Syndicated from e-Partner
Owners are engaged in the delicate balancing act; walking on the razor’s edge, barefoot.
Slicing into Profit
The razor upon which owners must balance themselves is now slicing so deeply into revenues that profitability is now proving more and more illusive. Today’s Broker/Owners are confronted with an economy that is not rebounding fast enough to enable them to survive.
e-Partner has long held that Broker/Owners are the financial backbone of the real estate industry and that their survival should be one of the top priorities of our industry through 2010.
Our Bleeding Feet
The razor’s edge takes no prisoners and yields no concessions to owners who are struggling to meet their ever increasing general operating expenses. Trapped by the same economic factors faced by other businesses, owners are looking for ways to decrease fixed and personally guaranteed obligations.
e-Partner talks to owners from every brand and those who are independent and the story is generally the same. There are simply too few closing and too much bricks-and-mortar operating expenses. “There is just not enough transaction commission to meet the monthly demands we have,” one broker/owner told us.
Agility, created and sustained, is the first of the Ten Commandments of the New Real Estate Economy.
Although we are not quick on our feet, the razor’s edge is sensitizing us to perils of standing still for too long in one place. Our bloated organization body weight presses down on the sharp stainless steel edge and this slices away large chunks of capital required to sustain retail models.
New principle: the razor’s edge is now an owner’s continuing reality and he/she/all of us will learn to walk on this edge nimbly and quickly or, we will be cut to pieces.
Brokerage economics is undergoing a massive reordering. The way Brokerage firms make money is changing faster than our ability to absorb and adapt to the demands of the New Real Estate Economy.
To be “REALonomical” actually means something. REALonomical enterprises recognize the facts surrounding their business models and how those facts play out in real world situations, producing predictable and sustainable ROI. REALonomical is a brokerage mind set and it has something to do with how we model the financial aspects of a company in light of the Third Economic Wave; The Consumer-Centric Era.
It was Once a Simple World
During the First and Second Economic Waves of the real estate industry the model math was fairly simple and easy to interpret. From this interpretation we developed strange economic terms we called “desk cost” and “per person productivity” (ppp). Such economic models delivered notions of profitability because we could run formulas for operating our “offices” and hypothetically project our margins. Our simple formulas appeared as:
Gross Commission Income (GCI) – Cost of Sale (COS) = Gross Company Dollar (GCD). From the GCD, expenses were paid and profit, if any, was realized.
It was a simple world then. Broker/Owners understood how to create profit. Physical space was a huge part of the formula and for many years “cyber” was something we read about in Batman comic books.
Too much of the real estate industry is still living in the former model while being confronted with the transformative power of the cyber model.
When the economy did poorly, real estate introduced wealth.
When 911 all but destroyed our faith, real estate restored the American Dream.
In many occasions, and in many years, real estate has been the rock to depend, or in some cases even the rocket to ride to riches. But times have changed and the bright years of 2000-2005 have become a dull memory.
It’s not really that real estate itself crashed and burned, but that with new construction out of control, speculation spiraling and lending becoming irresponsible, the burden real estate had to carry became to heavy and the first nail in the coffin ground what was a good thing, to a halt.
Collapsing financial institutions led to immense write offs, allegations and actions of improper conduct led to finger pointing and investigations that in turn led to layoffs and disaster.
With unemployment steadily rising and home prices in a constant month by month decline, the real estate market is brittle and cautiously teetering on which way to go.
With the unprecedented rally of crude oil tethering at $150, and now two government-sponsored entities, Fannie Mae and Freddie Mac possibly requiring government bailout. The pair guarantee around $5 trillion worth of mortgages Ã¢â‚¬â€œ that’s almost half of the $9.5 trillion debt of the United States. I think we have just witnessed the second nail being hammered into the heart of real estate. Not good at all.
Let’s pray and hope that we don’t have a third nail Ã¢â‚¬â€œ a major terrorist attack on local soil in the foreseeable future. Barring the above, the road to real estate recovery is going to be a slow and bumpy one. Most likely it may only pick up momentum during or after 2010 Ã¢â‚¬â€œ especially for areas such as Florida, California and Las Vegas.
So for those of us that earn our daily bread from real estate my message is a simple one: Batten down the hatches, expand your horizons, re-engineer your company, automate your business, market more online Ã¢â‚¬â€œ yes, maximize every opportunity. Survive the years 2006-2010 and come out the other side with an automated, more efficient, new paradigm, consumer focused real estate model and you may very well find yourself in the front row to become the Amazon, EBay or Google of real estate.
This post is also posted in Inman Community under the title: Three Gold Stars and Two Rusty Nails.---------- View Marketing Messages Below ----------