Brokerage Models, Consumerism, Internet, REALonomics, Technology in RE
Hyper ROI: a New Model Math
October 9, 2007 by REALonomics · 1 Comment
REALonomics has written and blogged extensively about the New Model Math equations for the real estate industry. These NEW math models are being formulated amidst the sea of change in which we are immersed. The nucleus energizing the atomic structure of the New Model Math has shifted from the Broker-Centric and Agent-Centric industry control models to a Consumer-Centric operating formula for profitability.
It’s our belief that we have entered a Third Economic Wave or Era of the industry, a New Real Estate Economy governed largely by a set of Ten Commandments. The Democratization of Real Estate in underway but we are still in the early stages of its unfolding.
Defiant segments of the industry remain entrenched in mountain caves refusing to acknowledge the war is over. The rules are changing and we for the most part are not writing the new rules. It’s a hyperactive, deficit disorder model, where blinking is rewarded with set back and sleeping results in being replaced.
What are the ingredients for the New Model Math? How does the new formula produce adequate and sustained ROI for those who are the players within the industry? Who are the controllers of the new Hyper ROI?
The New Model Math Ingredients: Blend them Gently
We believe there are four primary ingredients to the New Model Math of the Consumer-Centric, technology and Internet-driven era; these are (1) communication and relationship building with consumers, (2) property information management models, (3) market definitions and (4) franchisor contracts for defining how broker/owners will be allowed to play in the future real estate game. This is the ROI quad, a set of super-integrated components that define the new profitability game.
The Communication and Relationship Factor. How the industry develops and sustains its relationship with the consumer will become paramount. The manner in which consumer dialogue is entertained is being redefined by the consumer. We will increasingly face what I call “consent communication” or, “permission-based” dialogues that have no edge to them. It will seem at first to be fickle…like bottling vapor or nailing jello to trees. The industry typically embraced control models such as agency, where we attempt to tie-up the client with “you can only talk to me” formulas.
The Property Information Factor. Property information is public…but is it, really? No, it is not, and its time to acknowledge that having archives at the country office hardly makes them public to the consumer. Our model is just wrong, flat out incompatible with transparent, consumer-centric demands. We have engaged in a kind of real estate market Jerry Mandering that seeks to define association perimeters not for the sake of simplicity for our consumer clients but for our own sake and for the survival of a Fred Flintstone model.
The Market Definition Factor. How we define market areas is now iterated by technology and the Internet, not by zip codes and city names. There simply are no territories or safe havens that can define our business models and protect us from economic predators. Narrowly defined market models such as Effective Service Areas, Market Service Areas and other zip-coded notions of territorialism may cripple the revenue potential of real estate brokerage companies seeking to compete in the New Real Estate Economy.
How an owner defines or outlines his/her market is one of the most critical components in business planning and it’s importance cannot be understated. MacDonalds, WalMart, GMC, Nike and all other highly competitive businesses begin with a refined market definition, consumer profile and product/service delivery analysis.
The Franchise and Branding Factor. Real estate franchises, together with their accompanying brands, are undergoing serious discussions within their respective war rooms. They have discovered that the real estate industry’s brokers and its hoards of agents generally resist intrusion and change. It’s shaping up as a battle for control.
In effect, many of the franchise names are developing and implementing open market models, while ignoring broker/owners who own and operate their businesses in restrictive real estate zones that are defined, measured and controlled by the franchise document terms and conditions. Broker/owners are well aware of the growth restrictions imposed upon them by franchisors. It’s a type of market monopolization designed to box-in broker/owners. While franchisors go macro with their model, they continue to market micro agreements to broker/owners whose profitability and sustained ROI is increasingly eroded through local market real estate models.
The amalgamation of brands under a single franchise owner is a key step that allows a franchisor to play where the consumer plays, in the macro markets. Franchisors know, although seldom admit, that consumers are not brand loyal. The way around this is to simply amass the brands under a single umbrella to the advantage of the franchisor and often to the economic disadvantage of Broker/Owners.
Have Broker/Owners abdicated industry control to franchisors? Are Broker/Owners going to become pawns in the giant real estate profitability chess game? Who will draw the battle plans that determine the sequence of moves that play-out within local markets? This is indeed food for thought and in the end someone proclaims “check mate.”
The Brokerage Business Expression Factor. What we look like in ten years will be different than what we have constructed in the past. The market edifices (aka bricks-n-mortar) cannot withstand the financial cost and therefore, extinction must follow. How our brokerage businesses are expressed locally will be less controlling and elite with respect to the consumer and more, “please enter our atmosphere and use our resources to conduct your property research; then let us know how we might be of assistance.”
How we define and execute services important to the consumer is where the new ROI will be derived.
True demarcations that differentiate one brokerage model, one title model and one mortgage model from another is the call of the New Real Estate Economy.
Profitability & ROI in the Consumer-Centric Era
REALonomics has challenged linear math models that fail to factor in the ambiguity and fickle aspects of the impact of technology and Internet driven business models wherein and whereby the consumer controls the joystick of profitability for an entire industry.
Profitability is already shifting away from Broker/Owners to the collective communicators and controllers of consumer relationships, property information, markets models and brand consolidation.
The ability of traditional, Broker/Owners to develop New Model Math schemas and implement them from their isolated market positions is an increasingly tall and tough order. Owners who adopt a “take-no-prisoners” approach to their business designs and market model definitions will remain competitive. Unfortunately, unless remodeled and re-chartered NAR and local Association purposes are redefined they may no longer provide the care and comfort previously given to owners. These organizations have traditionally been the draw-bridge into the castle of profitability where the industry found its abode.
Hyper ROI will become the New Model Math of the next economic wave of the real estate industry. Expect more speed, more change and more battles over control of the essential ingredients that make up our business model. The central factor for Broker/Owners will be their ability to corm new aliances and partnerships that enpower them to manage change effectively. The industry is shifting into Hyper ROI mode.
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Check out what others are saying about this post...This is an unbelievable post! It clearly spells out the depth of the brokerage model issue and what needs to take place in term of our business models. Hopefully, it will be read, word-by-word, line-by-line by people in this industry, especially owners. There’s no doubt about it, this site definitely tells the truth about the industry but also presents the solutions to many of our diliemas. Thanks, Realonomics!