realonomics

Bill Gates will stand in the halls of business history as the person who transformed not only technology but entire segments of the business world with an operating platform called “Windows” that dominates the globe with an approximate 90% market share.

Upon his retirement from Microsoft, REALonomics is honoring Bill Gates and his contributions to business and of course, who could question his influence on the real estate industry? Here’s a video from 1992 with some of Bill’s predictions.

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REALonomics received positive and negative feedback, online and offline, regarding our PhotoBlog entitled “REALonomics: Recession!” posted yesterday, January 22, 2008. By this PhotoBlog we have proven that a picture is worth MORE than a thousand words!

About six weeks ago, REALonomics came to the conclusion that that we were at the door of recession, the strength of which we were not prepared to estimate. A post was prepared in advance but not published. After watching Washington’s call for stimulation, Chairman Bernanke’s testimony, the global market downturn two days ago and the Federal Reserves mid-night pajama telephone conference to lower the prime by .75, the highest reduction in a quarter century, we felt that our position was confirmed…the door to recession was now open…rather than text posting…be photo-blogged.

For too long, the real estate brokerage, mortgage and title industries have adopted a “let’s not say anything negative” approach to the largest financial crisis since the Great Depression. REALonomics thinks this passive position has been a huge mistake on the part of the industry and indeed, may have kept us from aggressively pursuing solutions within our industry.

Our “recession” call is not predicated on the old GDP decline rule (2 down quarters = recession). We believe we have entered a powerful global economy where the connectivity of markets, east and west, have re-written the old assumptions and rules, creating international definitions, rather than just national definitions of recession.

What would you call the following?

• A global financial institution crisis
• Real estate inventories at nearly 20 year highs
• Unprecedented escalation in foreclosures
• Huge market declines in Japan, Singapore, Hong Kong & other markets
• Calls for economic “stimulation” with uncharacteristic bi-partisan support
• A .75 cut in the prime by the Federal Reserve in an emergency conference
• Up-ticks in unemployment rates
• Declining consumer confidence and high personal indebtedness
• The weakest dollar value in recent memory…1/14th the value of 50 years ago
• Sell-off of significant percentages of national banks to foreign interests?
• Loss of most of the stock market gains for 2006-2007?

REALonomics believes the door of recession is now open and that we are passing into a zone of real economic challenge. It’s necessary to the clean-up and we cannot expect ‘happy days’ to be here again until we face the music…we won’t heal the industry’s problems until we acknowledge illness and create cures.

Your thoughts are?

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The stakes are getting higher and higher and higher. What we have called The Democratization of Real Estate is going to create the demand for amalgomation. This will change the ante for those at the high stakes poker table known as real estate company ownership and ultimately the cost of continuance for Broker/Owners. The industry is an aquarium with limited resources. The ecosystem cannot sustain the sheer numbers required for everyone’s survival.

Several years ago, REALonomics noticed the brand collage on the face of the Home Services website. Titan-like groupings of large entities are going to have to emerge in order to meet the high stakes cost of operating in the Consumer-Centric Era, our Third Economic Wave.

Put in basic terms: the big are going to get bigger. Large fish, as usual are going to gobble-up the small plankton in real estate’s vast ocean but they will do so without having to merge or acquire. Plankton is any drifting organism that inhabits corners of the watery markets of this industry; including core services such as title and mortgage.

Want to sell your real estate company? Forget it. Don’t sell, no one’s buying…or, I should say, “no one in his/her right mind is buying real estate companies.” Instead Broker/Owners should group, combine, forge, align or otherwise re-map how they collectivize. Never have Broker/Owners been in a weaker position. The owner’s asset value plummeted in late 2005, the end of the last “Power Cycle.”

REALonomics views real estate markets in seven year cycles we call “Power Cycles”. The next Power Cycle will peak in about 2012. Each Power Cycle contains a set of operating “circumstances” made up primarily of

1. Emergence & adoption of new technologies and operating methodologies;
2. Diminishing inventories and price adjustment shifts;
3. Consumer demand (pent-up) with investor opportunity;
4. Favorable finance conditions where ROI is suitable and predictable

Big Fish Swimming in Multi-Branded Schools

The biggest brands of tomorrow will be multi-branded coalitions. This is the logical result of an industry whose customer is decidedly unfaithful to brands and in order to re-margin the industry requires multiple brands owned by a single entity operating in open markets. The Home Services model.

Those of us who actually own or have owned real estate companies clearly understand that brand value in the market place peaks quickly and then rapidly plummets. The fabric of daily market activity has almost nothing to do with brand and everything to do with the management of a company, its service culture and the quality of its sales force (a.k.a. “agents”).

The brand opens the consumer door, slightly and never permanently. After the door has been opened it’s about the owner, his/her culture and management and the professionalism, skill, knowledge and ethics of the sales force.

Big fish know this, that’s why they multi-brand in single markets. Franchisors know this, but pretend not to in order to control markets. Small fish know this, intuitively, but cannot execute multi-brand constructs due to resource deficiencies…it’s the money, as always.

Big fish redefine the ecosystem within the aquarium. This is smart and necessary for economic survival. Big bucks realty is the principle of Darwin’s natural selection and the survival of the “most fit” among us as we swim our way through the murky waters of the aquarium.

The Power Cycle Analysis - Shifting into High Gear

Our Power Cycle phenomenon is real. The industry is wrestling with coherent technologies that will change its modus operandi. We are currently in a consumer trough where our clientele have diminished in number and where they continue to reject most of our style and service models, craving for more transparency and less hype. Inventories are at all time highs, price points have muted absorption. Investors have retreated and the mortgage markets are in a lock-down mode. These factors are nearly always the conditions of a Power Cycle in decline.

On average, it takes 18-36 months for the cycle to re-ignite and this can only occur when all of the ingredients are present to create the Power Cycle ascension. The Power Cycle is typically sparked by the introduction of new technology AND industry innovation.

The first Power Cycle in this graph was the adoption of the Internet as the primary means for marketing real property to consumers. The next Power Cycle will most likely be fueled by the renovation of the current MLS system with all of its anti-consumer controls in favor of open market transparent models. There are many factors not included in the Power Cycle graph in order to simplify its presentation.

The industry is developing into what REALonomics believes will be a “Big Bucks” model where some participants in the crowded aquarium will be absorbed. This includes entities in the franchise, technology, Internet, brokerage, mortgage and title industry.

It will take more money to operate in the new ecosystem. Margins will be thinner and correct modeling will become paramount to survival. Most importantly, however, is the fact that sustained ROI and long term asset development will come from new found money sources, not necessarily the old traditional money.

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REALonomics is the business of analyzing business models, in the ever illusive Quest for Model Perfect and of course, providing broker/owners with input and opportunities for creating consumer-centric business models.

We have decided to implement “shops” as a part of our offering to real estate owners and the industry. Shops are nothing more than inquiries designed to ascertain the accuracy of claims and the level of service given consumers by various organizations. Shopping the quality of an organization is not done to embarrass or discredit them. In fact, REALonomics will not post negative information gathered from its shops wherein organizations are named or derided. We will post the positive qualities of organizations, however, and name them.

REALonomics decided to shop organizations that position themselves on the Internet as “International Real Estate Companies” and providers of International Real Estate services to consumers. We went at this with only one criteria, which of the companies found on the Internet by casual organic search provides a consumer with the easiest access to international properties and direct contact with local real estate professionals in well, France.

We wanted a direct French Connection in a specific community in France that could provide us, not with US representation but French representation for a potential real estate investment.

Cracking Open a Google Search for a French Connection

A Google search of “international real estate” yields 109,000,000 opportunities for the user! Switching the search terms to a more broad set of descriptors designed to highlight international companies, “international real estate companies,” yields 172,000,000 results.

But what captured the attention of REALonomics was the list of well known companies identified by Google as being “international real estate companies” that appeared in the organic search on the first page. Here’s the list in order of appearance:

1. Leading Real Estate Companies of the World
2. RE/MAX Residential and Commercial Real Estate
3. ERA
4. Keller Williams
5. Sotheby’s International Realty
6. IRED - International Real Estate Digest
7. Realty Executives
8. Coldwell Banker
9. Weichert

This is truly an impressive list, dominated by well known, highly respected and successful US real estate franchisors (pages 2+ of the Google search lists more!). Let’s get to work, shopping.

Where in the World is Pascal Chevaux?

Three of the companies on the Google list are NOT traditional real estate brokerage companies, these are, Leading Real Estate Companies of the World, Sotheby’s International and IRED. Rather, they are listing services for real estate companies claiming to be international. We tapped into these websites as a consumer might. We wanted to see if we could find what we were looking for, a brokerage firm and property in a specific European country, France. This proved a frustrating experience as we attempted to actually find the cyber path that would lead us to the “International Real Estate” brokers and properties.

So, REALonomics shopped three of the traditional US franchise companies on the list via email (they will remain anonymous) and asked specifically if their International Relocation Department could put us in touch with a broker in a specific city/area of France, our French Connection.

The results were interesting. We received auto replies from two of the three companies we selected. Essentially, the auto responses said they would be in touch soon. One has not replied to the email request at all. Of the two that auto-responded, one of them did get back to us with a great link to their franchise’s French real estate website…a great site and helpful but not the total solution. Because REALonomics was impressed with this company’s truly International Real Estate presence we will name them and show you the link.

ERA was the company with a very impressive online International Real Estate presence. ERA has an excellent web presence that is professional and pleasant to the user. The other interesting thing about ERA’s French website was the ability of the user to view the site in multiple languages. The link sent to us by ERA for French real estate directed us to ERAFRANCE. One thing ERA could do on their company web page is place direct text links to the countries that are a part of their International Real Estate Network.

The second company sent an auto response that included links to agent information within their franchise and a statement that they would try to respond within 24 hours because our request was “their number 1 priority.” As of this post, no response.

Where in the World is Pascal Chevaux?

Of the sites listed by Google as “International Real Estate Companies” we believe the best consumer-centric international real estate website was Sotheby’s International. Why, because it actually demonstrated three important features. First, a vast array of international properties in multiple property types is available for viewing.

Secondly, it was not a mash-up (collection of companies aggregated to one location) that simply serves as another search engine that must be endured by the consumer who is required to mindlessly click through hundreds of links to find a French Connection. The consumer could actually plunge right in with property previews anywhere in the world.

Finally, perhaps more importantly, real brokerage firms, addresses, international telephone numbers and properties in foreign countries that users can access WITHOUT being required to register. Truly consumer friendly. Here’s our French Connection.

Contact: Chevaux, Pascal
1, rue du Mont Baret
Veyrier Du Lac
Veyrier, Rhone-Alpes 74290, France
Tel: + 33 - (0)4 - 50 68 19 38
Fax: + 33 - (0)4 - 50 69 13 58
Languages: English, French

At Sotheby’s I found my guy in less than 5 minutes…enough said. Our congratulations to Sotheby’s for their superior globalization and consumer-centric, consumer-friendly model.

Our industry has come a long way with its Internet technologies. We still have a long way to go with respect to consumer access, ease of use and prompt human interaction to email requests…please, turn off the auto responders. Please, eliminate the requirement to register. Let’s move toward a more transparent real estate industry.

LET US KNOW IF YOU HAVE A SUGGEST FOR AN ASPECT OF THE INDUSTRY YOU WOULD LIKE SHOPPED BY REALONOMICS.

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One of the REALonomics colleagues forwarded this fascinating presentation for our review (thanks Chris, good find!). We thought it noteworthy as it underscores the globalization of the economy, the shift from west to east and undoubtedly the massive changes that will come to our world in the future. We are posting this for our users to review and for all of us to imagine what our real estate business models can become when we embrace the shifts coming our way. Your comments are appreciated and don’t forget to vote in the REALonomics polls.

Click the arrow below to play.

Your comments are appreciated and don’t forget to vote in the REALonomics polls.

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