New Improved Real Estate Model Math
REALonomics coined the phrase “new real estate model math” to convey the long overdue and much needed critical economic analysis of how our real estate brokerage business models work and how they produce revenue.
REALonomics is expanding the scope of its analysis in 2008, applying the idea of “new real estate model math” to brokerage, agents, mortgage and title services. The tip of our pencil will need to be sharper and the use of the eraser more vigorous. The fact is, each participating entity related to the real estate industry is going to do a lot of writing and a lot of erasing throughout 2008.
New economic principles are coming into play that redefines the model math equations for profitability. There are less predictable variants in the market place that we have never fully recognized as part of the new model math for profitability.
CAUTION: Don’t use ink! If you do, you will need a 50-gallon drum of white-out.
ERASE THIS: A market is clearly defined. It’s a city, zip code or delineated geographic area defined by brokerage firms, mortgage providers, title companies and franchisors as “effective market area,” “effective service area” or “market service area.”
WRITE THIS: Markets are macro, cyber and fluid environments where consumers seek information, conversations and property information about multiple locales. Markets are needs not lines. They function by personality not by perimeters. Lines are largely irrelevant.
ERASE THIS: Technology and the Internet provide real estate industry service and product providers with websites where static information about offerings is posted and where consumers are asked to provide personal information in order to proceed to the status of “lead” and become valuable as a potential customer.
WRITE THIS: Technology and the Internet create business environments for information exchange services relevant to the consumer’s core set of needs. From these environments relationships are developed by allowing interaction, posting, questioning, suggesting and empowering individuals with information they can use in their quest for solutions to real estate dilemmas.
ERASE THIS: Operating models are in-house labor pools maintained by real estate service providers in order to create a closing apparatus, execute adequate paper trails and meet legal and regulatory requirements associated with unit transactions.
WRITE THIS: Operating models are service enhanced value propositions, driven by high speed Internet technology tools, accessible by all parties (principal and beneficiary) that create constant interaction between principals and chosen service providers before, during and after the real estate investment decision has been made. The relationship transaction data is forever accessible by the consumer from any Internet access point with all property related value assessments available to everyone.
ERASE THIS: Execution is defined by “closed” loops where finishing is a line designating transaction consummation.
WRITE THIS: Execution is the ability to protract the line that defines the relationship between provider and consumer as a fluid forward moving economic flow, where the consumer may select multiple services for the duration of the relationship and thus create protracted ROI for the provider.
ERASE THIS: Profit is based upon the industrial transaction model known as the “closing” or “recordation” of a particular single real estate service component such as real property, mortgage lending or title services. The end is the justification of the means.
WRITE THIS: Profit is illusory and ever evolving, being created from multiple and truly valuable service and product models beneficial to the consumer. Changing the profit model is never shaded but fully transparent to the consumer. Information is always extended with precise accuracy and without perceived or actual duplicity. The profit model is protracted and filled with constant change, flux and adaptation. The provider is the servant of the consumer, bringing expansive propositions to the table which meet immediate, intermediate and long terms needs.
ERASE THIS: Leadership sets standards internally and business components execute the performance standards measured by factors related to financial objectives (the traditional CEO model). Leadership operates an organization that moves in lock-step to the flow charted demands of accounting and dividend reports.
WRITE THIS: Leadership is primarily the art and science of understanding consumer needs in a rapidly evolving information-based models and leading transparent environments in the production of packaged services and products in these environments. Performance is measured largely by ideas that create and sustain relationships and therefore produce profit opportunities and actual revenue while retaining and extending the consumer conversations to the next profit cycle. Accounting is empirical, as it should be, but CEO leadership is measured by the true value of extending consumer loyalty, therefore, redefining the role.
Can the real estate industry thrive in a business climate where the name of the game is sustained transparency in an open market model with the consumer front-and-center?
This will be the New Real Estate Model Math for 2008 and beyond.