Management Principles

REALonomical: an Economic Mentality

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.

Read more

Unlocking Franchise Economics: Pt 1

Although relatively new, franchising has a powerful presence in the historical flow of the real estate industry and has shaped many outcomes and market realities since its inception.

Some broker/owners would claim that a franchise has made them incredibly successful, while others would say they have failed miserably with respect to leveraging a franchisor’s brand and its prima fascia value propositions.

However, despite the predominance of real estate franchising a large number of real estate brokerages still prefer their independent status and some of these have become their own franchised brands, capitalizing on the economic dividends available to them through leveraging themselves.

Although franchising is a powerful force within the industry, REALonomics believes there is still too little careful analysis and quantification of franchising’s market and economic value on the part of owners.

Quantifying a Franchise Value Remains Elusive

In addition, the ability to create economic performance models for a franchise, judge its market impact on a forward moving basis (trending), fully understand the costs and benefits to owners, agents and most importantly, to understand with as much certainty as possible the way in which consumers view franchises, remains quite elusive.

Franchising is a powerful economic consideration for broker/owners and an initial term can represent as much as fifty percent of the life cycle of a contemporary brokerage firm. For some time, franchisors have been negotiating initial franchise commitment terms that will run more than a decade. Another perspective is to consider the lifespan of an executed franchise agreement in terms of the changes that will occur within the industry during this “initial term” of a franchise agreement.

REALonomics will be posing questions, analysis, insights and extending some limited advice regarding how broker/owners can unlock the door to franchise economics. It’s this door that we believe is the key to identifying the benefits to adoption of a real estate franchise.

In true fashion, we will steer our spotlight of analysis and critique on the not-so-oft understood downsides of franchising. We will highlight and accentuate the benefits as we see them. We will ask the powerful questions that should be asked of franchisors who in turn ask broker/owners to pledge their companies to a particular brand at a cost that can sometimes be astronomical.

Framing the Franchise Analysis Correctly

We will help frame questions broker/owners can use to ask franchisors to quantify their economic delivery, their stated marketing value propositions and to clarify the broker/owner’s recourse for sub-standard performance on the part of a franchisor. We will suggest ways for franchisors to remodel some of their old propositions and presuppositions that cannot and do not create value for owners and how they can and should be delivering transparent, consumer-centric solutions that can differentiate them with owners, the market and consumers.

This will be fun, challenging and perhaps a little ugly at times. At the end of the day we hope REALonomics delivers some value to broker/owners, to its general readership and to franchisors.

We want our readers to be a part of the content, so your posted comments, insights, experiences (good or bad), together with private emails and other communication with us will be welcomed by everyone.

Our objective is to see if we can unlock the door to franchise economics, since the state claim of real estate franchisors is their delivery of an economic enhancement and a stronger overall market asset. Broker/owners need to know how a franchise can and should perform on their behalf and how to make the critical judgments associated with the cost versus benefit relationship.

Some initial questions about franchise value might include the following:

1. What is a franchise worth to an owner, i.e., what should today’s initial and ongoing cost be? How do franchises differ from one another, if at all?
2. What is the preeminent economic value of a real estate franchise to Broker/Owners and to agents? Why have new franchises such as Keller Williams and EXIT Realty been successful in the midst of a very crowded playing field?
3. Do consumers have predisposition toward franchise names or, are consumers neutral when it comes to loyalty?

Broker/owners, franchisors and agents are invited to post comments about their franchise experiences, good, bad or indifferent. If you wish to communicate but do not want to post a comment you can use our traditional Contact Form.

Yikes! What have we started now?

Our Genie is on the Loose & Fresh out of Wishes

REALonomics understands the real estate industry, both its abstract side and its empirical dimensions.

We have been inside, outside and throughout the industry for quite some time. Our vantage point has changed, enabling us to see what we heretofore could not. In the world of business development and economic analysis one’s vantage point can bring the kind of insight that frankly, changes one’s faulty fundamental assumptions while confirming sound precept.

REALonomics now realizes, without further equivocation, analysis or debate, that our industry’s real estate genie has been released from its bottle and is fresh out of wishes!

Pushing the Vapor Back into the Leaky Bottle

From here on out, all attempts to capture the vapor, return it to its confines and cork the RE bottle will fail.

The Genie that once belonged to us, obeyed us, served us and made us what we once were is loose and fresh out of wishes.

The bottle is tarnished. Rubbing the bottle produces nothing. Our Genie is loose and now serving multiple masters simultaneously, none of whom, save one, the consumer, has sway over the Genie’s capacity to grant new wishes.

It’s impossible to bottle this kind of vapor; its seepage passes through the tiniest of spaces, spilling into the open atmosphere, moving where it wills to go. Where does the Genie go? It ALWAYS takes the path of least resistance, shunning confines, rejecting control and moving to open expanse where it finds its ultimate economic freedom.

Bottling the vapor no longer creates reliable “RE Economic Tonic” for the industry. The vapor is meant to be breathed, not bottled.

RGB, NGB and NGCs

Retail Generation Brokerage (RGB) used the bottle to control the Genie in vertical markets where the consumer was required to submit to the model in order to invest in real estate. Net Generation Brokerage (NGB) is the post 2000 freedom model where horizontal peer collaboration is replacing hierarchal control models.

The real estate industry is now the most vulnerable mainline industry to peer-to-peer models where the consumer and the Genie meet up for property inventory data exchanges and local community collaboration. The context is different and the conversation is different. Both the Genie (property and community information) and the consumer have reached agreement…FREEDOM Rules, open space ROCKS!

Vertical (retail, local style bricks and mortar) real estate brokerage models are being quickly replaced with a viral model, spread by a Genie on the loose and fresh out of wishes.

Two dangers to the industry and its economic models occur in this environment. First, there is the danger of complacency, of not re-tooling our economic ship so that it can operate fluidly in a viral, horizontal world where profitability is defined by open, collaborative peer models facilitated by the real estate industry.

Secondly, and perhaps more importantly, there are now signs of the emergence of what REALonomics calls “self brokering” whereby and wherein the consumer creates their own economic reality, ignores real estate professionals, only calling on them if they must and when they so desire for services they define for themselves.

The next generation of “consumer-buyers-sellers-clients” that will fuel the recovery and beyond will be Next Generation Consumer (NGCs) whose informational points of reference are alltogether dissimilar to old line retail brokerages.

Great News and More Great News!

Great news! The Genie, once our beckoned servant, existing only to accomplishing our economic wishes, rather than rejecting us, invites us to follow into new the new economic space of opportunity…to collaborate, to join the viral horizontal world of the consumer with new approaches to property information management and peer-to-peer community information services.

More great news! Never before has the industry and its adherents been afforded the opportunity to engage in a kind of real estate information alchemy, where our old lead bottle can be turned to a golden horizontal field of freedom for both us and our partner, the consumer.

Broker Finds Market Solution on Mars!

A Broker from Miami believes he has discovered a possible solution to the real estate market crisis facing the United States. Surprisingly, the solution was discovered on Mars. Yes, Mars!

“When I first saw the NASA photo, I knew instantly that is was cocaine embedded and growing in the Martian real estate,” said Marty Turf, Broker/Owner of Turf Realty in Miami, Florida. “NASA said it melted when they scooped it up…oh, come on…the wind blew it away, everyone knows what happens when you try to scoop up snow when the wind is gusting,” he replied, sniffing loudly to clear his sinuses.

NASA’s official response to the photo was, “it’s just ice.” Turf believes it is not ice but a sign of real estate recovery through new, highly innovative marketing approaches…in fact, he has approached the National Association of Realtors (NAR) with a proposal that would allow certain properties to be induced with approved narcotics in order to improve their value.

NAR Considers Several Proposals

Marty believes that real estate cocaine may provide a solution to the real estate market depression hitting Florida and the rest of the country. He is determined to seek approval from local and national authorities, such as NAR to hide (embed) cocaine in the soil of carefully selected distressed properties, thus increasing their street value (the house, you dummy! Not the cocaine!).

NAR gave no immediate or official response. But insiders tell us that NAR is reviewing a proposal from Mr. Turf. A former NAR official, wishing to remain anonymous, remarked, “This is the first glimpse of any new marketing strategy that could help bring the recovery we’re all looking for…I for one would favor seating a task force to look into the concept of marketing property that has been infused with prescription drugs but not cocaine, heroin and other hard drugs…this would allow property owners and their personal physicians some degree of anonymity under the physician/patient confidentiality ethic.”

NAR faces many obstacles as do Broker/Owners who are considering adoption of new, innovative and exciting marketing programs that move away from websites, real estate magazines and blogs. Since the Martian photo hit the Internet, ideas have been pouring into NAR to consider including traces of Prozac, Ambien and other prescription solutions as substitutes for Martian or other cocaine.

“Nothing could be more consumer-centric than this, let’s forget blogging and social media for just a minute or two and look at what people really want,” said Betchu A. Dime, one of the real estate industries preeminent bloggers on her blog www.WhiteXmas.com.

SNORT Speaks

One analysis submitted by the Washington based group known as the Strategic National Organization for Realty Transformation (SNORT) boldly proclaimed, “Property values could be immediately and substantially increased…almost overnight…creating a wave of new mortgages, inspections, title and escrow services and yes…a new round of wealth.”

SNORT‘s report also stated, “People who are standing in the way of this initiative proposed by Mr. Turf are standing in the way of a new real estate appreciation cycle that could escalate prices as much as 50 percent in just a matter of days.”

One Tampa homeowner declared, “We have all been funding NASA for years, it’s time we got something for our money…I’m in favor of cocaine marketing solutions!”

A Palm Beach condo developer had his own spin. “This could revolutionize the dying condo market, bring a whole new definition to ‘undivided interest’ and provide association members with new reasons to celebrate!”

SNORT’s Public Relations and Marketing Manager, Line S. Upsomemore, reports that phones were lighting up from cities around the country. “Most people just don’t care what it takes, they just want their property values high and the opportunity to find a buyer,” said Linus.

NAR could not be immediately reached for comment. No response is expected until after the 4th of July holiday weekend.

Bill Gates – ’92 Predictions

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.

« Previous Page — Next Page »