Brokerage Models

NEW Franchise Blender-Extractor Available for 2009 Holidays!

---

Unlocking Franchise Economics: Pt 3

---

This is the third installment of a three part post entitled Unlocking Franchise Economics (see Part 1, see Part 2)

Have we ever wondered how the consumer views our real estate industry franchises? If we are going to unlock franchise economics and truly understand the value propositions inherent in franchising we must also see them (franchises) as the consumer sees them and we must ONLY value them as does the consumer.

If you were to create a list of distinctions…real ones…dynamic ones…that separate one franchise brand from another in the eyes of the only true client, the consumer, what would those distinctions be and how are they manifest in the process of transacting business?

Enjoy the PhotoBlog below. Read it carefully and ask yourself what might happen if the consumer could place all franchises into one blender and extract the best. What would the “best” be? What are the clear distinctions between franchise A, B and C?

If franchises have any value, and REALonomics believes they do, what is the empirical value to the consumer? Is franchise value a black-and-white proposition or, will we see living color coming out of the recession in 2009 and beyond? What changes do franchisors need to make to create distinction in local markets? Can distinction even be created and sustained? Do we need to blend the franchises? Do we need fewer franchises? Will franchises be blended out of economic necessity and through mergers and acquisitions?

If a Broker/Owner adopts a franchise model what is the set of “measureable” distinctions derrived from the relationship that will impact the consumer? Specifically, how do franchise distinctions create revenue for Broker/Owners in the crowded marketplace?

Obama & a New Real Estate Industry

On Friday, November 7, 2008, flanked by some of the most prominent names in the economic and business world, President elect Barack Obama held his first press conference. The central topics, the nation’s economy and of course, the “first mutt.” We will blog about the mutt later…for now, more serious stuff looms.

The Obama news conference was followed this morning, Saturday, November 8, 2008 by a radio address with similar content. These two initial events give us hints about the Obama economic model that will shape America and of course, the real estate industry for perhaps decades.

Attacking the Economy Means Controlling the Outcome

The Obama team is going to attack the economy in laser-like fashion. New rules are going to be written that will impact the private sector and retool the way in which those transactions dependent upon credit and lending work.

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.

What we never knew and could never predict are the bleak economic factors that now give rise to the transformation of our business models and have fueled a meltdown of home values in such universal proportions. Principle: Economic problems left unsolved by the private sector typically invite government mandated intrusions in order to harness the favor of the electorate.

Can the RE Industry Still Write its Own Rules

It is beginning to look a lot like the real estate industry will be shaped not by factors we control but by the policies and rules created by others. We, under the mantle of the National Association of Realtors (NAR), have, for the most part, missed most of our opportunity to define and shape the debate and participate in the rules that will create a “New Real Estate Industry.” NAR’s mistaken endorsement of the $700 billion bailout program has hurt us and created a dependency relationship with the federal government. In essence, we have been placed in the unenviable position of a reactive industry rather than a proactive force.

Do we still have the clout and the courage to write our own rules? Do we have the will power, discipline, leadership and the creative inspiration to recognize that we are on the cusp of a “New Real Estate Economy” wherein we can control the rules that dictate how the industry operates within a consumer-centric era? Have we become an industry, like so many before us, that will eventually become reliant upon the solutions created by a bloated federal bureaucracy that is more interested in centralizing power than in actually empowering people?

The Key Principle behind Rule-Writing

It’s not so much the rules per se, that govern business matter as it is the economic and social viewpoints of those who pen the rules. It’s always belief that precedes policy. What we believe about our industry is different that what Washington believes. There are principles behind rule-writing, always!

The key principle behind rule-writing is simply “BE THE RULE WRITER.”

Here are but some of what REALonomics believes will be the “new rules” evolving from the financial policies that will be put in place during what will be increasingly defined by the new Administration as a “crisis.” A history lesson…bureaucracies flourish best when set in motion during “crisis.”

NEW RULE 1: There will be a heavy emphasis on creating a bevy of legislation designed to control each aspect of the mortgage lending process. This sounds good until we understand the difference between our and Washington’s definition of transparency and disclosure. The new set of rules will further slow the markets while everyone waits to see and then create a whole new layer of regulations and regulators operating in the basement of every mortgage lender.

NEW RULE 2: Crack down will be the new operative language for not only Wall Street and so-called “overpaid CEO’s” but also those within the real estate industry who are not fully compliant with Rule #1. REALonomics thinks that real estate brokers will become targets for industry crack down and the eventual police force for compliance with new lending and transaction rules. In his website Barack Obama has already pledge to crack down on brokers and lenders.

NEW RULE 3: NAR will become more and more dependent upon government approval for the implementation of our industry policies and procedures that have sustained us for decades. NAR, already reeling from the DOJ debacle, will have a mandated hotline to Washington and will need to use it to check-in, seek approval and help implement the new rules that will be written. In essence, NAR could become an extension and purveyor of brokerage and home ownership policies written by the Obama administration, Pelosi’s House and Reid’s Senate.

Although the housing industry is suffering and the real estate industry is under siege, REALonomics would like to encourage the industry to step up to the plate and position itself under a new set of operating principles that can be sent to Washington as a demonstration of our commitment to operating and policing our own industry. We are still strong enough to influence the outcomes if we are proactive rather than reactive.

Let’s continue to remind ourselves that the key principle behind rule-writing is simply “BE THE RULE WRITER.”

Get the full transcript of the Barack Obama news conference and read between the lines.

Home Price Declines Hit New Records: What Can the Industry Do?

The question for the real estate industry to grapple with in the midst of the credit crunch is how can we help struggling homeowners in severely depressed markets such as Las Vegas, Phoenix, Miami, Los Angeles and San Francisco?

According to a recent Standard&Poors/Case-Shiller home price index of the top twenty metropolitan area home values, we are seeing record declines. Get a copy of the report.

Here’s the breakdown synopsis (source: Standard&Poors/Case-Shiller) (arrow highlights by REALonomics):

In these and hundreds of other markets, home value declines are taking a toll on individuals and families whose financial security is predicated almost entirely on home ownership.

There are at least three things local real estate companies in partnership with mortgage and title service providers could do for struggling homeowners.

1. Set up financial support workshops led by experienced brokers/agents designed to coach homeowners with respect to their property values, the current trends, their specific mortgage situation and how to take positive steps to stay in their homes unless they absolutely must sell at this time. Such workshops should utilize skilled mortgage service counselors (not loan officers) who can give them answers;
2. Real estate agents in troubled markets should be literally returning to the old practice of knocking on doors, not to get listings but to meet homeowners as “Property Consultants” to discuss specific home values within their neighborhoods and offer advice. In addition, brokerage firms should deliver resource information to homeowners that will advise them about market conditions, refinancing and other information they need;
3. Brokerage firms should turn a portion of their print media budget and Internet costs toward creating blogs that are specifically administered by trained “Property Consultants” who can interact with property owners and deliver solid advice in real time.

During the next 24-36 months brokerage firms who want to build and retain consumer loyalty and predisposition should take a serious look at engaging in the creation of a group of “Property Consultants” who engage homeowners who are facing uncomfortable times.

Such an emphasis sends a powerful signal to consumers that we are serious, skilled, well trained, competent and knowledgeable professionals who can and will assist them with any property question they have, including financial counseling.

The Inman Comment

Once in a while REALonomics will post a comment to great articles found in Inman News. Such was the case this morning, Tuesday, September 23, 2008. The comment created some interesting communication…all good, by the way. But the comment to this post seemed to touch a pent-up industry nerve regarding where our industry is headed and what our industry focus should be as move into the Third Economic Wave in the industry’s development.

There seem to be two camps developing within the real estate industry. The first camp believes the media and negative language is the culprit that is creating a lot of the market decline and lack of buyer confidence. The other camp is the group saying, “We need to look within the industry and raise our standards making them more consumer-centric and us less susceptible to repeating the errors of the past.” REALonomics falls into the later group.

As a result of feedback here is the comment from the Inman article posted here for our readership:

The notion that positive thinking and misplaced hype can move us away from a faulty and failing economic model is more dangerous than the crisis itself because it demonstrates the lack of depth in our thinking. This crisis cannot be repaired by “making people believe the worst is over…” This is the logical result and outcome of poor economic modeling in the mortgage industry that loaned billions to buyers who didn’t qualify and the real estate industry’s fickle pretense that it exercises ultimate fiduciary in its dealings with clients.

Rather than whining, what we should be doing as an industry is recreating ourselves in terms of standards-based brokerage practices, revamping our national and state networks into consumer-centric, transparent operations and utilizing the power of NAR to send a positive signal to consumers that we “get it” and that they are going to see a new side to the professional real estate industry they deserve and one that will refuse to close a transaction where the buyer does not qualify.

A standards-based model should include heavy fines for brokerage firms that (1) hire under qualified agents who lack the academic training and counseling skills we need for consumer protection; (2) refuse to fulfill maximum (not minimum) financial training in economics and real estate investments and fiduciary training courses and finally, (3) much higher costs to enter the industry and stay in it.

A standards-based industry would include national performance reviews and ratings of brokerage firms with financial and recognition incentives for creating and maintain standards of excellence that protect consumers and their investments in real estate.

In addition, we need to look at the role of NAR and how NAR services the industry and consider refocusing its mission and resources on a newly profiled industry that really understands and accepts responsibility for its actions when counseling consumers to invest in real estate.

One thing we believe with certainty, we are never returning to what we once knew. Having said that, what is it we would like to become as an industry after the dust settles?

While the Feds scramble to resolve issues, we should be scrambling as an industry to reinvent ourselves. Such a reinvention involves painful analysis and truth-telling about where we have been and how we have operated. Only then can we begin the process of rebuilding a tattered industry that is increasingly viewed with skepticism by most consumers.

REALonomics.net”

———- END OF COMMENT ———-

Unlocking Franchise Economics: Pt 2

In the post “Unlocking Franchise Economics,” Part 1, we opened the door to asking relevant questions that will help owners analyze the economics of real estate franchising.

In this series of posts REALonomics has one primary objective it would like to accomplish on behalf of owners and that is as follows:

…to help owners unlock the door to franchise economics so that gain an understanding of the substantive value propositions that exist and how a franchise name and associated promises can be quantifed in real dollars that are converted to a profit equation that is greater than it would be if the brokerage firm operated without the franchise.

Franchising is an Add-On Toolkit, with Limitations

At its most fundamental economic level a real estate franchise is a brokerage toolkit. Yes, there are all sorts of issues such as marketing, relocation, referrals, training, conventions, etc. But for now, we are setting those aside. A real estate franchise is an economic toolkit, at least it should be. Franchisors spend a great deal of time butter-balling brands, numbers of offices, growth, name recognition, relocation, referrals, etc., and that is how most franchise sales people will present their proposition to an owner. It’s the owner’s responsibility to translate the presentation into real economic reality and performance and to insist that the franchisor do the same.

As a toolkit, there are some things a franchise can do, there are many things it cannot do and there are more things it does not want to do for a brokerage firm because to do them will harm the franchisor’s bottom line. Let me be clear on this last point. At some point in the franchise relationship, an owner may find the franchisor a competitor for market territory, referrals, relocation and even local business.
Read more

« Previous Page — Next Page »