The Future of the Real Estate Industry – Part Three

It’s obvious that the real estate industry is changing. And it’s changing more rapidly than ever before. But where is it going? And where does it need to go?

I touched upon things such as Barrier To Entry, Oversight and Enforcement in part one and Technology and Marketing in part two of this three part series. In part three, we deal with the brokerage firm business model.

Past and Current

The current brokerage firm business model has been around since the 1970’s. It’s focus is on,

• high commission splits
• tons of junk fees
• brick-and-mortar offices
• branding the brokerage, not the agent
• little support or supervision
• little to no real sales, business or technology training
• having a large number of agents regardless of quality
• ego

Despite changes to the real estate industry and the way business is conducted, brokerage firms are doing whatever they can to hold on to their old ways of doing business.

There’s a problem with that philosophy…it’s not working anymore.

Ashfaq Munshi from Inman said it well:

“Quit what doesn’t work and start reinventing things that do.

Seth Godin covers this practice extensively in his book, “The Dip,” and nowhere can it be more appropriately applied than to today’s brokerage model, which is running full steam on yesterday’s expense engine. Brokers are struggling to stay on top of their business, as the cost of maintaining failing operations add insult to the injury of the declining economy and stagnant housing market. Many brokers are in need of a new direction to help them through the remainder of this housing recession.”

The Future

Brokerages gouging agents for every penny possible in the form of commission splits, desk fees, processing fees, “communication” fees, “consortium” fees and other junk fees are over. Brokerages that force their agents to charge consumer transaction fees, on top of commissions to support top and middle heavy company structures are dinosaurs and will become extinct.

The future brokerage involves a flat “per transaction” fee only. It also involves ownership opportunities in the brokerage itself (and I’m not talking about multi-level marketing). Future brokerages will have very few, if any offices at all, with agents working out of their home office.

Costs are not the only reason why things must change. Consumers are focusing more on what the individual agent has to offer, not which brokerage firm they’re with. Consumers are looking for individual real estate experts more so today than ever before. This is why to be truly successful, brokerage firms must shift their focus from just having the greatest number of agents to having the highest quality and type of agents. Here are some of the benefits of focusing on quality versus quantity:

1. High quality agents will most likely have a higher than average number of transactions.
2. High quality agents will be less likely to quit real estate in the near to mid-term future despite a weak real estate market.
3. Having high quality agents be a part of the brokerage will lead to more high quality agents joining the brokerage firm (birds of a feather…)
4. Whether the individual agent is a real estate expert is much more important to consumers than whether the brokerage firm’s office has “X” amount of agents or how many signs in the ground the brokerage firm office has as a whole.
5. The word on the street will be that your brokerage firm focuses on high quality agents and higher level of service than competitors. This will be heard and noticed by consumers as well as new potentially high quality agents coming into the business.
6. High quality agents tend to spend little time in the office and many work from home reducing your overhead and need for office space.
7. High quality agents tend to be less of a liability and cost to a brokerage firm.

Notice that I also said “type” of agents. What I mean by that is that being a “top producer” does not make you a high quality agent. Being a “top producer” just means that your sales volume is high. Being a high quality agent means that you have more production than the average agent plus you’re ethical, involved in your community, continuously educating yourself, helping others and you’re not just a “hard sell” salesperson, etc.

The future brokerage model consists of “co-opetition” versus competition amongst their agents and brokers. It has a heavy focus on relevant and up-to-date training. It holds the agent to a higher standard. It’s focus is on high quality agents, not top producers. And it has zero tolerance for those who are unethical.

Marc Davison of 1000Watt Blog summed it up extremely well in one of the best posts I’ve ever read regarding the future of brokerage firms.

What’s it called?

“White Label Brokerage” – and it’s a paradigm shift in real estate brokerage.  It has an agent-centric versus broker-centric focus and a fee structure that does not interfere with an agent’s business focus. It allows agents to brand themselves, the team to brand their team, and the small brokerage office brand their own company name.

It’s not about the big broker and the brokerage firm’s name and ego. It’s about the agents that do all the work and deserve the recognition. After all…without the agents, there would be no brokerage firm.

Agents who are or intend to be the best professionals in the industry will recognize the financial advantages of this new model as well as the freedom and control it will give them. The freedom that the current brokerage model refuses to embrace is the basis of the future “White Label Brokerage” model.

Someone once told me, “Business has room for both ego and income, but the more you have of one, the less you can have of the other.” Brokerage firms of the future will be focused on branding and truly supporting their agents (income) rather than branding themselves (ego) and gouging them for junk fees while offering them crappy training and little support.