings” where a REALTOR can rent space very inexpensively for when they need to meet a client.
There are a percentage of REALTORS that need the interaction of an office, but more and more, productive REALTORS avoid the office environment of gossip and donuts. I believe in the very near future we will see a “National Franchise Real Estate Company” based on the concept that I have provided here today.
(James A. Crumbaugh III has lived in California and now resides in Florida. He has also traveled in Mexico extensively and loves the Latino culture. They care about their families first, and that is what life is all about, said Crumbaugh.)
Negotiating Tip 114: Retreat Negotiations
March 29, 2019
Negotiating Tip 113: Activating Our Opponent
March 28, 2019
Negotiating Tip 112: Misconceptions
March 27, 2019