NAR

Mug Shot: A New Front Face & Profile

We have entered a New Real Estate Economy. Our business models will be order by a new set of rules and realities which we have referred to as The Ten Commandments of the New Real Estate Economy.

The new economic rules and realities form the New Model Math for an industry that is morphing from its broker-centric and agent-centric roots to a decidedly consumer-centric model. Whoever writes the new rules and effectively addresses the new realities will, to a large degree, control the game and much of its economic outcome.

Mugging for the Camera

A new mug shot is emerging and we are finally able to sketch the features of the front face and profile of an industry whose economic and operating models are undergoing massive revision. What emerges will become the new real estate professional and business operating profile for the coming decade.

Images of the old mug of total brand separation, rugged individualism and attempts to have it all will become economically unfeasible. The consumer demand for services has raised the price of admission in an arena where there will not be many front seats. We will simply have to do more for the all powerful consumer than we can afford to do, this will be a huge economic reality that will lead to new operating rules.

Defining the New Broker/Owner Realities

New Reality 1: We’re moving at light speed and managing change will become a fundamental and deliberate action for business success. Broker/Owners will no longer need to throw themselves under the bus; the bus will simply run us down! Business will largely become the management of change in red hot crucible.

Our new Model Math reality must include what REALonomics calls “change management.” Manage change or watch your business erode. The changes will include brand new, never before seen models, that trim fat and speed up efficiencies…more specificity on this later in this post.

New Reality 2: Broker/Owners will see further challenges to profitability unless they adopt consumer-centric, transparent real estate business models that truly partner with the consumer. Things like true conversations in the market place that allow the consumer , peer-to-peer (seller to buyer and relocation transferee with resident) opportunities and a blogosphere the likes of which we can’t even begin to fathom.

It’s time for the industry to embrace the inevitable democratization of all things RE. And we will need to start with unfettered access to property information on at lease a statewide and perhaps eventually a national basis. This is our new reality. Grab it and go with it or see your business die.

New Reality 3: Coalition real estate. I can hear some of you asking, “what the…?” Coalition real estate is a REALonomics term representing a new type of merger/acquisition model that involves the creation of hybrid relationship between the strangest of bedfellows. The old M&A model will become scant, with new technology-driven relationship becoming a “norm” without anyone necessarily owning it “ALL.” We can’t afford to own it all, can we?

Coalition Real Estate is an economic “Club-Med” that enables us to have all things without having all things…arghh, this one is tough! In the New Real Estate Economy, coalitions will be a fact necessary to the management of change and the demands of the consumer. It will involve new agent sharing models, technology pyramids that collate the tools for groups of Broker/Owners to utilize with optimal price points. Transaction complexity within the lending and brokerage industries together with consumer demands will force us toward coalition strategies as a normal part of business.

New Operating Rules for the New Realities

The new realities push new rules into the market place and these new rules are the dots Broker/Owners begin to connect for optimal business model strategies. However, let’s not think that we have no control over the rule-making and design of the real estate industry for the next decade. Although many Broker/Owner have abdicated some critical authorities in the industry, it’s not too late to exercise strong influence on content of the new rule book.

Although REALonomics will not have time or space to qualify each of these new operating rules, the economic primer for them includes, but is certainly not limited to, the following ten industry considerations:

1. Deliberate reduction, as a matter of policy, in the number of real estate agents allowed to practice and thus a reduction in mediocrity.
2. Business entities that are set up to study, manage and influence industry change on behalf of Broker/Owners and the industry itself.
3. Refined definitions of the models and economic blueprints for core services utilized by Broker/Owners.
4. Partnerships and consolidation of services between competing franchisors – ouch! Indeed, franchisors face the same famine of profitability we all face.
5. Implementation of Paperless Tools for front and back end transaction management favorable to agents, owners and consumers.
6. Removal of the structural impediments inherent in the old MLS property models so that transparency and utility can become the norm.
7. Demolition of the local Association of Realtors model in favor of at least regionalization and ultimately, nationalization in favor of the consumer.
8. A new mandate for NAR that redirects and allocates our resources in favor of models and programs benefiting Broker/Owner profitability.
9. Adoption of high-speed, data-rich property evaluation tools, including rapid price evaluation technologies at affordable costs.
10. Replacement of old Internet lead generation models with transparent partnerships with the consumer.

These new business rules will evolve from the realities we now face as an industry. Together, these rules, with others yet to be articulated, will form our new Front Face and Profile.

It’s going to be a very cool decade ahead of us. Enjoy the ride, embrace the pace…enjoy the thrill. After all, you’re already on the roller coaster. Buckle up…grease the bearings…here we go!

Bloated Economics – Too Much of Us

Is the real estate industry bloated from an economic standpoint? Do we have too many people in the labor force?

We are one of only a few national industries that doesn’t feel the need to lay off people to improve economic performance. Why?

I know, I know, you’re going to tell me it takes care of itself, naturally, by attrition and the survival of the strong…something akin to big fish eating little fish. The REALonomics response? No, it doesn’t, please keep reading.

Floyd Wickman, the well known real estate sales trainer, once commented, “Real estate is a funny business…it’s easy to get into, easy to get out of and optional in between.”

Floyd is referring to the question of how to get an agent who is an independent contractor to actually show up for work, even when they don’t want to; the employee versus independent contractor tension.

Raise the Bar – Elevate the Standard – Vent the Bloat

Because the bar of entry into the industry has been set low and the cost of entry nationally is below $2,000, there is a propensity to bloat up. During the decade-long run-up a $2000 investment could easily yield a net annual return of $20,000 and even in some cases $200,000. A great investment by any standard. However, what happens the morning after the crash?

When a publicly traded company announces a layoff, buy their stock! Why? Usually, stock values climb over the short term when a publicly traded company lays off people. The reduction of their bloated workforce represent efficiency to investors and efficiency represent a better ROI. Unlike the real estate industry’s business models, other companies are actually trying to build long term equity and asset positions for shareholders.

Run the Industry like a Business – Order the Liposuction

What are the bloat statistics and what do they tell us? Plenty. And the news isn’t good. For example, consider the following data supplied by NAR:

• In 1975 NAR membership was 435,485
• In 1990 NAR’s membership grew to 810,607
• In 1993 NAR’s membership bloated to 976,960
• In 1994 NAR membership was 729,397, staying below this until 1999
• From 1997 to 2006, NAR membership grew 89.6%, to 1,364,196

In February 2007, unbelievably, the number of real estate licensees in California was still growing at 8.2 percent measured against February, 2006, rising from 486,395 to 526,308. According to national sales statistics, 50 percent of MLS participants have less than 2 transactions a year! Two! What happened to the so-called 80/20 rule?

Why can’t we streamline these insane numbers, that only increase the cost per transaction for owners and diminish profitiability? The issues are complex and have to do with such things as industry traditions, competition to have more agents than one’s competitor (a silly idea), cultural methods that overpower sound economic principles. Is it the Al Gore principle, “no governing authority?” Could it be that we as an industry are actually too entrepreneurial. Ouch…that’s going get some attention!

Do we really need this much of us? Who is us, anyway? Who should be us? How does this industry streamline its workforce just as other companies have been doing in order to sustain profitability during the downturn? Is this an industry whose participant must always endure the senseless feast-or-famine cycles without having any alternatives? It’s no wonder owners are not realizing the profitability they deserve for their time, talent and commitment to the industry.

REALonomics advocates massive layoffs, a higher standard of entry in terms of education, marketing skill and yes, entry and operating fees. What would happen if the annual cost for a seat at the industry’s table was $10-20k per year? Maybe NAR should go public and only shareholders with a minimal investment can be licensees and brokers? I can feel the hair rising on the back of some necks! Calm down, these are thoughts, designed to stimulate creative economic thinking.

There’s No One Quite Like Us

As the real estate industry remodels itself for the Consumer-Centric Era we ought to force ourselves into admitting, up front, in unabashed in your face terms, that there is no one quite like us. This is good while being bad.

Under the current business model structure there exists little or no stomach (no pun intended) for the hard business choices like those implemented by the mortgage industry with its layoffs and office closures. Yet, REALonomics believes we will eventually get there in our Quest for Model Perfect and in so doing create what we have termed the “new real estate model math“.

Attrition will take its course. Our numbers will decline in the face of a market slow down but will they decline fast enough and to a level necessary to bring about a shift in profitability for owners who are lagging behind the ROI curve and to career agents in need of a pay raise?

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