Brokerage Models, Consumerism, Management Principles, Market Conditions, Model Perfect, REALonomics
The Four “Bs”
March 21, 2009 by REALonomics · 4 Comments
Let’s get down to some serious industry transformation discussions regarding the “Four Bs.” The Four Bs are the fundamental building blocks that heretofore drove the real estate industry’s models with respect to consumer relationships and Broker/Owner profitability.
Brokers, Boards, Books and Buildings remain the economic blocks that continue to drive our brokerage profit models. Three of the four are still alive and kicking. What are the Four Bs, how do they function and what, if anything, do they mean to us now? More importantly, how do they meet contemporary consumer expectations?
Broker/Owners are literally the financial backbone of the real estate industry. e-Partner and this blog, REALonomics, support the importance of sustaining the roll Broker/Owners play in perpetuating real estate transactions and indeed propping up the industry at large. It is Broker/Owners who literally guarantee the financial stability of the industry. They are real estate’s preeminent risk-takers.
They are almost always the sole guarantors of market presence and it is they who take most of the personal financial risk for the real estate organizations operating within thousands of communities.
Fact: Broker/Owners are losing their ability to produce and sustain profit for their local brokerage firms. The risks now out weigh the rewards, as many are discovering. TWe are facing the financial collapse of many Broker/Owners.
Broker/Owners have increasing lost their grip on the consumer due largely to (1) the widespread availability of property information to agents and consumers; (2) the industry’s empowerment of the vast numbers of agents with cutting-edge tools that tie them directly to consumers and (3) the irrelevance of their control over local Associations, formerly called “Boards of Realtors” and the centralization of power over consumer access to property by NAR.
Broker’s once maintain an iron grip on local property information through NAR’s establishment of Boards of Realtors owned by Broker/Owners. Broker/Owners still have stated authority over local Associations but their is little or nothing for them to control and their role is primarily administrative and therefore without economic benefit.
Each local Board of Realtors (BOR) (now called “Association of Realtors”) once commanded total control over local property information on behalf of the paying members. It was the Broker/Owners that owned and controlled the local property information data, how it was received, formatted and distributed.
Through the BOR, Owners owned (no pun intended) and controlled ALL property information and ALL access to the information, whether by agents or the consumer. Therefore, they were assured of income and barring reckless squandering of funds they were also assured of a perpetuation of their profit and existence.
Through such property information control, Broker/Owners were able to set individual brokerage listing fees, control agent commissions and literally decide who could play and who could not play.
The union of Brokers and Boards coupled with geographic market definitions and control of property information meant that ALL consumers were required to work through one channel of expertise for any real estate investment, that being Broker/Owners.
Local BORs were compelled to comply with local Broker/Owners who were the ligitimate owners of property information within a specified regional area. All of this engineered and mandated by NAR.
It might surprise many of our readers when we tell you that the primary technology used during the era of Broker and Board control was ink and paper.
The Board of Realtors’ MLS Book was the officially designated and exclusive repository for local property information. It was, in fact, the technology used by Brokers and Boards to distribute property information to consumers through the Broker’s agents.
To distribute new property information for use by agents, who were the monitors and purveyors of current property data to consumers, a new MLS book was printed at regular intervals. At the moment of printing, the data was defective, as some properties were sold and other listed for sale prior to print.
Data updates were facilitated through thousands and thousands of local MLS meetings held each week across the nation. At these ritual gatherings agents arrived, books and marking pens in hand, for the local property information “update” wherein properties were declared “sold” by agents and then robotically lined through in the MLS book.
Price adjustments were written into the margins of the MLS book along with other information verbally supplied by agents.
These meetings were quite the scene. Nonetheless, they represented the manner in which property information was collected, distributed, managed and updated for the ultimate end user, the consumer.
Let’s also remind ourselves of the operative phrase of that generation of Broker/Owners, Caveat Emptor, Latin for “Let the buyer beware.” In those days, the buyer was an unsuspecting consumer who was not at all represented in a real estate transaction but instead was told by us, “we only represent sellers but promise to treat all parties to the transaction fairly and honestly.”
This brings us to the fourth “B” and the central pillar of the real estate business model used by Broker/Owners…Buildings.
The Brokers who owned the Boards published the Books that were placed in the hands of agents who were warehoused in Buildings in just about every market in the U.S.
The Buildings were the primary real estate market expression used by Broker/Owners. Bricks and mortar was the economic junction where consumers were provided with the most important and manditory requirement for acquiring relevant property information. Such information was only provides by agents in buildings owned or leased by brokers with books in hand that were printed by the boards.
In those days the components necessary for a real estate transaction to occur came together in a Broker/Owner’s office; these being buyer, seller, broker and property information. in those days we were the true “gate keepers” of the transaction.
Yard signs, newspaper ads, open houses and updesk calls were the path to consumer contact and ultimately a commission. These ingredients were the spider web designed to capture consumer buying leads in the local market.
Consumers had very little control over the process of buying real estate, a process completely controlled by Broker/Owners and their local marketing machines.
Circa 1970. Something began to happen in the late 60s and early 70s. National real estate franchising came into play and began to redefine a Broker/Owner’s market from local to regional and even national.
Franchising brought with it the first real attempt to provide Broker/Owners with a horizontal component to their business model, increasing their potential for referrals and relocation by means of national branding and networking with member of like kind.
During this same time frame, local Boards began to digitize property data and to generate computerized MLS systems that could deliver property data to a Broker’s office electronically. This would later prove to be the beginning of the end of one of the four Bs, the Book.
About 25 years after the first digitized MLS endeavors began . Computerized MLS, personal computers, modems and ultimately the Internet came into play and provided the empowerment of agents and consumers with ubiquitous real estate information.
In 1994, MLS property information became available on the World Wide Web (WWW), known then as the “Information Super Highway.”
Today, the MLS books are gone. Buyer beware is gone.
What still remains, hanging by an economic thread are the remaining three Bs; Brokers, Buildings and Boards (renamed Associations).
The total control of local property information by local Associations is being challenged and seems to be eroding.
Each of the remaining three Bs is now under scrutiny by an increasingly powerful consumer. It looks like the next “B” to fall is the notion of “Buildings” as an ultimate but now unaffordable retail expression of a Broker/Owner’s real estate market presence.
REALonomics, as a student, analyst, crytic and developer of concepts related to the real estate industry’s business models, can’t help but wonder which of the remain two “Bs” is most in jeopardy:
Will it be Broker/Owner or our local Associations of Realtors (Boards) that will be transformed or eliminated?
Your thoughts?
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Recognizing the unfortunate inevitability of it all, does anyone think the commoditization of real estate sales is good for anyone? The merger of the various MLS’s has agents selling all over the place, including where they actually need a map. If an agent needs a map, one must ask what market knowledge he could possibly be bringing to the transaction.
Dana – you make some good points. If the truth were known and told, agents can, with some limitations, “sell all over the place” IF they have the working skill to advise clients with respect to their real estate investment and the technology and Internet resources at their disposal. What the “Four Bs” point out is the deterioration of our old models as they give way to the new. As for maps, they are better than ever through Google, MapQuest, Yahoo and others. I previewed a piece of property last week for an out of state buyer/client while in the MLS, I clicked on the MAP feature because I didn’t recall where the property was. Our point is that we are not re-engineering ourselves and our business models to keep pace with what the consumer can already do. My same clients, set to arrive in late April, send me MLS numbers constantly and guess what…I don’t always “know” everything even in my own market. What I have learned to do is partner with the consumer and if need be, I am prepared to represent then anywhere in Arizona in keeping with law, the standards of practice and the code of ethics. This is the way technology and the Internet are redefining the operating rules.
Great Item. I sent this on to a friend that is working on a MLS Project. Thanks. One MLS to watch is the Denver MLS.