Guest Columns

Don’t Go There!

There is an axiom that cautions one to be careful what one wishes for. That advice has never seemed more relevant than today with respect to the continuing transition of the American real estate brokerage business model.

A bit of history. The current business model traces from 1947, when the dirt peddler of 1939 returned from World War II to discover the post-WWII economic boom and the beginning of an entirely new housing market.

Veterans from the farm wanted to live in a different environment and the suburb was born. Veterans whose legacy was without college wanted an education and thousands of apartments were built. Young people whose siblings had lived down the hall from their parents moved across town and condominiums and suburbs were created.

The primary driver of this amazing housing experience was a newly redesigned real estate brokerage. The “broker” was passionate, engaged and saw him and herself in the opportunity business.

One of the opportunities these new brokers were creating were careers for real estate agents, and many veterans availed themselves of a great opportunity. Low entry costs, quick start, a professional image and, best of all, no stinking boss like that sergeant in the army to tell you what to do.

The original broker-centric business model was a miracle to behold. Brokers across the country built strong businesses and in some cases virtual empires around this simple arrangement. Brokers learned to be in charge, even if that didn’t mean being the boss of the agents. It was fair and equitable. Brokers matched their risks with super revenues and agents matched their efforts with great incomes.

The broker-centric model remained viable until the mid- 1970s when, for a number of reasons, a Jeffersonian movement swept across the industry. Perhaps driven by the advancing age and prosperity of the first generation of brokerages or perhaps by the growing strength of the agent force, the relationship between agents and brokers transitioned. In 1974, the REALTOR® movement transitioned to the “All-REALTOR®” model, forever banishing a world in which only brokers could be REALTORS®. It was during this period that the super-agent and the 80/20 and even 8/20 and even 90/10 split began to emerge. During period of 1975 through 2000, the industry’s entire focus and energies engaged the “Era of the Agent.”

By 2001, another era had begun to emerge. Technology was king and the Internet had become the new venue. Third party players extended their influence. Then, even as the market of 2005 shot skyward like a NASA space launch, disaster in the form of the housing crash, the mortgage crisis and a recession struck and the real estate “Dark Ages” came to be.

The “Dark Ages” ended a couple of years ago. In many parts of the country, the market is exactly where it should be given the statistics of the past 30 years. Interestingly enough, the market returned in a whole different form and substance. The fact that brokerages continue to bleed and agents continue to bemoan is not a market issue, but rather a brokerage business model issue.

The broker-centric model, developed to bask in the glow of the post-WWII economic boom, and the agent-centric model, developed to capture the Boomer Generation’s glory days (including a 13-year heart-throbbing boom), were designed and developed for market characteristics that no longer exist.

The good news is that the industry now accepts the fact that there will be a new brokerage business model. As always, the devil will be in the details.

The bad news is that too many industry experts are suggesting that we return to the “good old days” and create a new broker-centric business model.

This line of reasoning could not be more wrong. It is short-sighted and fails to take into consideration the most important change characteristic of all.

Throughout the post-WWII economic boom, the consumer was, by and large, an uneducated and unsophisticated chump. The simple fact was that there were enough resources around that a certain percentage of consumers could be exploited without raising any undo attention. Even the magnificent boomers, with half of their membership being lawyers, took their hits in stride. There was so much raw economic opportunity that the consumer just kept on marching across the landscape.

Today, the entire consumer sector is alive and motivated by knowledge, sophistication and power. Witness the recent events regarding Bank of America, the Coke can, Netflix and a dozen other examples of enhanced consumer power. Today’s consumer has the sophistication to discover the wrong and the Internet and social media weapons to punish and even destroy the offender. Experts tell us that this is just the beginning of new “Era of the Consumer.”

Given the above history and circumstances, why would anyone suggest that our industry return to a broker-centric business model? If all the evidence points to an increasingly powerful consumer with the knowledge to tell the difference and the power to make things right, why would the real estate industry start the next era by posturing for a battle with the consumer?

If it is because there is a sense that consumers won’t allow a profit to be made, that is false. If it is because there is a sense that the consumer doesn’t want to use professional services, that too is false. If it is because we believe we can dominate today’s consumer as in the past, think again.

The fact is that we know exactly what today’s consumer wants because they are us! We want simplicity, innovation, speed, relationships, entertainment, collaboration, transparency, value, integrity, scrutiny, customization and community service. We also know that all the things today’s consumer wants reflect precisely the parameters and performance characteristics of a great business in today’s economy.

Let’s vote for consumer centricity and get on with a whole new era of brokerage success and profitability.

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