(Note to consumers just passing through: Kris is on her industry soapbox again. Read at your own risk and with plenty of coffee on hand. Tomorrow we will try to talk about something more fun — like short sales or termite fumigations.)
Are we really so different?
I had the pleasure of moderating a main session panel last week at the Inman Real Estate Connect Conference on “Hot New Real Estate Companies: Tomorrow’s Real Estate Brokerage Today.” The three panelists brought different offerings from the 31 flavors menu for delivering brokerage services to real estate agents, but my take-away was that their approaches weren’t so fundamentally dissimilar at all. This left me wondering if the brokerage of the future is really going to look so different, whether we aren’t still resisting significant change, and if just maybe I am wrong in my thinking that the traditional big brokerage model we have grown up with can’t be sustained in the future.
Scratch that last one. I don’t think I’m wrong.
As agents and brokers alike have been slogging through this trying housing market and economic crisis, many are hurting, and with more than mere flesh wounds. Combine the market troubles with a morphing social dynamic, morphing in the way we communicate and, as consumers, in our expectation that power be wholly abdicated to us in the form of unfiltered and unlimited information, and we have a big, fat catalyst for industry change. But change and innovation come in many forms. They can be little adjustments or they can involve taking the house down to the studs and starting over. So which is going to carry the real estate industry forward? More importantly, which is going to best serve our customers?
It’s Still a Numbers Game
There is no doubt that Sherry Chris, President and CEO of Better Homes and Gardens Real Estate (BHG), is innovating. BHG, a Realogy company (also known for their familiar Century 21 and Coldwell Banker brands, among others), is giving a face lift to the traditional full-service broker image. Their site includes a blog, video, and an overall hip vibe; I likened it to waking up one morning and suddenly realizing that your parents just might be “cool.” The front facing theme is consumer-centric. But, I am left with the nagging sense that underneath the pretty web site is the familiar big brokerage in chic sheep’s clothing.
One of my big issues is this. While admitting to being a real estate agent has never elicited a response of awe and admiration, the agent has suffered a significant blow to the ol’ image over the past decade, and it hurts the entire industry. In large part, this was been due to an open-door hiring policy which left us overpopulated, underqualified and unaccountable. Many of us have screamed for tougher licensing practices but, recognizing that our Scantron-and-number-two-pencil method of vetting real estate professionals will not be replaced anytime soon, we are left to hope that brokers will self-police. Yet, the traditional brokerage model remains dependent on critical mass.
Glenn Cohen, Founder and CEO of Expert Realty Services, admitted as much. Glenn is an innovator in that he is harnessing powerful web applications to generate “leads” for partner brokers. Expert is not a brokerage per se. When challenged on the idea of the numbers game, he conceded that most agents will fail, so his and the broker’s solvency relies on “partnering” with the largest number of agents. Unfortunately, I see where that approach has gotten us.
To Sherry’s credit, she acknowledged that the early decade boom years brought too many, poorly qualified agents into the field and that we need to improve the quality of agents, which leaves me confused as to how we accomplish this with a model that is still brick and mortar, high-overhead dependent. Will a big brokerage like BHG ever turn away an agent “applicant?” Can they afford to and still pay the bills? Or will they still approach agent recruitment with a “throw it all against the wall,” actuarial table approach? Are we attacking the “problem” by just changing clothes when we are still virtually the same underneath?
The Consumer is King
All of the innovators, at least in their front-facing image, are acknowledging that the consumer is king. They are reaching out through content and rhetoric. Assuming for a moment that this is not lip service but is truly an attitudinal shift, is this commitment to higher quality and higher service scalable?
A couple of weeks ago we had a little blog debate going on this topic, and I asked Yuval Degani, Co-Founder and President of Dream Town Realty about the issue of scalability. He’s not sure. First a disclaimer: As I read the “about” pages on Dream Town’s site, I found that their business model and their philosophy represent everything I want to be when I grow up. They are what you might consider a “boutique” brokerage — not too large, awesomely tech-savvy, and focused on serving the customer first and the agent second.
How Dream Town strikes a chord is in their marriage of forward movement (technological innovation), a winning attitude (the customer comes first), and a hometown feel (agents as local experts providing a full-service, high-touch, superior experience). This is our model in a nutshell, but we can pull if off because we don’t view our agents as pure profit centers. Our agents are not our only, or even our greatest, source of income. Steve and I pay our bills by representing clients. If we ever moved away from being working agents to the roles of managing brokers alone, could the model pencil out? How do you keep that homegrown feel?; how do build a business around selective hiring practices and high standards of professionalism, experience and knowledge among associate agents while growing profits? How do you avoid becoming a numbers game? If world domination is the end game, then I concede that you can’t, which is precisely why I see the brokerage landscape of the future being dominated by a big collective of little guys.
A case of want versus need
I mentioned that there were some striking similarities among the panelists. The lingering idea that more bodies is better, that more agents equals greater profitability was just one of these. The other was that each held the belief that it was incumbent on the brokerage to provide the agents with all the “stuff” and, in fact, that the agent not only demands but needs the stuff. This is where I see us falling behind in our thinking.
Yuval said that, where technology and “lead” generation are concerned, the agent and the small broker simply cannot accomplish on their own what the large broker with millions of dollars in capital backing can. I disagree in a big way, and in looking at the relationship between agent and broker, I find a parallel in the evolving relationship between the agent and the consumer.
It wasn’t too terribly long ago that home buyers needed me for listing information. Today this is not so. I still have value, but my value has been redefined. You need me for my intellectual properties, and you need me for the service. If you are selling, you need me for my systems and efficiencies and knowledge that allow me to expose your home more professionally and broadly than you could, or than you care to devote the time, energy and resources toward. So goes the agent-broker relationship.
It seems like only yesterday that I needed a company brand for credibility. I needed the resources of a big company, both the fixtures and the systems, because there was an economy of scale which I couldn’t touch on my own. Today, I can work from anywhere. I don’t need the desk and computer bank and copiers; I have my own. I don’t need the listing feeds; I can place my listings any place my broker might, and in doing so all roads lead back to me. I don’t need the brand; I long ago branded myself. Group print advertising rates which used to be a huge benefit of associating with the 1000 pound gorilla are now an antiquated concept.
Admittedly, many agents may not want to think that hard, so there will always be a place for the high-overhead brokerage. But as we march forward in our social evolution, the numbers who will need help grasping technology or will need to be spoon-fed a business plan will diminish. As virtual office space becomes more the norm and less the exception, I believe we will be finding more agents concluding that the shiny office supported by company voice mail and e-mail systems and an administrative staff a dozen deep are “wants” and not “needs.” And when that happens, there will be more resistance to paying for something that is not truly necessary in conducting our business.
So we are left with the true value of the brokerage being in the areas of training and “lead generation.” Training is another topic entirely and for another day. As for lead generation, I see it becoming a footrace of sorts among the competing brokerages to generate the most “leads” (consumer contacts and inquiries) to placate and feed the largest number of agents. More agents equal more money. But then, haven’t we come full circle? Aren’t we back to what we are now? And just where did the customer go in the equation?
It looks like I may have more questions than answers, and perhaps I am even over-thinking the problem. But somebody needs to. The customer is telling us load and clear that the old, familiar ways of delivering our services are no longer good enough. They are demanding more: More honesty, more information, greater skill, and greater care. I just hope we are really listening.
ABOUT THE AUTHOR Kris Berg is Co-Owner and Designated Broker of San Diego Castles Realty. If not-so static web sites are your thing, go here at once where you will find loads of real estate information including homes for sale, market trends, floor plans and more. Kris's hobbies include fencing and spot welding. She likes kittens. 
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Wow Kris. Beautifully said and right on the mark. I wanted to yell ‘Amen’ after more than a dozen sentences in here!
Recently listening to Gary Vaynerchuk, I had a ‘aha’ moment when he was referring to the ‘Gatekeepers’, such as media publishers. In my mind, our industy equivalent are the big brokerages. The change for both of these institutions is that there are more direct routes to reach consumers and the need for them has diminished – and continues to. I don’t need a broker to hand me leads, or connect with the consumer, or even provide me with a highly recognized logo. They’re are more direct and cost effective ways for me to reach them independant of a big broker. And actually I believe these methods are ones that create a deeper connection to the client and one in which there is significantly more trust at the outset.
I also find the idea of brokers providing agents with ’stuff’ a bit laughable. One of the earliest pieces of advice I got when I began in the industry was never to rely on anything supplied by the brokerage. It only gives you a business tool that is at risk if you should feel compelled to leave for any reason. There is no website, database, or marketing tool that I’ve ever allowed myself to rely on that could be lost if I moved.
The standards of licensing are an entirely different story and I believe you are dead on when you say that the desire for a large number of bodies versus a desire for professionals is the very thing that has damaged the profession as a whole.
Thanks for writing this and keeping the conversation going. Hope the ‘big guys’ and listening. There are nuggets of gold here for them.
Linsey -
>One of the earliest pieces of advice I got when I began in the industry was never to rely on anything supplied by the brokerage.
That was your nugget. It was a lesson which took me years to learn, one thing at a time. You have to own your own “stuff” — your brand, your phone number, your email, your web address. Of course, all of this culminated with my owning my own address.
As you’re well aware, for every word you write, I can write five. But that’s only because you’re the smartest one in the room.
In San Diego I can point to brokerages succeeding who’re were there, many in the same buildings, back in the fall of ‘69 when I was first licensed. Their common denominators? They lean, mean, and relatively speaking, underpopulated with agents. Not a one of them have more than a dozen agents. They don’t suffer anything short of professionalism. They mentor mentor mentor.
Seems to me that’s what you and Steve have been doing from Day 1.
The ‘traditional’ brokerage, sans the anthill approach, will survive into Josh’s retirement at least. The delivery may evolve, but the expertise will be needed. The consumer has been a broken record since I was a teenager — “Give me results” is their battle cry.
Seems that’s what you ‘n Steve have been bringing to the table all along.
And for the record? Yeah, yer over thinkin’ this.
Kris -
This is a must-read, as I’ve tweeted. I think you (along with Jay Thompson and others) are one of the leading voices of the movement I have dubbed the Kristians, and great, thoughtful articles like this one is the reason why.
I need to think through more, and will likely have a response up as a full on blog post myself, but here are a couple of starting points.
1. Do you realize that there is an underlying, unspoken assumption about technology in your post, and one that is not borne out by historical evidence? Namely:
It seems like only yesterday that I needed a company brand for credibility. I needed the resources of a big company, both the fixtures and the systems, because there was an economy of scale which I couldn’t touch on my own. Today, I can work from anywhere. I don’t need the desk and computer bank and copiers; I have my own. I don’t need the listing feeds; I can place my listings any place my broker might, and in doing so all roads lead back to me. I don’t need the brand; I long ago branded myself. Group print advertising rates which used to be a huge benefit of associating with the 1000 pound gorilla are now an antiquated concept.
That assumes that technology does not continue its inexorable march forwards. You may be right that you don’t need the resources of a big company right now, given the systems right now.
What happens when some boy geniuses at MIT figure out Star-Trek beam-me-up-Scotty technology, which surely simplifies showing homes? But it costs $100m to implement.
More prosaically, things like lead routing, lead management, and CRM are still outside the reach of independents — in some ways because of cost of systems, and in some ways because of the human capital required to run those things properly.
If you assume that technology will continue to advance, and that leading-edge technology will always be a very costly, very expensive endeavor, I don’t know that assuming independents “won’t need institutions” is the correct way to go.
2. Consumer is King
I find statements like this to be rather empty rhetoric, because in a free market economy, consumer is neither king nor slave. “Consumer is King” presumes an attitude of self-sacrifice that is wholly inappropriate for a going-concern.
At the same time, focusing more on the consumers is definitely a welcome shift — as I mentioned in my Inman panel, for too long, real estate has been property-centric. Over the next few years, i think we will see a shift towards being consumer, or human, centric. But things may not end there.
I think a truer statement, frankly, from an industry perspective is neither “property is king” or “consumer is king” but “profit is king”. Because none of us are doing this for our health; we’re all in it for the wealth. The industry will do whatever it needs to do to have the most efficient, most productive, and most profitable companies/agents/whatevers rise to the top.
We talk a lot about consumers, agents, marketing, social media, etc. etc. but the current state of discussion reminds me of the old saying in military circles: “amateurs talk strategy; professionals talk logistics”. We (myself included) probably need to talk more about financials, logistics, and profits while we continue to explore strategic issues.
More later, as promised.
-rsh
Hi Kris,
Great meeting you at Inman.
I comletely agree that independent agents can do well outside the big or mid-sized brokerage models. But perhaps they can do better with the kind of support that can only be found with organizations that can afford the larger overhead, and enhanced services. I also strongly agree that agents should not rely on their brokers entirely, and build their own brand and business.
I advocate the middle path. The healthy mix in my mind is 35% – 50% of new business coming in from the broker, which provides a steady growth of client base, and without innitial revenue outlay or risk from the agent to get the business. Comapny generated business can provide with much needed transactions in slower periods ofering stability and security which small ooperations can’t. i wish that all my agents knew what you know in terms of the importance of building their base. the internet is too tempting though, as it offers such abbundance ,and agents really are introdcued to clients with relatively little effort.
The thing about this “company generated business” (leads): in today’s tech environment it takes a seven figure investment to start playing, and as much annually to keep playing, and that’s where the smaler agencies are challenged. not in the value they bring to the client. Another point that small independents cannot compete with is good in house CRM’s. We developed our own because there was nothing out there that could do what we needed. However today, CRM’s are looking much much better, and you can get going for about $800 annually per agent, though there are still lacking in customization. The big deal about CRM’s today is that when used properly, they not only allow you to manage thousands of custoners, and create systems in your workflow – they mostly free you to do the revenue creating activity that you do best- sell. Agents spending time on writing copy, thinking about presentation materials, creating and administering lists, mailings, etc., are doing things they are overqualified to do. An agency effectivly, and systtematically ofering such soloutions makes the difference, and are worth the split when you look at the balance sheet at the end of the year. small offices can’t do that without giving up revenue opportunities.
Finally, a point i think missed in our Inman presentation with all the tech tallkl: technology does not mean that we forget the basics of this business. With all due respect to technology, and as far as it could go – we are in the people business. Technology does not know how to call and show someone you care.
A “low tech” agent who has a true and deep “client for life” mentality, who simply cultivates , loves, and provides expetional service to his “raving fans” (the 20-30 that continously reffer him business) – will ALWAYS do well. very well. always. much better than a “high tech” agent who is average. An agent who excells in both service and technology has no limits.
best,
Yuval
Kris…WOW!
What a great perspective on the future of the brokerage model. I’m with what I guess you would call a boutique firm…although we are part of a corporate structure that focuses on new home developments. So you would call us the re-sale end. (I almost said “used car lot” but we know we don’t want to be compared that way.)
We are currently “brokerless” as our Managing Broker quit about 2 months ago. Interviews are ongoing, and I’m quite anxious to see what/who comes down the pike. But, we lack in all these areas. From lead generation, technology, CRM, PR, you name it! There are days I really question why I’m there, and have not started my own brokerage. But, I believe in fate, I know I’m there for SOME reason, and when the time is right, I’ll branch out. Maybe it’s the experience level, having been in real estate only 4 years, and having my brokers’ license for about a year.
But I do agree with the “self-branding” and that has been one of the freedoms we have at this company. Our own business cards, etc. we can do. I was previously with a large franchise operation and it was all spelled out in the “Advertising Specifications Manual.” Whew!
I’m hoping to stay ahead of the curve, by keeping up with the technology so that I can relate to the younger buyers that are looking for the “knowledge” of a professional, yet can communicate with them (Twitter, Facebook, LinkedIN, text) in the manner they like and I can also master!
Thanks for all your insight….hope to meet you in San Diego this year at NAR!
Working backwards…
Thomas – Thanks for the comment. Most, if not all, of the bigger brokerages have finally gotten on the self-branding bandwagon. The difficulty for the agent is in keeping control of their listings and not finding their smaller brand trumped and trounced by the broker’s own. It’s a constant power struggle. Case in point — Steve called on one of our listings when we were with a big brokerage, a listing which the broker fed to a large online search site “to better serve us.” Of course, on Friday night, no one was manning the call center, and we never did get that call. Had we been a real buyer, we would have moved on. This benefits neither the agent nor, more importantly, the client who has enlisted us to sell their home.
Yuval – The pleasure was all mine. I am sincere in my admiration for the model you are building, and wish you the best. Yes, CRM (Customer Relationship Management) is a tough nut for the small guy to crack. At the agent level, this is always one of the greatest challenges.
As far as needing seven figures to play, I suppose it depends on how big you want to be. It takes almost nothing (except time) to create a web presence capable of attracting eyes and generating client contacts on a smaller scale. People like Jay Thompson have established an impressive web presence and healthy business through investing time and without the $5 million web site, as have many others that I am aware of and probably many more of which I am not. But here we are talking about small independents with a hyper-local presence and a dozen or so agents, not hundreds or thousands. And we are backed to the idea of scalability. If it is the hundreds or thousands of agents you are after, then you may be right that buckets of money are needed to fuel the engine.
As we discussed in NY, I agree that there will be a place for both the large and small broker as we move forward. Not every agent is going to want to blog their fingers bloody or spent several hours a day on technology. Not every agent is going to want to devote the time and energy to mechanics, the business side of the business. But many will, and suddenly they can. Much like the consumer has gotten their hands on “our” MLS, the agent and small brokers now have tools at their disposal which were once reserved only for the highly capitalized brokers.
>A “low tech” agent who has a true and deep “client for life” mentality, who simply cultivates , loves, and provides expetional service to his “raving fans” (the 20-30 that continously reffer him business) – will ALWAYS do well. very well. always. much better than a “high tech” agent who is average. An agent who excells in both service and technology has no limits.
No argument here.
Rob –
>What happens when some boy geniuses at MIT figure out Star-Trek beam-me-up-Scotty technology, which surely simplifies showing homes? But it costs $100m to implement.
What will happen is twelve third-party vendors comprised of very smart people who do nothing but this every day will offer me a solution. Have you looked around at how many people are trying to monetize me lately? If it costs $100m to implement, there is someone out there who will and will charge me $39 a month to subscribe. There are approximately $3.2 million “mes” in the US, and it pencils out.
The smart vendor money, you may have noticed, is not going after the broker but the agent. There are more of them. And for those who cater to the mothership, there are third-party solutions to aggregate the little guys into a collective big subscriber (think ListHub). So I wholly disagree that there is or will be any offering for which I can not join the club.
Regarding the Customer is King argument, your comments are a little too esoteric for this early hour. I’ll chew on that a bit.
Kris -
What will happen is twelve third-party vendors comprised of very smart people who do nothing but this every day will offer me a solution. Have you looked around at how many people are trying to monetize me lately? If it costs $100m to implement, there is someone out there who will and will charge me $39 a month to subscribe. There are approximately $3.2 million “mes” in the US, and it pencils out.
The trouble is, Kris, for there to be twelve third-party vendors, someone has to finance them.
And frankly, the most important word in the sentence, is “trying”. Yes, I know people are “trying” to monetize you — most of them are failing to do so to a level necessary to sustain and grow their business. Venture capital is not limitless.
In contrast, the Big Brokers are not “trying” to monetize you; they are monetizing you (well, not you but other agents – you know what I mean). For them, this isn’t a matter of burning through investor capital to reach a critical mass of sustainable revenue; for them, this is a matter of “Do I just give up this $150m a year in revenues and let upstart technology companies take my business?” Rest assured — people motivated by fear of losing what they have tend to be extremely motivated.
I think, basically, that you and other Kristians make the mistake of believing that the past is a predictor of the future. Just because Big Brokers slept on the job as the Web revolution hit, does not mean that they are asleep at the switch as they watch their business drain away. It might, but incentives and human nature both argue against it. If they go out, they go out fighting.
And being Big means that you always get first-dibs; long before a tool filters down to the independents, the Big guys have had it for years, refined it, and are using it to make money. If they’re smart, at least.
-rsh
Kris ~ You sure hit a chord with me. I am relatively new – a year licensed in two states and a little less than that blogging. I am licensed with different brokerages for the different states. The first one is a “small” office of a Big Brokerage pushing the “credibility” of the name. The second, just three of us.
In a recent “big” training session, which I drove hours to attend, I almost fell off my chair. 3 people (out of 50 or so) in the room were “tech” savvy – and the “Top Producer” well, ya, he has a blog stuck on the back end of a static website. No one on twitter, facebook, or even the 3 techie ones are venturing out from Active Rain. Being the feisty type, before the day was over I was trying to “wake” up the crowd and ended up speaking. Me the total newbie.
I got “in” to Real Estate at probably the worst possible time, but I have no intention of failing. If anything, I will help move both brokerages down the “future” path even tho most of the agents at the “big house” think I am slightly off the ole rocker.
It has taken a year – I am finding my footing and thanks to you and others willing to share – it is working.
I can’t imagine brick and mortar brokerages staying in business in the future as more and more consumers find what they need online. These future internet savvy consumers won’t pay 6% or 7% commissions for representation which will force more brokerages towards the virtual brokerage model.
Agents that aren’t building their Internet presence now, will be left behind and will be forced to work on a real estate team that has an Internet presence.
Kris & Steve,
I have really enjoyed following your blog and your ideas regarding the “big brokerages”. As a past Prudential California Realty Broker Associate and also former Branch Manager I think we are in a watershed year for the “Big Box” Broker. Keep up the great work and healthy discussion – I enjoy your blog and humor!
Well written piece, Kris.
I understand Rob’s argument with tech and the costs associated with the bleeding edge, but I have yet to see a large brokerage do it right. The temptation to turn the agent into an indentured servant is just to great for them and they invariably screw it all up.
Lead management, routing and crm are not that complicated and not even beyond the reach of the agent. It doesn’t have to be developed at MIT to work effectively and efficiently.
I really enjoy reading this. It gives me a lot of information about the standing of real estate business today and I must say it’s not really the best time to go through all the home, property sales marketing. Well it’s all about the timing and stuff but as for now I have to lay low on this. I’m not taking big risk of property foreclose.