realonomics

Editorial by Stefan Swanepoel

I would like to share with you the fantastic afternoon I had this last Saturday. My wife and I had the privilege of being invited to the two hour Saddleback Civil Forum with Senator Barack Obama and Senator John McCain. This was the first time these two presidential hopefuls, and expected nominees for the Democratic and Republican Parties, shared a public stage.

Rick Warren, author of “A Purpose Driven Life,” and pastor of our Church, Saddleback in Lake Forest, had organized for Obama and McCain to come and present their views on important issues.

The Atypical Conversation. This was not your usual political debate with read-the-teleprompter canned speeches on pre-approved political questions. No sir. This was about the real stuff – the big subjects – topics we usually do not hear about in a presidential face-off.

On Sundays, Rick is usually dressed up in a Hawaiian shirt, but this Saturday was different – he was in a dress shirt, no tie and suit. Rick himself is an excellent and inspiring speaker but the afternoon wasn’t about him.

During the forum Rick first posted questions to Obama before asking McCain the same set of questions. Topics covered aspects such as personal values, religion, abortion, marriage, education, evil, stem cell research, energy and their respective vision for the United States.

Obama was enthusiastic, but gave answers that left one often confused with his commentary falling on “both-sides-of-the-fence.” His weakest answer was probably when he replied that’s “above my pay grade.”

McCain’s appeared more comfortable and his replies were short and concise. His weakest answer was when he jokingly replied that $5 million annual income would qualify as “rich.” 

As Rick noted, it was clear that both care deeply about America.

The Forum Got Me Thinking.  It was the best and most honest political debate I have heard in decades.  Overall it was a very interesting and eye-opening experience – this got me thinking. What if we could have a Real Estate Forum like this one but where someone like Dale Stinton of NAR would ask the candidates’ questions directly related to real estate, housing and the mortgage crisis? Items that are of direct importance to our industry.

Wouldn’t that be great! How about it Dale, think NAR could pull an event like this off?

Watch the Saddleback Civil Forum.

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A few weeks ago, both NAR and the DOJ announced a settlement of the suit broought by DOJ against NAR reagrding its VOW policies and competitive restricition created by the policy.

Here is the official scripted response by NAR from Vicki Cox Golder, 2008 NAR First Vice President & Laurie Janik, NAR General Counsel. NAR President Dick Gaylord is also featured here.

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We are facing a new syndrome. BBS. Busted Broker Syndrome. Exactly what is BBS, what are its symptoms, what creates it and how is it treated?

“Busted” is not used here as an economic term rather, it is an emotional and mental term that refers to the ability of Broker/Owners to cope with the industry and its myriad pressures, changes, challenges, costs and operating demands.

“I’m burned out, I’m broke and I am busted…I can’t keep up any more,” said one broker to me in a recent conversation. “I want to execute…I can’t execute…I don’t know what to do anymore and I no longer recognize the industry I have been a part of for more than two decades.” “The money is gone, my strength is tapped, my will is gone and my attitude is in the tank…I’m on the edge.”

What is BBS?

BBS is an insipid malaise. Although not officially recognized by the Centers for Disease Control (CCD), make not mistake about it, BBS is real. Ask any Broker/Owner who is willing to engage in a transparent discussion.

BBS begins with the onset of market change, disruption and rapid business evolution that renders the Broker/Owner’s ability to adjust his/her business model to the prevailing transformations taking place within the industry.

Result? BBS increases, confusion, tension and economic and personal stress on Broker/Owners, often causing them to lose perspective regarding their appropriate roll as visionaries and leaders within their company. This diminishes their ability to consistently deliver sound, well-thought-out business solutions to their organizations.

BBS is primarily rooted in the potting soil of industry and market transformation where demands far outweigh the capacity to deliver solutions. BBS is stress that Broker/Owners face in a rapidly changing industry. BBS erodes the self-motivation, self-confidence and even self-esteem of Broker/Owners.

BBS thrives wherever a Broker/Owner is operating a traditional brokerage business environment that is confronted with changes it does not understand, cannot readily adapt to and seemingly cannot control. This is the optimal eco system for the onset and growth of BBS.

Symptoms of BBS

BBS begins with a set of often ignored emotional symptoms that find their ultimate expression in the actions and reactions of the Broker/Owner. Again, rapid, unchanneled and uncontrolled change is where BBS thrives…change is not where Broker/Owners thrive…thus, the two are in conflict from the outset.

Symptoms of BBS start with a sense of fatigue and diminished motivation when faced with the daunting challenges of a rapidly evolving industry. Stress begins to cloud business judgment and creativity is replaced with survival instincts…hanging on, hoping and waiting for a new market cycle and a general inability to create outcomes.

Other symptoms include poor financial judgments, borrowing excessive amounts of money in order to keep the brokerage operating, neglect of fundamentals such as recruiting and market expansion, technology and Internet solutions designed to curb overhead.

Under these conditions loss of hope, despair and depression can take hold of a Broker/Owner so that he/she can actually become immobilized and sometimes unwilling or unable to cope with the obvious needs of his/her company. Things grind down and sometimes the organization ceases to exist as it once did or, unfortunately, doors are closed.

Broker/Owners are becoming increasingly disillusioned with their position within a rapidly changing and chaotic industry. Like anyone, when a person of leadership is overwhelmed with too much change too fast, that person can feel as if he/she is clinging to life on the edge of a precipice.

Symptoms of BBS often include an attempt to move faster than is necessary, less than optimal decision-making, diminished objectivity, poor financial decision-making, short-sightedness, erosion of personal relationships and a sense of doom and gloom. Folks, this is real stuff!

BBS is real. It’s not a joke. This post is not hyperbole or satire. This is not humor. We are dealing with real people who run thousands of real estate companies. We at REALonomics talk to Broker/Owners almost every day. We hear their stories, listen to their frustrations and attempt to console them by delivering some business solutions to their market and financial dilemma.

Something new is emerging as we listen, dialogue and coach. There is a very real set of emotional, financial and operating issues facing Broker/Owners specifically and real estate practitioners in general. As an industry we have little or no emotional or financial mechanisms for assisting career Broker/Owners who are overwhelmed. Why?

Causes of BBS

What are the specific causes of BBS? There is an emotional, psychological and spiritual dimension to all businesses. We call it “culture” or “model” or something less dramatic in order to distance ourselves from discussing sensitive, deep dimensions of an owner’s dilemmas in operating and sustaining a real estate business.

The causes of BBS are diverse and complicated. BBS isn’t like the common cold that comes and goes in a few days. The influences of BBS take place over the long haul. BBS gains momentum within a Broker/Owner who really cares, who keeps plowing his/her field…the one that takes care of his/her agents, participates in the local, state and national organizations and is always trying to do what is right.

BBS has a common set of causes, however. The biggest cause of BBS is rapid, overwhelming change followed by a lack of preventive inoculations such as access to powerful business models that work, personal coaching and capital.

BBS is caused by a sense of inadequacy that grips an owner. This inadequacy, left unchecked, extends itself into the capacity of the Broker/Owner to implement new operating models called for in the consumer-centric era.

BBS can cripple an Owner’s ability to re-inventing his/her business, creating a perception of isolation (yes, one can be public and still be isolated). BBS works over time creating confusion, anger, guilt, frustration and a sense of hopelessness that can overwhelm Broker/Owners.

The real estate industry is clearly in the throws of an upheaval that can potentially annihilate our most precious resource, the career leaders, Broker/Owners. These are the men and women who have been on the front line for a long time carrying the financial and leadership load. These have become the vulnerable ones.

Solutions and Cures for BBS

Unfortunately, there is no quick-fix solution. However, if our industry values Broker/Owners, and we know it does; and if the franchisors value their Broker/Owners, and we know they do; and if our myriad local associations, core service providers and others value the important place Broker/Owners occupy within the industry, we should have professional, business and financial support mechanisms in place that can bring assistance to Broker/Owners in time of need.

REALonomics believes that the plight of Broker/Owners is reaching dangerous levels. Much of the situation is swept under the rug as Broker/Owners quietly close their doors and walk away from careers that sometimes span decades.

REALonomics believes that the situation could become pandemic resulting in the loss of much of the industry’s true talent and leadership. REALonomics believes Broker/Owners are core assets to the industry and assets should be treasured, protected and supported during difficult times with business and financial assistance as well as development coaching and peer support.

We face a couple of huge glitches standing in the way of assistance. These have always been part of the culture of being a Broker/Owner…pride and ego. Our healthy sense of self-determination among Broker/Owners is good and admirable…mostly. But under these circumstances and at this time, some Broker/Owners will have to stop pretending, drop the pretense, lose the ego and reach out for help to those they can truly trust and those who actually care about them as people, not as pawns in the real estate industry’s game of market chess.

How many psychiatrists does it take to change a light bulb? Just one, but the bulb has to really want to be changed.

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There’s a bear in the woods of the economy and in the real estate sector in particular…he’s tired, angry, confused and very hungry. His insatiable appetite can no longer be assuaged by an industry lacking the fortitude to initiate collective, pragmatic and meaningful change to its business model and its relationship with the consumer.

Who is the bear?

As REALonomics forges this post, we estimate that nearly 40% of all real estate brokerage firm owners are the edge of financial collapse. Agents are leaving the industry for jobs at the malls. One said to me, “hey, I gotta eat.” The bear grunts its disapproval and hot steam shoots from its nostrils.

Who is the bear?

While the mortgage industry scrambles around attempting to locate financial relief, 1.8-2 million homeowners will experience up-ticks in their adjustable rate loans in 2008. The money changers are reaching out to foreign investors for capital due to a weakening dollar, indications of recession, bailouts of some of our most cherished lending institutions. Countrywide was just absorbed by Bank of America in what has to be one of the sweetest deals in decades. The bear rumbles through the woods, pacing and snorting.

Who is the bear?

Title and escrow companies have already started trimming, not the Yule tide tree but rather, their staffs…more layoffs are just around the corner…office consolidations are underway…middle managers are updating their resumes…sub-leases opportunities are growing. The ability to sustain the overhead and retain experienced personnel is waning. The roar of the bear is deafening and its hunger is obvious.

Who is the bear?

The landscape of contemporary and financial relevance is starting to shift under the feet of real estate franchisors whose transaction revenue streams have plummeted to amazingly low levels. It’s likely that franchising may become a negative growth industry in 2008…this will be a first since 1976. Wanna buy a real estate company? Eight of ten may be on the market by mid 2008. Market value, zero. The bear stalks the woods, its movements tracked by the sound of snapping branches.

Who is the bear?

The National Association of Home Builders (NAHB) reports are full of sub-prime finger-pointing and predictions that new home recovery will rebound in 2009. Some Midwest markets report that contractors are simply shutting down, packing up and walking away from unfinished projects and unfinished home construction jobs, leaving owners in a lurch with no trades available to complete their project. The forest belongs to the bear and no segment of the terrain is beyond its reach.

Who is the bear?

Finally, the National Association of Realtors (NAR), with declining membership and revenue, while locked in an ongoing and costly herky-jerky legal dance with the Department of Justice (DOJ), recently announced its plans for change, relevance and transparency as only it can define it…drill-down pseudo Web 2.0 mapping for major markets via www.Realtor.com coupled at the neighborhood level with FSBO MLS listing opportunities through www.HousePad.com. Indeed, strange bedfellows. The bear’s ears are penned to its head, flattened in an instinctive response to a threat…he rises on his hind legs, assuming a posture of potentially fatal engagement.

Does a bear sit in the woods? If so, who is the bear?

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The National Association of Real Estate, NAR, has “power”… no, let’s restate that…NAR has “authority”…hmm, still not right…NAR has “opportunity,” there, that’s it…just right. NAR has opportunity.

NAR’s historical imperative has been, admittedly, “stick-like.” In fact, that’s been our industry’s posture with respect to its delivery of property information services to consumers. But now, as everyone scurries for solutions, NAR has perhaps its greatest opportunity…EVER! It’s our opportunity to move from consumer control (stick) to consumer advocacy (carrot). After all, wouldn’t we all admit that the carrot motivates us in ways antithetical to the stick?

Death to the Stick

For decades our real estate business models have attempted to poke, prod, stick, gouge and direct the consumer in ways that create the perception (remember, perception is everything) that control is at the core of our relationship. We designed and operated our business models with ourselves at the center and the consumer revolving around our local associations.

Consumers were granted access to information because we existed, because we allowed them the privilege to know…but, they always had to come to us, to our agents, to our buildings, to our open houses, indeed to our market…this was our STICK.

This is what REALonomics has referred to as the Broker-Centric ERA or, the First Economic Wave of our industry’s development.

The Broker-Centric Era gave way to the Agent-Centric ERA, the Second Economic Wave of the real estate industry. But this era was nothing more than the transfer of the stick into new hands with a corresponding transfer of economic control via high commissions.

NAR represents the interest of the real estate industry, its broker/owners, agents and advocates. A “No Stick - All Carrot” approach to property information is not only possible, it’s imperative and the logical next step in the fulfillment of the business requirements of a Consumer-Centric ERA, the Third Economic Wave of the real estate industry.

The “Stick” has been rejected by the boomers, by generation “X” and there is no way this side of rational thinking that generation “X” is going to opt-in to a system that controls information. We will not prevail against iPods, iPhones and blackberries. We are witnessing the Democratization of Real Estate. what will happen to us when we suddenly wake up and 2+2 no longer equates to four and instead 2+2=5.439 or some other economic resultant.

Carrots, Carrots and More Carrots

Carrots are good for you…so said my mother…that alone makes “carroting” right! The Democratization of Real Estate demands the “carrotization” (is that a word?) of the models we use in a universal market where the consumer dictates profitability based upon freedom of access.

The real estate industry is being redefined and the profitability equation is being rewritten by the consumer whose hand is on the joystick of profitability. “Do it our way, or die,” is the subtle but real high stakes game we now play.

Stick and carrot examples:

STICK: Property information controlled by local associations.
CARROT: Universal property data accessible by all consumers.

STICK: Direct Seller-Buyer dialogue prohibited by agency advocates.
CARROT: Local blogs delivering local Seller/Buyer conversations.

STICK: Local MLS systems as the sole means of property information.
CARROT: Multiple portals allowing national consumer listing services

STICK: Broker controlled access to real estate transaction forms and technology.
CARROT: Online paperless transaction models with universal data management.

STICK: Inhibiting consumer access by creation of artificial market borders.
CARROT: Implementation of a new set of common rules for market access.

STICK: Broker/Owner territorialism defined by franchisors to owner detriment.
CARROT: Open market models that foster horizontal development.

STICK: Time consuming, awkword and expensive transaction closing models.
CARROT: Fast, 24/7/365, universal access to paperless transaction details.

STICK: Mortgage and title services that require extensive paperwork.
CARROT: Fully transparent lending models that foster ultimate disclosures.

STICK: “Listing services that are property and place specific.”
CARROT: “Universal listing plans that guarantee the sale of all property for life.”

STICK: (go ahead…fill in the blank…what stick do you see in the industry?)
CARROT: (got a carrot…stick it in this slot…go ahead!)

NAR is much like a large governmental body…an entity empowered by the real estate industry to act on its behalf and in its best interest. NAR has the opportunity to help us shift our model from a stick mentality to a carrot technology…can it? Can we? Will we? Will it? They are us, we are them.

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