Brokerage Models, Consumerism, REALonomics, Technology in RE

Three Stooges: ‘09 Acid Test #1

Meet Moe – Part 1

Starting a real estate company is well, sort of easy. Operating a real estate company is challenging…to the max! Creating and sustaining a profitable real estate company is frankly, the new acid test for 2009. Yes, your eyes are reading correctly…2009.

We are a few days from turning the corner into the final stretch of 2007. Mostly, REALonomics believes, that the back half of ‘07 is going to be the beginning of one of the toughest stretch runs in the history of real estate brokerage. This is a serious position for us to take but one premised upon the current “going-south” market conditions that show no signs of waning. REALonomics now believes the current conditions will continue to gain momentum at least throughout 2008 and perhaps into the spring of 2009.

Our New Operating Reality

This is our new reality…acknowledge it…face it…embrace it…and work within it to redesign your broker/owner model into a more sleek, streamlined and efficient machine. The aberrant market presents the industry with an opportunity to create new, highly competitive brokerage business models that can emerge at the end of this market cycle as tomorrow’s winners.

But we are going to have to deal with the Stooges that still linger in our business culture. And, it’s no laughing matter. How we deal with the Three Stooges within our industry will create the 2009 acid test for brokerage firms.

Meet Our Moe – Acid Test Numero Uno

Moe was the preeminent director of the Stooges…a comedic enforcer…a slap happy terminator. We remember him as the the “intelligencia” of the trio. The decision-maker and enforcer of dicipline within the triad of morons. Our industry’s Moe is our traditional overhead models that rumble down the economic highway like tanks burning up fuel and blasting away at the agile moving markets with archaic artillery.

Replacing traditional overhead models will be acid test numero uno for the brokerage industry in 2009. The survivors will be those who replace tank-like operating models with agile, light-weight, low maintenance operating models that can quickly prosecute the wide spread warfare for consumer attention and loyalty in open markets. It’s going to become a competition for speed, geographic adaptation and agile morphing the likes of which we haven’t seen…our tanks won’t cut it! Park em! Get out! Run!

REALonomics identifies three rumbling tank-like operating models that will need to be replaced for those who want to compete in the next era for the huge opportunity for new ROI:

1. Buildings, buildings and more buildings
2. Employee-laden environments
3. Labor intensive transaction management

Bricks and Mortar Command and Control

In the old days…circa 1960-1994…our buildings defined us and our place in limited, static geographic markets. The edifice with the sign (our name, our brand) sent signals to the defined territory that we were present, we had a name and consumers could come to us for real estate solutions. This was command and control! This is the tank.

In order to bolster our bricks and mortar business model and control our fixed territorial markets we utilized our market tank (buildings) to lure consumers into calling off signs, reading print ads and invitations to consumers to “come into the office” (Floyd Wickman’s “CITO”).

This began to change in 1994 when the first property listings and photos hit the “Information Super Highway” as we called it back then. It was the beginning of the transformation of our industry’s business model.

If REALonomics is right and the market drags until 2009, we are going to have to jettison overhead anyway. Buildings are bulk, too costly to maintain and almost wholly unnecessary. While the market goes agile, too much of the industry still clings to the retail expression in a single market place…THE BUILDING!

This one issue alone can bring down many a great brokerage firm. We must redesign the way we congregate before 2009 arrives. Those who do will be positioned for the next upturn. Those who don’t may loose.

Why do we do what we do…when we don’t have to do what we do? I just don’t understand.

The Employee-rich Environments

Buildings require maintenance, furnishings, equipment, utilities, technology, restrooms, heating and cooling, rents (in most cases), personal guarantees (in all cases) coffee makers, and most importantly…EMPLOYEES to staff them.

During the decade long market run-up (circa 1994-2005: our dates), we acquired more fixed-base operating stations than ever before in the history of the real estate industry. After all, money was flowing and agents were coming into the industry in unprecedented numbers. This added more employee overhead than ever before that continued to execute duties under old labor intense transaction models. All of this at broker/owner’s expense and risk.

Employees never met environments they didn’t love and long to linger within. Having one’s spot (cubicle or office) is the essence of permanence and a pseudo sense of “I am safe.” Whereas, broker/owners, the true entrepreneurs and risk-takers of our industry are never provided any safety they don’t create and demand for themselves.

Tanks are being shut down, layoffs have begun and buildings are being scaled back or, in some case, shut down altogether. Is it too little too late? The bigger question for the industry is simply, why do we do what we do…when we don’t have to do what we do? I just don’t understand.

Labor Intensive Transaction Models

Instead of, for example, adopting more streamlined transaction process controls during the market run-up, such as paperless tools, we marched on…or, I should say…we drove on…in our tanks…blasting away.

In other words, we didn’t seize the moment (a decade should be long enough) to re-invent our operating platform by investing and engaging in the required R&D that would streamline our operations, making us more competitive in the new open, fluid, ever-changing markets…we took the money, spent it and in many cases kept the tank fired up and rolling.

To be positioned as a competive brokerage firm in 2009, we must replace our employee laden, tank-like models with streamlined, high tech, consumer-friendly, low cost per transaction management systems…the second cousin to our employee rich environments.

We are, as REALonomics has said, “Awash in Paper“, despite the fact that we have at our finger tips new, cost-effective technology models that can dramatically reduce our per transaction costs, increasing profitability. Many times we simply don’t believe in the technology we have available to us, so the high cost tanks roll on!

Once again, we ask, why do we do what we do…when we don’t have to do what we do? I just don’t understand.

And how would you propose we prepare ourselves for the next market cycle?

Related posts:

1. Three Stooges: ‘09 Acid Test #2
2. Three Stooges: ‘09 Acid Test #3
3. Break Dancing at the Morpheum
4. Same Game, New Rules – Owner’s List
5. Ten Commandments for the New Real Estate Economy