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Anatomy of a Comeback

Everyone has been thinking about the big moment for five or six years now. When would it come? What would it sound like? Would it be a major multi-media announcement or just a footnote deep inside some financial column? Would it be a clap of thunder heard by everyone in the forest or simply a nod of acknowledgment between the survivors?

Such was the atmosphere in Dallas recently when the Real Trends Gathering of Eagles conference convened. In attendance were representatives from most of the top 250 surviving brokerages, top industry executives and individuals from a wide variety of industry connected entities.

The opening session, formally called the “Billionaires Session,” was convened in a standing room only atmosphere that just added to the intrigue. One could measure the stress in the room as Real Trend’s Steve Murray and Nicolai Kolding made their way through the crowd of attendees and took the stand (actually the podium).

The import of the moment cannot be appreciated unless one understands just who these two characters are. First of all, Real Trends isn’t just another real estate consultancy, and Steve and Nicolai aren’t just another two consultants. Real Trends is the General Accounting Office of the North American real estate industry, and Steve and Nicolai are the co-chairs of the industry’s Federal Reserve function. No two minds in the country possess their exhaustive and in-depth knowledge and involvement in the financial intricacies of the real estate brokerage.

Put in the simplest terms, there would be no industry recovery or turnaround until Steve and Nicolai said there would be. Miraculously, that is exactly what occurred at that moment. It wasn’t a dramatic moment, for neither of these men is given to drama. They are statistical experts and their glory lies in the story that the numbers tell. In slow measured terms, that would warm the heart of an actuarial, they carefully laid forth the statistical analysis that, finally, would disclose that the North American brokerage had turned the corner.

Many had hoped for a more exciting announcement, but that isn’t the story that the numbers told. The 2011 year-end operating figures for the top 250 or so brokerages reflected that the leading component had made it through the losses of 2009, the flatline of 2010 and into a very modest growth in 2011. Moreover, the numbers being predicted for 2012 suggest that, absent a significant turndown event, this trend will continue.

From this rather humble and human beginning, the conference went on to share with its attending brokers what would have to happen to continue this turnaround. The opening message was clear. The ultra-thin profit margins that many firms are now experiencing are not the result of market growth as much as management and operational decision-making. More and more brokerages have figured out what has to happen to make money in the new real estate market environment.

The good news is that the survivors have made the clubhouse turn. The mind-numbing reality is that the clubhouse has been changed and the market now includes a number of new horses that don’t look like the ones who started the race.

It’s a whole new market. Homeownership rates have dropped from 69.7% to closer to 65%. The creation of new households is down significantly and 10.7% of households are now doubled up (two-family units living in the same unit). Prices have stabilized, but are still likely to drop a bit in 2012. Mortgage money continues to be cheap, but new eligibility requirements have limited the number of buyers who qualify. 25% of sales now include an investor as buyer.

Probably the biggest news was in the area of rental lifestyles. Stan Humphries, an economist from Zillow, predicted that for the next few years up to 40% of households would be renters rather than buyers. Included in this statistic was the remarkably large group of Y Generation professionals and trades persons whose student loan burdens might well keep them out of the housing market for years to come.

The several presentations that touched on the “rental nation” phenomenon seemed to agree that while this was not a permanent state of affairs (they all indicated that the United States would continue to be a nation of would be owners rather than tenants), it would last long enough that brokerages should enter the increasingly profitable property management sector.

Another lesson that the conference pounded home was the necessity for brokerages to continue to explore and expand cost-savings measures. The road moving forward will be one of management rather than runaway sales. This point led more than one expert to harken back to Jim Collins’ advice to “get the right people on the bus.” Brokers are not doing themselves or their businesses a favor by retaining executives and managers who are merely awaiting a return of the good old days.

The conference faculty also went to great lengths to prioritize the role of the broker as a strategic and tactical leader both within the firm and the marketplace. This emphasis was championed by industry mastermind and “Ninja” innovator Larry Kendall, who carefully traced the recent history of the brokerage movement. He talked about the previous broker- and agent-centric eras. He ingeniously established the fact that the dominant force in today’s real estate marketplace is the consumer and that any posture short of consumer centricity would doom a non-compliant brokerage.

Kendall openly doubted whether or not the traditional industry could shed its current “agent centricity” in favor of a consumer oriented approach to both services and value. He suggested that many agents were willing to sacrifice their careers and businesses to perpetuate the non-discredited concept that they were in charge of the transaction. This, of course, helped to explain the fact that the industry’s new competitors, such as Zillow, Redfin, Trulia and now, Sawbuck Realty, are becoming successful by following the simple strategy of giving the consumer the full experience that they are demanding. Anything less and it is just a matter of time

So, here we are, rounding the clubhouse turn of a cycle that has destroyed some and redefined others. Congratulations to those who have survived the past several years. Good luck to those brokers who realize that the real struggle now begins. Survival has never been the test for the real estate brokerage. Success and achievement have been and remain what makes it worth the effort. It is time to place innovation, creativity, profitability and productivity at the top of the list.

Just one more thought. This one was delivered by one of the best GOE presenters, Paul DePodesta, the statistician made famous by the movie Moneyball. In his efforts to constantly improve the process by which Major League Baseball teams are managed, he shared how, in the midst of the confusion, he always takes a moment to return to what he calls the naïve question: “If we weren’t already doing things this way, is this where we would start?” What do you think?

The relevancy.

The destination.

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