Franchisors

Three Stooges: ’09 Acid Test #2

Meet Larry – Part 2

We’re moving through an unprecedented era in the real estate industry consisting of serious lending problems, increasing inventory, foreclosures, new competition, profitability issues and of course, an industry whose operating models are being brought into question. We are going to have to ride out the storm. Is there another choice? We are going to have to hang tough and endure the pelting. REALonomics has taken a position that “market stability” is not likely to emerge until the fourth quarter of 2008 and the first quarter of 2009.

In the meantime, we have a huge opportunity to accelerate our business model re-development so that our organizations are prepared for the future…really prepared. We are going to have to deal with the Stooges of the past model that have harmed owners and their sustained profitability. Part 1, Stooge 1, has been addressed; our tank-like, high-cost operating models that inhibit mobility and agility. This is the first and most critical acid test in route to ’09 and the new market realities that will greet us when we arrive.

Before we can re-design and re-invent we need a confession that our buildings and processing models are heavy, expensive and ineffectual in the consumer-centric era; they are antiquated as a competitive business model. They are no longer suitable for the next generation profitability standards we need to adopt. This is our new operating reality that must be faced by owners who desire to reinvent.

We have a second Stooge to deal with…the markets…meet Larry, the second acid test.

Welcome to our New Market Reality (circa 2009)

In Part One, REALonomics discussed our “Market Models” and their inadequacy for the economic wave in the real estate industry. On top of the market model transition underway in the industry we are faced with a new emerging “NEW” market reality, one that will reshape the landscape, its boundaries and create new operating rules for broker/owners.

Fast forward, please, to 2008 and beyond. What once constituted an owner’s “Effective Service Area” or “Market Service Area” is going to be completely redefined by the industry and will have a whole new set of rules governing market management.

A set of emerging economic and operating factors will converge into a market expression sometime during the next upturn, which we slate for 2009. Among these converging factors are:

• Acceleration of Non-Broker entities vying for consumer loyalty
• Consolidation of property data at key levels in the industry
• Emergence of streamlined franchises who have jettisoned old models

REALonomics contends that the biggest threat to current traditional owners and their models is their inability to redefine their core asset as the market, not agents, listings or even pending transactions.

We are going to be forced into a confrontational stand-off with our current limited definition of what constitutes a “market” where our businesses operate. The three factors above represent the pressure points that will afford owners the opportunity to fact the current market stooge in favor of a new, dynamic and fluid operating landscape.

Acceleration of the Non-Brokers

By 2009, entities outside the mainstream of the industry will have themselves positioned in the fluid markets where the consumer resides. We can also be there, but it will take acknowledgement, attention and discipline for owners to realize that vertical, limited, rigidly defined local markets can no longer produce the ROI necessary when measured against the risk inherent in ownership. We will require a new definition of “market.”

Non-Brokers are those entities who understand the emerging transparency and consumer-centricity of the real estate industry. I have called it “The Democratization of Real Estate” and have blogged about it, extensively.

The acid test for owners in 2009? When we get there, will be have a new definition of our markets or will we still be operating under the notion that locally defined geographic territories can bring us sustained and meaningful ROI. The Non-Brokers don’t believe or build on the local market premise as the central economic engine for the real estate industry.

Consolidation of Property Data

Property data, its consolidation and availability to consumers will radically redefine the term “market.” We are already seeing the merger of MLS data into regional conglomerates as owners confess, “we need more territory” in which to capture consumers. This is the centralization and globalization of data that redefines what constitutes an owners market area.

But it isn’t just MLS data. It’s all data related to property. It isn’t just all data related to property…it’s also, all historical derivatives related to property. During the now defunct Broker-Centric Era of the real estate industry, owners controlled the data; consumers came to us in our buildings to talk to our agents about property. Exorcise that concept from our minds. Erase it from the market model map. Expunge it, it’s gone, we lost control…and now we play under a whole new set of rules.

Question: Who is writing the rules and controlling the property data sets? As consolidation gains momentum owners will face serious questions about the economic relevance of things like broker price opinions (BPOs). The authors of the new rules are mostly outside the industry. Our historical bias toward control of data has become a Department of Justice issue with NAR.

Will the major franchises, independent brands and broker/owners be poised for the consolidation of property data into consumer-friendly model? More importantly, do we have any idea how to reinvent our brokerage models so that property data consulting is a meaningful part of our client relationships? Consumers have rejected our old data control model…and that model is no longer valid in the open markets of the New Real Estate Economy.

Emergence of Streamlined Franchisors

Although under foot currently, we will see a third factor that will redefine “market” as major franchisors are forced to redefine how they relate to an emerging open market model.

During the market run-up that ended in mid 2005, franchisors were still peddling the old notion that if owners sign-up for their local city market, zip code or a piece thereof, they would flourish. Not so fast. Franchisors, most of them, are in the same dilemma as owners, however, they have the luxury of defining open markets to their advantage and sometimes they do so at the owner’s expense.

Those who have the power to define markets have the power to control them and their economic potential, short and long term. Franchisors are being forced to redefine themselves and their own relevance to consumers and company owners. Franchise control models that lock-in and lock-down owners will become counter productive to sustained profitability…in short, owners will rebel forcing a streamlining of the traditional franchise agreement in favor of fluid markets where their exists a high degree of competition for the consumer.

Traditional franchising, with all the hooks and barbs of market definition, has all but reached saturation. New franchise models will emerge that unlock the chains that currently have owners shackled to a limited geographic territory. may the best owners win and may the best franchise model win! Here, here!!

The second acid test on the road to 2009 is going to be how owners define and relate to their most precious asset, the markets around them. Our ability to redefined this asset and how we build and sustain business models in a consumer-centric, no boundary arena is going to not only be challenging but exciting. New opportunities are in front of us but we must reinvent.

Rock Solid Melt Down – Tantrum in SD

REALonomics Op-Ed

It looks like some Internet visionaries just don’t fit the mold. Or, perhaps, the mold is now being broken. Or, worse yet, maybe there is only one mold at Prudential Real Estate Affiliates (PREA), into which all brokers must be poured…PREA’s. Is the insecurity inherent in our models finally exhbiting its pathos in ways akin to the melt down of Brittany Spears?

Everyone on the inside of the real estate industry’s news networks is buzzing over the Prudential ouster of Zillow and Trulia from the San Diego Real Estate Conference of Prudential Real Estate Affiliates. Inman News reports brokers in “dismay” over Prudential’s insistence that Zillow and Trulia pack it in and hit the road…20 minutes prior to show time!

REALonomics predicts the damage controllers are going to be out in force.

The Bad Business of Messing with Owners

When the likes of Ed Krafchow, President of Prudential California Realty, calls his franchisor to task for “interfering” with his job, you know you have an issue on your hands.

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C21, Pru, Exit, CB, ReMax, EXIT…hmmm?

The following dialogue, or something similar, is occuring in a neighborhood near you and it has something to do with real estate branding as a component of an owner’s business brokerage modeling and marketing. Go ahead, be the fly on the wall.

A deep “hmmm,” eminates from John as he peruses his latest edition of Homes & Land real estate magazine. “Here’s one that might work for us, it’s listed by Keller Williams,” he declared to Susan, his wife. Susan agreed, it did look just like what they wanted. She suggested. “Why don’t we contact Cliff Matthews over at, uh, what was the name of his company, and see if he wants to show us the property?”

John was quick to remind Susan, “we promised Elizabeth Townley at Fox and Roach that if we did purchase again we would contact her…is she still with them or, did she move to ReMax?”

“No, dear, she’s with that other new firm, uh…yes, EXIT Realty, but I don’t know why we have to chase down these agents, let’s just go with that gal who keeps sending us flyers…you know, Debbie Seligman, with Century 21, she has a lot of listings in the neighborhood.” John thought for a moment, than said “hey, there’s that new real estate office near the mall that just opened called Red Arrow Real Estate, I’ll give them a call.”

What does the discussion between John and Susan have to do with real estate economic models? Let’s talk about the Tenth Commandment of the New Real Estate Economy for owners.
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ISMs in Your Model – 7th Commandment

ISMs are a part of economics and certainly a part of the real estate industry’s operating models. ISMs, misunderstood and misapplied, have created problems in the world at large and the real estate industry is no stranger to the same quirky phenomena.

From a REALonomics standpoint, there are two ISMs positioned at the north and south poles of our 2007 economic spectrum. Like water and oil, they mix not…they are antithetical to the Third Economic Wave of the real estate industry, known as the Consumer Centric Era.
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Dear Owners, the Border Patrol is out in Force

Business, whatever shape or flavor, always seeks to define itself in term of “the market” its product or service intends to enter, and then builds its operating model around this concept. Real estate brokerage business models have been less deliberate about this than their mainline counterparts, opting to use the “wing-it” method of market management!

Dear Real Estate Company Owner, the Border Patrol is out in force and your business borders are being restricted and artificially defined by entities and persons whose motivations are not always in your best interest.

Market definition has become the single most powerful component in the New Real Estate Economy and there is battle raging over what constitutes these borders and who will control them.
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