Brokerage Models, Consumerism, Franchisors, REALonomics
ISMs in Your Model – 7th Commandment
January 9, 2007 by REALonomics · Leave a Comment
ISMs are a part of economics and certainly a part of the real estate industry’s operating models. ISMs, misunderstood and misapplied, have created problems in the world at large and the real estate industry is no stranger to the same quirky phenomena.
From a REALonomics standpoint, there are two ISMs positioned at the north and south poles of our 2007 economic spectrum. Like water and oil, they mix not…they are antithetical to the Third Economic Wave of the real estate industry, known as the Consumer Centric Era.
Thou Shalt not Embrace Static Territorialism is the seventh commandment of the New Real Estate Economy.
TERRITORIALISM – Economic Trade Barriers
Traditional real estate models allowed the industry to paint owners into the corner of an ISM that once served us well, territorialism. This could also be called imposed market limitations or, perhaps trade barriers.
Territorialism has been a part of the natural evolution of the real estate industry business model. Think about how consumers used to relocate. They would most likely visit a city where they considered to be their new home, grab the local newspaper to read the real estate ads, drive neighborhoods looking at houses with for sale signs in the front yard and ultimately, if they wanted to purchase a property, they had to end up in a real estate office. All property information was territorialized being placed under the watchful care of the real estate company’s Broker.
In the 70’s territorialism became well defined through the introduction of the real estate franchise. Franchisors recognized the territorial nature of the business, and successfully developed and marketed the right to use their national franchised brands in fixed geographic market areas.
Absolute control over property information by local brokers and the lack of any consumer driven property information resource fueled territorialism. A third influence that fueled the growth of territorialism was the broker’s lack of independent connection to multiple markets.
The connection to multiple markets was provided by the franchisor and the local protection by the franchise agreement. In effect, the broker had no real option that could compete with the high cost of franchising. It was “pay if you want to play,” so to speak.
Territorialism was the first and most powerful “ism†in the real estate industry. It remains the number one controlling force within the industry today but is now falling under the lens of examination by the Non-Brokers and the Neo-Brokers, not to mention the Justice Department, now investigating the policies and practices of the National Association of Realtors.
CONSUMERISM – Liquid Markets
The second great “ISM†in the real estate industry is Consumerism (the water), now emerging as the dominant force to territorialism (the oil). Whereas the later seeks to define an owner’s business geographically and statically, consumerism is the opposite.
Consumerism carries with it the idea of open access to market and property information that is not retrained by personality traits associated with territorialism. The Non-Brokers and Neo-Brokers fully understand and have aligned themselves with the belief that consumerism will triumph over territorialism and their models are beginning to reflect this belief.
Territorialism works well as long as it is encased within a static market model with consumer access to real estate property information and opportunity are controlled and where the broker is fixed (actually nailed) to a geographically defined market territory.
Consumerism, by its nature (open information systems in free, open markets) strikes against models that are built and sustained on the basis of controlled markets. Comsumerism’s preference is unfettered access to all market information that has traditionally been controlled by the brokers.
Consumerism means that the new real estate economic models will be democratized via the Internet. There is a tremendous play (I should say “warâ€Â) underway for control over what the consumer will be allowed to see and who controls it.
The Territorialism (oil) and Consumerism (water) are two decidedly different economic models.
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