REALonomics

The ’07 Playing Field

The real estate industry is a force that cannot be ignored by those seeking economic gain. The seduction of real estate is driven by its nearly ubiquitous impact on major segments of the national economy. New industry players are surging to the forefront, each vying for a piece of this huge financial pie. The tools and techniques for diverting the flow away from the traditional insiders toward the new players have never been more powerful.

To completely grasp the power of the REALonomics associated with the New Real Estate Economy, one must analyze the playing field (battle field) for a complete lay of the terrain, the position of the combatants seeking to control the real estate game board. Once we understand the "who’s who" we can then articulate what they are doing, their motivations, what it means to the industry and finally, glean the REALonomics principles associated with each of the tactics the players are using.

Meet the Players

Generally, the real estate industry playing field is made up of a group of three players; traditionalists, neo-brokers and non-brokers. Allow me to summarize each of the three players, then pick them apart for further consumption.

The Traditionalists could be called the insiders; they are deeply rooted in the classic historic flow of the industry and are the current dominate market leaders.

The Neo-Brokers are the emerging NEW brokers whose only point of reference in their career is technology and the Internet. Simply put, they have never seen a Multiple Listing Service book!

Finally, the Non-Brokers are those have no current connection with the historic elements of the industry and are not participants in it; rather, they are outsiders who are seeking to capture consumer loyalty and revenue.

This cast of characters is engaged in a bare knuckle fist fight without predictable rules that traditionalists have relied upon to control their economic business models. Until recently, there were rules everyone followed. The industry’s Code of Ethics, Standards of Practice and the local associations provided an operating framework enforced by the National Association of Realtors and its thousands of mini associations throughout the United States.

New problem…some of the contemporary players have decided not to sign-up for the old program! Some contemporaries view the old rules as cumbersome, unnecessary and too restrictive. To bolster this, enter the Justice Department, now seeking to re-write the old property information rules for a new consumer-centric age.

In the New Real Estate Economy, which I have described as the "consumer-centric era" the rules are being re-written, largely by the consumer but also by advances in technology and the Internet. As the new rules are written, REALonomics (the new model-math) emerges. In the battle over revenue, markets, models and brands, noses will be bloodied and eyes blackened. REALonomics believes that during the next five years, unprecidented change will occur within the real estate industry, most of the change will advance the interests of the consumer.

Meet the Traditionalists

Traditionalists are currently the largest real estate business operating models on the landscape. Traditionalists are the industry stalwarts, holding the dominant market positions, paying the piper, supporting lobbying and legislation of a traditional genre.

But the Traditionalists have an economic problem. More than ever, the return on investment of traditional owners is being rapidly erroded. Luckily, the ten-year market run-up, produced acceptable, albeit temporary, profit. When one considers that more than 50% of all brokerage firms have fewer than 25 real estate agents working in increasingly crowded vertical markets, the ROI in a downturn will be distructive to many of them, challenging their viability.

What will happen if the market slides from its modest slowdown into a sizable downturn? As their primary growth methodology, traditionalists have built their companies from the heritage of providing real estate agents with buildings in limited geographic market areas, creating enormous operating costs and low profit margins.

REALonomics Principle: Like their traditional retail counterparts who have used physical space as a warehouse model, real estate industry Traditionalists must change their "model-math" from it’s clunky building-centric profile with its high overhead mechanical formula , which will ultimately prove to be a growth inhibitor, to a streamlined, ubiquitous model with the power of information dispersion and a horizontal, multi-market management personality.

Meet the Neo-Brokers

The term Neo-Broker has been coined by me in order to draw an historical and operating distinction between pre and post 1994 (the approximate year that the first real estate property was advertised on the Internet) Broker/Owners.

Neo-Brokers are those who have no other point of reference in their real estate company ownership career other than technology and the Internet. At most, they are 12-13 year owner veterans. The Neo-Broker/Owners (and agents) have less inclination to cling to old economic models for the sake of the industry, its history and its survival.

Neo-Brokers have a built-in innovative predisposition that allows them, indeed frees them, to gravitate toward new operating models that are not only more effective but also, yes, self-serving. Unlike the Traditionalists, the Neo-Broker/Owner/Agent has mental permission to engage the agile fluid models that serve a consumer-centric populous.

In addition, it appears that in the aftermath of the decade-long market run-up that many of the Neo-Brokers are beginning to reject the traditional bricks and mortar models in favor of sleak, high-tech, market penetration models that utilize Internet-based, consumer friendly models. In effect, the Neo-Brokers are hybrid traditionalists who understand and can adapt to industry change quickly. They care less about precident, history, lobbying and the old rules than do their historical predecessors, the Traditionalists.

REALonomics Principle: Technology and Internet applications are the emerging Consumer-Centric pieces of the economic formula that will redefine the operating models used by Broker/Owners. It is entirely feasible that profitability and ROI will result from doing less more effectively.

Meet the Non-Brokers

One of the most formiddable players entering the arena are those I have temed the Non-Brokers. They are people and companies that have no real interest in the traditional real estate industry, its rules, history, protocols and standards of practice. The objective of the Non-Brokers is the penetration of the real estate economic markets by means of Internet technologies and brand awareness to capture consumer attention, loyalty and revenue.

As a prerequisite for entry, Non-Brokers have no imposed rules for vital connection to local real estate markets, local associations of Realtors or the national real estate organizations such as NAR. Non-Broker entities are interested in the use of technology to provide consumer tools that will capture loyalty and generate real estate lead generation. And, their model may have less to do with real estate than with other ancillary products and services.

There are literally dozens, if not hundreds of Non-Broker entities penetrating markets by means of property information services, mortgage solicitations, etc. There is no sign of letting up. The lucrative real estate markets are simply too seductive. Large national entities are constantly revisiting ideas such as real estate buyer and seller clubs that essentially reduce traditional real estate brokers and agents to transaction caretakers, salaried employees and information providers.

Non-Brokers have at least a couple of things right. They understand the fickle nature of consumer loyalty to real estate brands and they understand that consumers have little or no interest in whether the real estate industry survives in its current form. Non-Brokers are the true pugilists in search of the proverbial knock-out. They simply don’t care for the traditional real estate industry, its players, its economic models and what they view as its arrogant monoloply.

REALonomics Principle: The historical economic protection afforded the 1.3 million members of NAR will come under increasing scrutiny, causing many Non-Broker entities to enter the battle for a piece of the multi-trillion dollar door prize behind curtain number three. REALonomics thinks that a new economic model-math is already emerging that has factored the consumer’s lust for easy access to real estate information and low fees into its equation.

Earlier, I stated that the industry is in engaged in a bare knuckle fist fight. Out of this fray, REALonomics, the new economic model math, is emerging, setting forth principles that can provide a framework to assist owners in their quest to manage the massive changes occuring in the industry. REALonomics can guide broker/owners in the ensuing years as the re-invent their companies.

For more see The First Economic Wave, The Second Economic Wave and The Third Economic Wave articles.

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