It hasn’t been quite a month since we unveiled our insanely bold move to form an independent brokerage. We took the plunge for a variety of reasons, but at the core of each was the idea that the familiar big brokerage models are mired in tradition, tradition that often forgets their very raison d’etre - the customer.
In the past, I have written about my suspicions that the big brokerage models are at risk. This week we are seeing some tangible evidence. We continue to watch the larger companies close or downsize offices and implement other cost cutting measures in response to our slower market, in an effort to return to profitability and, in some cases, to survive. Troubles continue for Realogy, owner of some household-name brands including Coldwell Banker, C-21, ERA and Sotheby’s International. As reported by Urban Diggs’ Noah Rosenblatt:
Last week, the firm warned that it’s at risk of violating the terms of its bank loans and is trying to swap $1.1 billion of bonds for new debt at a discount… A default does not necessarily mean the end of a company. Traditionally, many companies in default have been able to negotiate new debt terms with their creditors. But with so many defaults looming, experts warn that fewer companies will be able to restructure their debt. As a result more of troubled firms could wind up in bankruptcy court and being liquidated.”
And, I love his explanation of the traditional brokerage model accompanied by a photo of a veloca raptor. (At least, I think it is a “veloca” raptor; All raptors kind of look the same.)
A real but dirty way to look at this model from the employing brokerage standpoint is that you have ‘X’ rats running around the city, bringing cheese back to the home base! Yes, that means I called myself a rat! The analogy is accurate though. The more agents you have running around bringing cheese back to the home base, the more potential profits the firm can make. Ideally, you try to hire the most ‘connected’, ‘educated’, and ‘networked’ agents possible; but of course this does not always happen in a low barrier to entry business. In a market with declining sales volume and prices, this model becomes VERY pressured. I expect the # of agents who work solely on commission as their full time job to shrink drastically over the next few years. The strong will survive, the weak will die out and look for new jobs. It’s an inevitable side effect to a market experiencing less total sales volume and declining prices. Which begs the question, will a new model emerge?
I think “new” models are emerging, but I don’t think they are the models Noah was talking about. In San Diego, I have watched for some time the old idea of “market share” vaporize. None of the Big Boys seem to dominate my core market areas any longer. Instead, the MLS reads like a “Who’s Who” of “Who’s That?” Today, small, independent brokerages and brokers collectively hold the market share title. And it is a trend which I believe is here to stay.
Steve and I had the epiphany long ago; it just took us awhile to act on it. Buyers and sellers hire agents, not companies. Big images and big names used to mean something, but the Internet has changed all of that. Today, the brokerage on steroids can not give me, and consequently my selling clients, any more exposure than I can accomplish on my own. In fact, I can accomplish much more once untethered. Buyers are no longer impressed by the expensive offices and trappings. This unnecessary plumage which once symbolized strength and instilled trust is more often seen as extravagant excess (think “investment banks”). Our customers don’t want to feel like a number in a bottom line; they want to feel like people who will be cared about and treated fairly.
As a point of clarification, it is not really a matter of size. Small can simply be a miniature version of big. It is about the ideal of creating a model in which the individual agents are not seen as profit centers but as partners in delivering a higher level of service and of bringing a higher standard of integrity, ethics and competence to the customer to the benefit of all agents in the organization. Of course, my vision only works if the broker owner is a working broker, one whose intent is to make a living and a career representing clients and not simply from the efforts of those who do. If there is another way to avoid the “rats bringing home the cheese syndrome,” which can only result in recruitment and critical agent mass being the priority, I am not seeing it yet.
Seth Godin, marketing genius extraordinaire, says this of the bloated corporate image:
It’s organized waste. Profligate spending designed to communicate confidence and just a bit of hubris… I’d replace the expensive sponsorships and buildings with something more valuable, quicker to market and far more efficient: people. Real people, trustworthy people, honest people… people who take their time, look you in the eye, answer the phone and keep their promises.
That was precisely the idea behind our madness. So far, this way, our way is a good fit.
photo credit: TheTruthAbout…
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{ 21 comments… read them below or add one }
Sven
11.20.08 at 11:40 am
“unnecessary plumage” - LOL. I’ll have to borrow/steal that at some point.
I’m sure the nice buildings draw in clients that these behemoths wouldn’t otherwise have, but you market mostly in other ways. So, the building probably wasn’t helping you.
I don’t know if they track walk-in traffic, but I’d be curious to see what % of sales come in from someone just wandering into the office with a lost look on their face. Just like I’m always curious about just how effective putting your face and a silly slogan on a bus stop seat really is.
Will
11.20.08 at 1:19 pm
And yet everything you just rallied against was what my former big brokerage manager used to try to dissuade me from leaving. I knew before I left that he didn’t get it and his weak arguments which you just repeated only convinced me that I was making the right move. That was two years ago and I haven’t looked back since except to encourage some others to come along.
I haven’t opened my own brokerage, yet. But when I am ready (read that as when I have a solid stable of clients on the books and a pretty roaring business that can support the overhead) I likely will. I think it’s in many of our natures to want to do things better than our competitors and sometimes you just need to be completely independent to do so (read that as forming an office with your ideal spirit of awesome service and progressive marketing completely permeating the place.
Congrats on yours and Kris success!
Amy
11.20.08 at 1:48 pm
Congratulations for launching an “insanely bold” endeavor! =)
“Buyers and sellers hire agents; not companies.” May this truism ignite and inspire all agents; new and tried. Thank you for reminding me of it, also.
To me, real estate is the ultimate ‘people business.’
There may be a time and a place to be with a megabrokerage or a megabrand in one’s real estate career. However, one size doesn’t always fit all… at all times.
Kris Berg
11.20.08 at 2:14 pm
Alright — I demand to know how this most wonderful post penned by ME ended up with Steve’s name under it. Turn my back for a minute, and I am being undermined by my own partner!
Kris Berg
11.20.08 at 2:16 pm
Hah. Fixed it. Take that, you post stealing husband.
Steve Berg
11.20.08 at 2:26 pm
Kris - Chill, girl! I don’t see my name anywhere on this post.
Sven - There actually are still locations in certain markets that lend themselves very well to walk-in clients, mainly in well established retail centers. That part of the old model is not entirley dead, yet.
Will - The O/H is not nearly as bad as you may think.
Joe Thomas
11.20.08 at 3:54 pm
Just a thought…
We’ve gone through 2 very different markets these last few years. In the last market it was very easy to sell a property and Agent competence was not an issue… Branding was not the key ingrediant; Commission was. So, Independent Brokers seemed to thrive along with everyone else. Today, most REO listings are controlled by Independents. Once again, Branding is not as important. But the conclusion that Branding does not matter in our new Internet Marketplace may be flawed. What we are seeing may be simply a normal reaction to the type of market we are in and not to the influence of the Internet.
Your marketing, your sphere, your referral base, and your reputation no doubt is bringing you business. For you, perhaps Branding helped you “get started” and you’ve outgrown your need for it.
In a balanced market, the Independent Broker may be at a great disadvantage when going against a seasoned Branded Broker. I wouldn’t short sell the value of a Brand based on the last 8 years.
However, the Big Brands have a lot of baggage and are experiencing a large loss of revenue. If they by necessity become focused on servicing their debt, then the Services they provide their Agents will suffer. This, not the Internet, could result in the eventual demise of Branding.
Steve Berg
11.20.08 at 4:21 pm
Joe - I would agree with Kris on this one. For many clients, it’s the agent, not the company. We ARE branded and have been building that brand separate and aside from the big name brand/brokerage for years. It is one of the many (and necessary) components that any agent can deploy today to create their own identity in their market.
There may indeed be a place for the big name national franchises in the future. I think they will just look a lot different and, over time, they may see themselves losing some of their best agents to the newer, more progressive models.
AndyinPC
11.21.08 at 6:22 am
I’m liking the unnecessary plumage idea… that’s basically what I told my old broker before transfering to an new brokerage with an alternative business plan (and no, that conversation didn’t go all that well).
What I’ve found since the change is that I can demonstrate a significant improvement in both the quantity and quality of services I’m providing to my clients.
There are some profound benefits to the big names and the nice office. My walk-in traffic the first half of the year was mind blowing compared to post-transfer. And the network of seasoned agents was helpful, as was the ability to make a single call and have a string of open houses arranged at other agent’s listings.
Despite those things, I agree with Chris and Steve. The big brokerage model is in dire need of reinventing itself. And that’s the kind of thing I’d rather watch from the outside.
Jakob
11.21.08 at 10:03 am
I’m curious about the seat ads too. If it was me I’d put a different phone number and URL on there to see if I got any calls or hits.
I’ll chime in too: Success to the scrappy indie brokers! Who wants to send their money to a giant faceless company when you can have Steve and Kris.
Kris Berg
11.21.08 at 10:13 am
Jakob - Thank you for that unpaid advertisement.
Keith
11.21.08 at 5:35 pm
After three years as a Realtor at my first opoortunity I got my brokers license and will open up in Jan. Rene’e (my wife) and I entered the business in 05′ after 26 years in the military and have sold over 330 homes in the last 3 years, HOOOOOOOOTY HOOOOOOOO. We now have a team of 7 working for one of the Realogy companies. Any common pitfalls to avoid when starting up here in the next couple months?
Kris Berg
11.21.08 at 5:58 pm
Keith - Congratulations! Based on your numbers, it would appear I should be asking you for advice! But, my 2 cents: Plan, plan, plan. Get your systems in place ahead of time, and never, ever underestimate the sleep you will lose — not from worry but because there simply aren’t enough hours in the day. Best of luck to you and Rene’e. Is your team going to follow you?
Keith
11.21.08 at 6:10 pm
Kris,
Thanks so much for your reply!
Yes, we are very fortunate to have built a family relationship with the team and they do plan to follow. Havn’t quite figured the whole team transition yet but do hope to leave one behind to clean up the escrows.
Good think I don’t sleep much…..:)
Michael Oliver
11.21.08 at 8:29 pm
I agree the big name is getting no one any further down the road these days. The big names have “some” features but realistically they just are big “number themed” businesses. The more agents the better regardless of anything. I think if one of these big names truly decided to take quality of people into consideration and start some serious training and make a commitment to the agents they would survive otherwise I just don’t see agents paying 50% to hang a license with the big names. The agents doing any sort of business aren’t paying 50% (even though the big names will make you believe otherwise until you start producing big numbers and want to walk…) anyway there models are not going to make it 10 years from now.
David Lorti
11.22.08 at 8:12 pm
Provocative and interesting post. One thing that we haven’t seen in the whole downturn/bubble so far is a real settling out of brokerage houses. In my local market (Phoenix real estate market), though I know some shops have closed up, there hasn’t been a real sea change in the brokerages (the big names, that is) like I would expect to happen. I imagine the higher cost ones are slowly being squeezed by a loss of agents and diminished sales commissions. At what point do some of these see a wholesale slide of their offices?
In my opinion, the large brokerages largely spend money on marketing from a corporate brand standpoint when they should be more focused on tools and capabilities that really do arm their realtors and clearly give them a competitive advantage. And their fees have to come down.
As for your comment on a lot of new brokers popping up, I agree. It seems I do see a lot more of these out there.
Thanks for the post here.
Linsey
11.22.08 at 11:06 pm
After years with the ‘big boys’ of the business, I began to see how broker-centric the model had become. Advertising was meant to promote agents and the offices - not the listings. I really believe the industry is reaching a technology ‘tipping point’ and the big brokerages aren’t nimble enough to respond effectively.
At the beginning of the year, I really assessed my client profile, my personal history in the business and the day-to-day operation of my business. I realized that there was more to gain than loose in making the change. I’ve had a broker’s license since 2004 but I finally felt like the time was right to make the leap. Haven’t looked back since.
I think you are right on the money about the trends. I’m seeing it in the OC too. Big agents are making the leap. Congrats on your new venture.
Keith
11.23.08 at 8:33 pm
I sure appreciate the support and am encouraged by your comments. We have seen two major offices within the Realogy company shut down here in Tucson. Up in Phoenix the franchise fee just went from 6% to 7%.
Opening the brokerage seems to be a no-brainer when comparing the costs. Big brokerages would have you think the overhead is just too much to run your own business, however, I think being lean will allow easier ebb and flow with market changes. It is true that Big Brokerages just charge too much. I beleive this is because they have too much bureacracy to pay for and therefore are not able or willing to put their dollars in the right places.
Even at 100% we still pay 6% franchise fees, $250 transaction fees, higher E&O insurance, and a annual check. That’s 108k for me so far this year…..ouch.
Prime office space runs about $23 p/sq ft/annually. Can’t wait to see if we can make more and spend less while truly putting our clients and friends first! Should be a win-win.
michael | talkcharlotte
11.24.08 at 7:47 am
Kris great post much better than Steve’s haha. Curiously I did not see aenyone pick up on the Seth Godin quote (a good one) - I am an unabashedly BIG fan of Seth and glad to see you applying his ideas to the real estate market — fertile ground for his ideas and your chutzpa! Not sure how long you followed Seth but here is another awesome post http://tiny.cc/QuitNow Advice for real estate agents (quit now!)
I write and edit for a tomato blog too (we are newbies) still finding our voice –hope to get to know you better and congrats on the Inman rankings!
Kris Berg
11.25.08 at 8:00 am
Michael,
I too am a huge Seth fan, and I had in fact read that article. He is always the first stop in my feed reeder.
Best of luck on your blog, and thanks for stopping by!
Katy Saunders
12.02.08 at 10:40 pm
Welcome to the dark side!