Comments on: Obama & a New Real Estate Industry http://realonomics.net/2008/11/obama-a-new-real-estate-industry/ real estate business models in the consumer-centric era Fri, 02 Dec 2011 09:47:06 -0700 http://wordpress.org/?v=2.8.6 hourly 1 By: REALonomics http://realonomics.net/2008/11/obama-a-new-real-estate-industry/comment-page-1/#comment-106823 REALonomics Tue, 11 Nov 2008 14:08:40 +0000 http://realonomics.net/?p=618#comment-106823 RealEstateGirl - Thanks for the comment and the great question. Standards-based brokerage is a phrase we have used several times to define a brokerage firm that essentially hires, trains and operates based upon strict academic, experiential, and economic training and will not write a contract using financing that may put the buyer in jeopardy of losing his/her/their real estate investment. REALonomics was one of the first real estate blogs to call the industry on the carpet for its wholesale participation in the subprime mortgage lending frenzy. Standards-based brokerage starts by having an industry where ALL of the brokers and agents are essentially financial counselors, not just people who open houses, write contracts and get paid at the closing. Most of the real estate professionals need financial investment training as one of the core skill-sets required when dealing with the consumer's real estate investments, since real estate is a primary long term financial investment with huge potential for loses and gains. If our industry was operating with standards-based models, as we define it, there would have been millions of contracts we would have refused to write because, as we now are forced to admit, they were sub standard economic transactions. However, since our industry perpetuates its licensing and hiring process based upon being open to anyone with $1,000, we end up with 500,000 agents we don't need running around writing contracts but giving little financially sound real estate investment advice to the consumer. Now let me talk about the second part of your question dealing with "maximum transparency." Consumers are increasingly demanding full access to all things related to real estate but in many ways we as an industry are still wanting to control property data, historical data, etc. Consumers, as I am sure you know, do not always have the highest opinion of our industry and REALonomics espouses a more open partnership with consumers that demonstrates itself in our operating models, marketing, Internet services and more. We are an industry with a long history of "control" as the fuel for our economic engine. For many decades control worked but in an information-based culture where everyone demands access to information those business that are predicated upon control models are increasingly breaking down. We call this the "Democratization of Real Estate" and you will find the article well worth your time by downloading it at http://www.donaldteel.com/docs/democratization.pdf. Yes, full service brokerage firms do need to start the process of reinvention of their business models. When the first major brand does this it will become tomorrow's winner and send a powerful message to the consumer that says (1) we only hire brokers/agent who meet our published minimal standards of skill in the areas of real estate investment and mortgage; (2) we will not write a contract that lacks the scrutiny of financial analysis and potential for long term performance; (3) we will guarantee what we do with each client or they receive their money back and finally (4) any consumer may request and receive a copy of our annual audit for standards-based performance that is conducted by an independent third party. Profit sharing companies are struggling only because for a long time, with the exception of the market run-up from 2000-2006, real estate companies made little to no profit. The bricks and mortar retail real estate brokerage model was doomed to failure when property information hit the Internet in 1994 because information always prevails over control models. In the old days the only way to even know what was for sale was to drive around, read the paper and if you wanted to buy you had to go a real estate office. RealEstateGirl – Thanks for the comment and the great question. Standards-based brokerage is a phrase we have used several times to define a brokerage firm that essentially hires, trains and operates based upon strict academic, experiential, and economic training and will not write a contract using financing that may put the buyer in jeopardy of losing his/her/their real estate investment. REALonomics was one of the first real estate blogs to call the industry on the carpet for its wholesale participation in the subprime mortgage lending frenzy. Standards-based brokerage starts by having an industry where ALL of the brokers and agents are essentially financial counselors, not just people who open houses, write contracts and get paid at the closing. Most of the real estate professionals need financial investment training as one of the core skill-sets required when dealing with the consumer’s real estate investments, since real estate is a primary long term financial investment with huge potential for loses and gains. If our industry was operating with standards-based models, as we define it, there would have been millions of contracts we would have refused to write because, as we now are forced to admit, they were sub standard economic transactions. However, since our industry perpetuates its licensing and hiring process based upon being open to anyone with $1,000, we end up with 500,000 agents we don’t need running around writing contracts but giving little financially sound real estate investment advice to the consumer.

Now let me talk about the second part of your question dealing with “maximum transparency.” Consumers are increasingly demanding full access to all things related to real estate but in many ways we as an industry are still wanting to control property data, historical data, etc. Consumers, as I am sure you know, do not always have the highest opinion of our industry and REALonomics espouses a more open partnership with consumers that demonstrates itself in our operating models, marketing, Internet services and more. We are an industry with a long history of “control” as the fuel for our economic engine. For many decades control worked but in an information-based culture where everyone demands access to information those business that are predicated upon control models are increasingly breaking down. We call this the “Democratization of Real Estate” and you will find the article well worth your time by downloading it at http://www.donaldteel.com/docs/democratization.pdf.

Yes, full service brokerage firms do need to start the process of reinvention of their business models. When the first major brand does this it will become tomorrow’s winner and send a powerful message to the consumer that says (1) we only hire brokers/agent who meet our published minimal standards of skill in the areas of real estate investment and mortgage; (2) we will not write a contract that lacks the scrutiny of financial analysis and potential for long term performance; (3) we will guarantee what we do with each client or they receive their money back and finally (4) any consumer may request and receive a copy of our annual audit for standards-based performance that is conducted by an independent third party.

Profit sharing companies are struggling only because for a long time, with the exception of the market run-up from 2000-2006, real estate companies made little to no profit. The bricks and mortar retail real estate brokerage model was doomed to failure when property information hit the Internet in 1994 because information always prevails over control models. In the old days the only way to even know what was for sale was to drive around, read the paper and if you wanted to buy you had to go a real estate office.

]]> By: TheRealEstateGirlBlog.com http://realonomics.net/2008/11/obama-a-new-real-estate-industry/comment-page-1/#comment-106756 TheRealEstateGirlBlog.com Tue, 11 Nov 2008 02:21:17 +0000 http://realonomics.net/?p=618#comment-106756 At first I was unsure where you were going with this....What do you mean when you write: "REALonomics has believed for some time (years, actually) that the real estate industry needed to redefine itself through sweeping consumer-centric changes driven mostly by standards based brokerage and maximum transparency." The part I am asking about is "standards based brokerage and maximum transparency"? I agree with the rest, but this one statement leaves alot to be explained. Are you basically saying that the full service/full commission brokerage firms need to be redesigned? I am sure you know that the discount brokerage companies and the "profit sharing" real estate companies are struggling, while the full service/full fee companies are still a stronger business model. Would you mind explaining your statement? At first I was unsure where you were going with this….What do you mean when you write: “REALonomics has believed for some time (years, actually) that the real estate industry needed to redefine itself through sweeping consumer-centric changes driven mostly by standards based brokerage and maximum transparency.” The part I am asking about is “standards based brokerage and maximum transparency”? I agree with the rest, but this one statement leaves alot to be explained. Are you basically saying that the full service/full commission brokerage firms need to be redesigned? I am sure you know that the discount brokerage companies and the “profit sharing” real estate companies are struggling, while the full service/full fee companies are still a stronger business model. Would you mind explaining your statement?

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