Brokerage Models, REALonomics

Tyranny of the Market – No Trespassing

Owners of real estate companies all know they will someday face the tyranny of the market. REALonomics insists that definitions of “market” become issues of owner empowerment or conversely, owner dis-empowerment. All owners know, or they eventually discover, that definitions of their “market” become factors in the profitability equation.

First Order of Business Modeling – Duh!

Business modeling’s first prerequisite is market definition. What is the market? Where is the market? Who is the market? How does my company fit into the market? How does the market fit my company? How does my model extract capital from the market? What makes my market model special? What is the market personality, demographically and psychographically? What are the tyrannies associated with the market that can potentially wreak havoc on my operation and my profitability.

Real estate brokerage firms have traditionally built their business models on a set of very tight market assumptions that no long hold water or, any other liquid for that matter. One will find in almost every city in the United States a group of brokerage firms who ALL (hyperbole) define their markets in terms of a zip code, city name or perhaps even a franchise definition of market known as the “Effective Service Area” or the “Market Service Area.”

What’s wrong with this approach, if anything? And, how does it impact broker/owners?

The Four Bs – Horse, Buggy and Whip Technology

Real estate markets were once static, well defined, territorial personalities that were controlled by the four forces of the real estate industry. Let’s call them “The Four Bs.”

1. Brokers
2. Boards
3. Books
4. Buildings

The market was physically defined with hard edges and control was excercised by forcing consumers into conformity with the industry’s Four Bs. Brokers controlled the Boards, the Boards controlled property information via the published MLS Books and the consumer had to come to the Building.

This horse, buggy and whip technology, useful in its day, created a business model that may now threaten the viability of the majority of real estate brokerage firms still clinging to it like a doomed Titanic.

Trespassing the Market Veil – Macro Incursion

REALonomics has sought to educate broker/owners with respect to the dangers inherent in the market veil that may trap them as the technology moves beyond horse, buggies and whips to transparent real estate operating without market constraints.

While owners are warned against the crime of trespassing on or into market where they are forbidden to go, other trespass with impunity, empowered and emboldened with new technologies and an Internet platform that seemingly knows no boundary definitions.

Micro markets are dying. Macro incursion is a reality. Are broker/owners fully aware of the fact that market trespassing is no longer a crime, if indeed, it ever was? Are some broker/owners clinging to a vertical market definition that is detrimental to their business and profit margin. In today’s real estate industry, most broker/owners continue to play by a set of business rules that are being revised by non-brokers and neo brokers whose historical point of reference is not the Four Bs and never has been.

The tyranny of the market is real. The self-proclaimed market definers would have us believe they actually control real estate markets. Like Tony Soprano, pseudo market controllers attempt to use force and control as a means to their own economic gain.

As the real estate markets continue their adjustment, pressure is brought to bear with respect to our definition of “market.” Owners have been duly warned not to trespass. If they so dare, they will be shot…if they survive, they shall be shot again. A good example of this very phenomena can be seen by reading the REALonomics post entitled “Rock Solid Meltdown – Tantrum in SD” where Prudential Real Estate Affiliates attempted to block incursions by Zillow and Trulia; incursions that may have empowered owners.

In all business development, “the market” is the starting point and the end all. As markets fluctuate (especially downward) a tyranny sets in and trespassing becomes unavoidable if survival is at stake.

For more information read these documents:

The Broker Centric ERA – The First Economic Wave (circa 1776-1976)
The Agent Centric ERA – The Second Economic Wave (circa 1976-1994)
The Consumer Centric ERA – The Third Economic Wave (circa 1994-?)

Related posts:

1. Market Bummer = Owner Ops
2. REALonomics: Polling Market Trends
3. Broker Finds Market Solution on Mars!