Indeed we are engaged in our own industry Cirque du Soleil, a kind of three-ringed act that pushes us to the limits of our economic envelope.

How long can we strike the pose? What series of events will begin the process of reversing the downturn and return some degree of stabilization to the economy. Our collective muscles quiver under the stress of our rigid contortions.

Not too long ago we mistakenly thought, although few will now admit to their acquiescence, that TARP, auto industry bailouts, AIG cash infusions, cash for clunkers, first time home buyer credits, bank loans and the like would magically restore the economy.

Even the National Association of Realtors (NAR), our beloved national union and lobby force, with enthusiastic recklessness, endorsed just about every form of redistribution of wealth forced down our throats by President Barack Obama’s misguided group of tax and spend advocates.

Yes, ours is an industry not too unlike a three ringed circus. There are jugglers, tight rope walkers, clowns, acrobats, lion trainers and bare-back horse riders, all entertaining us while we sit in the grand stands eating our Cracker Jack and cotton candy.

We love a good circus. A good circus takes our minds off the trouble we face. The acts bring momentary relief from the pain we must inevitably face when the show is over and the big tent comes down.

The reality we must face is the choice we made, repeatedly from 2000 through 2007 to made a series of choices that led us to depart from the traditional, sound economic principles that guided our industry in favor of massive personal, corporate and national debt. The circus is over and even the clowns no longer smile.

REALonomics has taken tough positions and we have always attempted to lend our voice to a call for temperance as the circus acts rolled into the big tent, one after another while our industry, clapped, laughed, cheered, jeered and refused to admit the depth of economic adjustment that was about to engulf us.

There is another message we have pushed into the industry for serious discussion and that is the need for top-to-bottom reform, beginning with an examination of the function of NAR, local Associations and indeed our very bloated labor force.

Not many will deny the circus is over. Fewer still will acknowledge the need for comprehensive analysis of the business structure of our industry and how it delivers economic value to entrepreneurs.

A remnant of hard-liners still delivers a false message of a restored economy that will support our 1,000,000± participants, an unbelievable membership count that has no relevance to sound economic and business reality.

Our economy is irrevocably tied to global networks. The real estate industry now has its best shot at reformation. Who will lead the transformation and what forms will it take? What transcendent person, group or entity will emerge with solutions to the complex problems we face as an industry?

How will technology, economics, localism, property data and global realities be bent and shaped to create new vibrant business models that can produce and sustain profitability required for the risks inherent in the real estate business.

After all, the show must go on!

Related posts:

1. Warning: RE Industry will be Harmed if Bailout is Backed by Us

Franchisors are powerless without Broker-Owners and the old line franchise arrangements are no longer applicable in the The New Real Estate Economy.

Reality is always a very tough pill to swallow. It goes down, it seems, with the greatest degree of difficulty. Acceptance of reality is the great precursor to popping the pill.

Let me break it to you gently…the way we did business will no longer produce the ROI and sustained profitability required by Broker-Owners for the risks they take.

Tests have been run. X-rays have been taken. MRIs and CAT scans have been completed. The economic blood work has returned from the lab. The diagnosis is in…the party is over…without radical changes in lifestyle and barring miraculous intervenion, we are most likely terminal.

The Way We Were

The primary fuel for traditional brokerage profitability used to be control of property information coupled with free-flowing access to mortgage money. The relationship between brokerage profit and the control of information and lending is being redefined and will become more complex and demanding, creating fewer Brokerage successes but better leveraged and approriately balanced lending portfolios for banks.

Unfortunately, the banks have little interest in the survival of Broker-Owners or the real estate industry as we have known it. Add to this the new reality Owners are facing…the rapid accelleration of change and the inability manage forced transformation.

According to John Krainer, a Senior Economist on banking, “Fannie Mae, Freddie Mac, and Ginnie Mae now own or guarantee an overwhelming share of originations…at the same time, non-agency mortgage securitization and loans retained in lender portfolios have largely dried up.”

What is the current financial stability of Fannie Mae and Freddie Mac, the guarantor of the overwhelming share of originations? They are on the brink of collapse, still running seemingly insurmountable losses.

We are entering an era that will be characterized by cautious and tempered lending. This translates into fewer transactions per Broker-Owner across the board. There will be less to live on and it will be more difficult than ever to compete for what little is there. Behind this, our NAR membership continues to remain ridiculously bloated.

The Way We Ought to Be

A solution being formulated and floated by REALonomics could be called “The Property Metrics and Monetization Model” or simply put we shift our economic model to developing and marketing property metrics and away from sole dependency on closed transactions. We are now being forced to monitize our greatest asset in ways never before realized.

The monitization of our greatest asset, property and local information, are both pieces of the new economic opportunity we face. The bitter pill we must swallow (many are still in denial) is that we will never again return to what we have known and called “normal.” Deny as we may, we are never, ever returning to a business climate in any way resembling 2000-2006.

Broker-Owners should be in the business of developing metrics and monetizing property information for profitability. Tall order and tough sledding. We have given away so much that regaining a foothold may be the greatest challenge of all.

Our New Economic Mother Board

The New platform will not be predicated on Social Networking models, although these are key distribution portals that need to be tapped by Broker-Owners.

The new economic reality we face demands that we create an entirely new platform that will provide us an economic mother board for plug-n-play brokerage in the new economic environment.

The mother board contains the processor for property and local information models accessible and marketable to consumers through multiple portals. Buying a house is the secondary economic component of our new model math, rather than the primary.

• Improved property and local information access
• Improved property and local information packaging
• Improved property and local information deployment
• Improved property and local information monetization

In the new global economic environment the game consumers want to play is played on a whatever, wherever and whenever game board with access to all things real estate. Real estate is being democratized.

Speed and precision are going to become operatives, coupled with unrestrained access for the consumer.

Problem at hand: While NAR spends money lobbying for the salvation of an already dead model, the globalization of information will overtake it and us. There are really only three options for the industry.

Option One. NAR could become the leader in real estate information management on a global scale and re-empower Broker-Owners with marketable solutions that leverage consumer relationships.

Option Two. Owners could take back the property databases they own by creating their own transparent and exportable solution forming a new business model focused primarily on using property information as the commodity for profitability.

Option Three. Non-Brokers (entities outside the industry) could implement property information systems that sideline traditional practitioners. This is already underway.

Our industry is in a self-induced form of deterioration. Yes, I know that once again statements like this will bring about more labeling of me as counter-productive and produce quiet whispers of “he’s not a team player…”

My only answer is “Take two and call me in 2012.”

Related posts:

1. The First Economic Wave

Escapism (I don’t even know if that is a word but if it isn’t it should be) ought to be a subset of study for those seeking a degree in Economics. Escapism should be a part of the syllabus with collateral reading required. It should be taught as a business discipline and be a demonstrated skill prior to graduation.

The real estate industry knows a lot about the subject of escapism without knowing much about sound economic business models. After all, the economy has always pulled Broker/Owners out of the tight corners of economic calamity into which they have been painted. Ours is a long history riddled with escapes from one economic threat to another.

Today’s shackles may be worse than the past as we find ourselves fettered with the chains and locks of slivered and temporal profitability, almost non-existent R&D, a disjointed, minimally trained, bloated and uncontrollable labor force, no product, service or brand differentiation and finally, last but not least, a less than stellar reputation with consumers, our primary source of survival.

As we enter a new decade on January 1, 2010, we find ourselves headed back into the water tank from which we have always, like Houdini himself, found a way out. We have escaped primarily because economic fundamentals were behind the real estate industry. These fundamentals are no longer the backbone of the industry.

Something is different this time around…many things are different this time around. We now face three situations never before seen or experienced.

The New Chains that Bind Us

The real estate industry encountered a fundamental operational shift when Congress mandated that lending institutions find a way to create loans for those who lacked the personal buying power for home ownership.

The Community Reinvestment Act was enacted in 1977 as Federal Law. Essentially, the law was a social experiment mandated and aimed at eliminating what many believed to be unfair lending practices by banks who that were refusing to execute mortgages with under qualified buyers for purchases in neighborhoods that were fundamentally poorer than those neighborhoods where banks preferred to lend.

Regulated financial institutions were suddenly required to meet the lending requests of traditionally unqualified parties as a part of their federal charter. Non-compliance with the edict and the eventual quotas of regulators could mean the loss of accreditation and various other penalties.

The survivability of Banks became subject to the guidelines set forth in the Community Reinvestment Act and therefore, lending requirements were modified as a pre-requisite to compliance.

Banks found themselves forced to approve mortgages that were less than prudent, at least from a sound economic standpoint.

Nonetheless, politicians reveled in the glory of the Community Reinvestment Act, heralding it as a giant leap forward in economic equality and something that could translate into new votes at reelection time.

This was the “New Chains” which created a false housing boom and investment debacle from which we still have not recovered. The primary guarantors were FANNIE MAE and FREDDIE MAC, now nearly bankrupt and in need of more capital infusion from tax payers.

We have not escaped these new chains that bind us. Our ability to break free is now out of our control as the appetite for government bailouts at tax payer expense increases unabated and now, surprisingly, supported by the National Association of Realtors.

In short, we have relinquished the powerful economic principle of self-reliance and home ownership principles that have guided the industry and home ownership for more than 100 years and this may prove to only paint us into a tight corner from which we cannot escape for many, many years.

Strange and Clever Padlocks

Our Houdini-like escapes are now fewer and more difficult as we abandon the sound “model-math” that created our prior and historical profitability. The sad truth is, we have not created “new model-math” congruent with the troubling times in which we find ourselves.

We continue to find ourselves locked-up with strange and clever padlocks the combinations and keys to which we have no apparent access.

On the one hand we are padlocked to our former selves and do not seem to have the will power to admit our addiction to transactions predicated upon easy money.

On the other hand, we are now plunging headlong into a plethora of new operating models, lending models and technology models, the rules of which are being written by those outside our industry.

Are we being written out of the New Real Estate Economy? Why is it that we cannot become the rule-makers and engage in assertively drafting our own charter for the future? Why do we seem reactionary rather than revolutionary with respect to our future? Why have we become so dependent on the creations and rules of those who know so little about our industry and how it must operate?

The keys to the padlocks of government intervention, property information management, technology and Internet tools, consumer-centric relationship models, mortgage lending rules and the direction of NAR have seemingly been placed in the hands of caretakers motivated by political power and personal greed.

Old Keys that are Now Missing or Ineffectual

The old line bricks-and-mortar retail keys that used to unlock markets for us and deliver economic escape from our heavy laden expenses no longer work as they once did.

Our ineffectual revenue management models in the form of commission and operating structures that once drove the cost-per-transaction formulas that guaranteed ROI will no longer unlock profitability.

The bloated labor force we call “agents” are simply too many and will continue to drain capital from Broker-Owners while only serving the interests of NAR’s bureaucratic control over the industry. The large labor force only favors those who collect the dues.

There are too many of us and unlike other industries that balance profit against labor force, our industry works exactly the opposite. The real estate industry is perhaps the only industry that increases its labor force while in economic decline. NAR’s membership still stands at over 1 million; a near complete contradiction of true economic sanity.

Instead of seeing our costs per transaction decline, it is actually increasing when we take into account the entire national organization operating costs.

While we should be moving north, we continue our trek southward almost blinded by our allegiance to who knows what. Broker-Owners no longer control the MLS and that lack of control will eventually render them irrelevant servants to an agent-centric culture.

Agents are no better off as they see their earning capacity at historic lows per capita and their cost of operating increasing with the delusion of technology and its pseudo advances.

There seems to be no easy Houdini-like escape for the industry unless it (we) are willing to recreate our industry by elevating its entry requirements, diminishing its fattened workforce, increasing its educational requirements and finally, bringing NAR into check as the servant of the industry.

There is no escape from the economic realities of the New Real Estate Economy and what it demands of us. However, for those who have a true sense of where we have been historically, where we are today and where we can ultimately take the real estate industry in the future, this is an exciting time.

Yes, in 2010 and beyond we will continue to face the peril of tight corners into which we have largely painted ourselves. The chains, padlocks and keys that have heretofore allowed us to escape no longer exist in forms we recognize.

For those of us who embrace the sound economic principles that guide any business endeavor and for those who choose to become the authors of the new economic rules rather than the readers of same, to these alone belong the keys that will yet provide an escape that will lead the real estate industry to self-reliance in the consumer-centric era.

Happy New Year to all.

Related posts:

1. Scratch and Sniff: Stacking the Economic Deck in Favor of Us
2. REALonomical: an Economic Mentality
3. The Third Economic Wave

Syndicated from e-Partner

For centuries the notion of turning lead into gold has captured the imagination of countless Alchemists, all of whom were doomed to failure.

The real estate industry’s economic model has been for decades akin to conjuring concoctions that claim to convert the weight of our tarnished enterprise models into shining bars of profitability.

We have not always understood the true alchemy of our industry and the relationship between the decline of profitability with the introduction and application of new technologies to our industry.

Each of the two great historical shifts (economic eras) in our industry have occurred with the rise of new technology, the independence of agents and the empowerment of the consumer. Consider the following diagram and then listen to the accompanying presentation.

The shift from the Broker-Centric era to the Agent-Centric era was created largely as a result of the introduction of a technology known as the Personal Computer (PC) to the daily work habits of agents, empowering them to globalize their reach. From that point on, Broker-Owners were not able to fully contain the spillage of property information into the streets of their marketplace.

Download a FREE copy or the First Economic Wave, the Second Economic Wave and the Third Economic Wave.

The loss of the MLS Book coupled with PC access to MLS data created a decline in the control of property information (always a key contributor to loss of profit) and the empowerment of the consumer who no longer had to enter a real estate office in order to see the Holy Grail.

Nor have we fully appreciated how technology has always defined each of the three economic eras of our history and most importantly how each increase in technology within the industry reduces profitability.

In 1994, along came the Information Super Highway and property data began to find its way to the Internet, where a hungry consumer was waiting. The Internet created a bridge from MLS sources to consumers who were also empowered with PCs. This was the beginning of a shift from the agent-centric model to the current new real estate economy where the consumer is now the central character.

“Pb” (lead) can become “Au” (gold). The alchemetrics (not sure that is a word but I’ll run with it) are simply undeniable. Technology creates the shift and transition from one real estate economic era to the next. With each transition three things always occur:

1. Technology always defines the shift, the model and the wealth in our economic models
2. Owner profitability declines as control over property information control diminishes
3. Information control is distributed over time to an increasing number of people thus, democratizing real estate

What does all of this mean? Simply, and yet rather profoundly, this means that ours is a history made up of transitions created primarily by the introduction of new technologies and a fundamental shift in economic control from us to consumers. It also means that the principle of alchemy is real.

Our lead-based model (forget lead-based paint for a moment!) is in the process of being turned into gold. However, in the alchemic (not sure that is a word either but I’ll run with it as well) process, we will not necessarily become the benefactors of the creation of new wealth being created by the introduction of new consumer-centric technologies. We could be but we are not, it appears, equipped to transition with the consumer into The New Real Estate Economy.

Watch the presentation and please, comment.

Related posts:

1. The New Real Estate Economy
2. Government Interference has Harmed American Real Estate Wealth
3. New Improved Real Estate Model Math

Our hallucinations are mostly self-induced; the voices we hear are actually our own mumblings and business babblings disguised as forces we do not control.

I’m now convinced the real estate industry is delusional but not in the classic clinical sense of schizophrenia. Rather, we are deluded by the notion that what we are experiencing is beyond our control.

Since we don’t have an alternative point of reference for our dilapidated and dysfunctional (not to mention unprofitable) business models, we willingly succumb to the voices that keep telling us all will be well and in time the market will return to normalcy (whatever that is).

We have come to actually believe there is a quick cure for our collective malady. We have long ago stopped taking the medications of self-reliance that can eliminate the voices and have instead turned to a political pill that only fuels the illness and delays the inevitable.

The Great Delusional Grip

Franchisors continue to pimp and prescribe increasing their delusional grip on Broker-Owners, convincing them, mistakenly, that their brands are necessary as a market value proposition and to their survival.

To control the delusions and squelch the voices we pretend our economic survival can be optimized by merely changing the colors of the pills we ingest. We hallucinate about technology solutions that magically produce profitability through Internet lead generation. The voices continue.

For a long time we have believed the pseudo voices and their message as they tell us to hold on, wait and believe that change is coming in the form of a market rebound that will resurrect the old models and their former but temporary profitability. In reality we are trading our collective ability to transform our industry for a hope in the return of things past, of things long dead and gone. Have we surrendered our business sanity to the collective stupor of a beautiful mind syndrome?

It wasn’t long ago that I also experienced the paranoia that comes from thinking others can and ought to control the business outcomes of my company and that there were forces out to get me if I didn’t comply with the verbal orders of quiet, shadowy personalities hiding under stairways and standing in dark corners, speaking to me and intimidating me as a Broker-Owner.

Dumping Market Meds into the Drinking Water

As we prepare to enter 2011, our illness is becoming more pronounced. Others see the progressive changes but we do not. We do not know whether to take the generic market meds being dispensed by the National Association of Realtors or to reject them while hoping for an alternative magic that can somehow stop the insanity.

NAR is dumping its generic market meds into the drinking water in a giant shift from its fundamental and historic premise that home ownership ought to be based upon the self-reliance of individuals to a new socialist real estate state where wealth is shifted from tax payers to fund the down payments for otherwise under-qualified first time home buyers. It’s the same old repackaged sub-prime pill I will no longer swallow.

Schizophrenia is my metaphor for disordered thinking that is not aligned with sound economic reality in the midst of a market platform that has shifted under the feet of Broker-Owners.

On one hand, we know we are living in a time of great delusion and we desperately want to stop the voices.

On the other hand, we continue to pander to the hallucinations because we want a simple solution to a complex industry illness. We know the voices are not real but we cannot quiet them. We drink the purple water and we pop the multi-colored but phony economic pills that will temporarily muffle the sounds but never permanently stop them.

We are becoming more and more desperate because we are on the edge and are finding it more and more difficult to distinguish reality from fiction. The market meds do not help because they create an additional layer of fog that further weakens our discipline and stifles our resolve to take charge of our individual and collective illness.

Stopping the Voices

There is coming a time when we will have to make a deliberate choice between believing what the voices are telling us and the reality that we are operating our industry from a position of economic dependency that will eventually render us incapable of recovery.

Like many Americans who are waiting for the government to produce solutions, many in our industry are waiting upon the bureaucratic solutions of NAR to deliver a cure that will stop the voices. We have yet to recognize that NAR is but one of the many voices that create the madness that engulfs us.

Some of us are now realizing we have fallen prey to a placebo that can never deliver true economic healing. A few of us are now realizing we have fallen prey to a placebo that can never deliver true economic healing and that in the end we must once again, deliver our own cure.

No related posts.

Here we go again!

NAR should be seen here in its true light, a purveyor of control, monopolization and the promotion of the punishment of creative models that do not meet the local real estate dominance model put in force and sustained by its vast network of local Associations.

Although we are not supporters of discount brokerage as a viable business model, we feel the need to speak out on this issue and the freedom of Broker-Owners to create business models without the fear of retaliation and punishment by NAR and local Associations.

We are forced to ask the question, “Is anyone paying attention to how our dues, financial assets and human capital are being used by NAR?” Furthermore, are we paying attention to how NAR and local Associations are dealing with Broker-Owners who are not lining up in lock-step with centralized policy?

NAR’s support of Realcomp’s position, backed by a commitment of $500,000 in member funds, comes on the heals of its unprecedented announcement of its support for the extension of the federal home buying credit.

FACT ANALYSIS: This is a credit that is funded by tax-paying consumers and given to under qualified home buyers who lack their own financial capacity to purchase a home without a subsidy. Is this NAR’s new version of the now regretable community lending laws forced upon banks by Congress?

It appears that while NAR attempts to convey to its members that it is on the cutting edge of creative solutions for the industry (yes, some of these solutions are excellent), behind the scenes it continues to accellerate the wielding its financial and market control to further sustain its self-serving monopoly and potentially lethal grip on the industry.

While we are not opposed to supporting sound MLS policies or lobbying in favor of industry issues, we do wonder why NAR continues to fight independent Broker-Owner creativity at the local level and why it supports home purchases funded by the extraction and transfer of wealth from tax paying consumers to under-qualified home buyers.

HISTORICAL REVIEW. NAR has locked horns with the DOJ over many of its policies and historically come out on the losing end of these battles, squandering millions of our dollars on old-line, control models that contribute further to the decline of our industry and the capability of Broker-Owners to sustain their businesses.

Isn’t it time for the industry to start asking NAR leaders some hard questions about what they support and why? More importantly, why isn’t NAR using its lobbying and financial clout (again, our money) to assist Broker-Owners with financial support, in the form of business loans and grants for the reinvention of our failing models?

We have three dangerous forms of consumer, financial and business model control happening within the industry, each harming Broker-Owners and their ability to create and sustain profitability. The first of these is NAR itself, the second is franchising and the third is local MLS property information policies.

Each of these three factors can and sometimes do work against the ability of Broker-Owners to create models that produce sustain ROI and profitability.

After all, NAR, franchisors and local Associations have their own self-serving agendas for financial survival, even it it means the further erosion of Broker-Owner viability.

NAR, like all large organization and bureaucratic structures, is beginning to miss the mark with respect to whos money fuels the financial coffers. Bureacracies often forget for whom they toil.

Tails should not wag dogs.

Related posts:

1. ISMs in Your Model – 7th Commandment
2. DOJ & NAR SETTLE SUIT – It looks like everyone’s coming up roses!
3. NAR Explains DOJ Settlement

This Post Syndicated from e-Partner

Ours is an industry with legacy. The brokerage business has seen many booms and endured many busts.

Many have come and most have gone.

Road kill has always been a part of the mix; the strong eat the weak and the weak find refuge in other endeavors.

The real estate industry has always been a town occupied by heralded gun slingers whose reputations have become the stuff of legends. Sometimes these are brands, other times they are movements, fads or personalities that come and go with the wind.

We have always been a tad reckless; that’s why we are a business model willing to predicate its economic viability on the unpredictable and unenforceable productivity of independent contractors. Let’s admit it, the business cultures we have created have typically been less than IBMish.

Nonetheless, we have moved from era-to-era, cycle-to-cycle and shifted from mode-to-mode, surviving the financial droughts of summer and living through the long, frigid economic nights of our many winters. We are an industry that could legitimately lay claim to squeezing blood from turnips.

We have historically endured and outlasted our most caustic critics who have mocked us at every turn and likened us to dishonest snake-oil salesmen.

Yes, we’ve been brought back from the dead a number of times. We are a cat with nine lives and most of them have been used up.
Are we now reaching the termination point? Are we, Tenus Terminatio Cuspis?

An Industry on Life Support

e-Partner believes we are an industry on life support. Our traditional business models are being depleted of their potency because they only work effectively within controlled economic environments backed by cycles where predictability is a guarantee.

Broker/Owners are reaching a desperation point as they face the decision to remain on life support or, turn off the apparatus that sustains them. In essence, they are losing the will to sustain the battle.

We have built our business models on the sands of predictable turnarounds that always came if we just waited long enough. Our economic foundation was never “rock solid” (a phrase once used by my former franchisor) but rather, a roll-of-the-dice at a table where we knew the odds would eventually turn against us.

The money is running out and the sand in the hour glass is reaching its last few grains. The water line that once flowed with abundance has slowed from its gush of 2002-2006 to droplets we must now try to ration.

Our rank and file is wearied and worried about sustainability. We are nervous and fearful about what might be waiting for us around the next corner. With few exceptions, there doesn’t seem to be a coherent national call-to-arms to address our crisis.

This is no way to run a business or an industry.

While We have Faint Pulse

During a recent two-hour protracted conversation with a Broker/Owner, I realized the deep hunger that exists within our industry for one-on-one support. In fact, I was told in no uncertain terms that the personal conversation itself had more meaning than the business concepts being exchanged. I’m feeling more like a therapist than a business consultant.

This and many other conversations like it indicate that we have a faint pulse but that we may be losing some patients very soon if we do not shore up the ranks by means of a national support network for Broker/Owners.

Our productivity numbers indicate that we are on the cusp, facing what could become a pandemic situation. Many Broker/Owners are reaching the termination point.

The 64,000 dollar question begging to be asked is, “Is our industry as a whole reaching a collective termination point?” How much more trauma can we endure?

e-Partner has not seen nor have we heard of any national industry initiative dedicated to addressing the survivability of ourselves.

While we may have a pulse today, tomorrow is coming. While many are hunkered down waiting hoping for some sort of market rebound, the demands and characteristics of a new real estate economy are passing us by.

I am ready to predict that there will be no return to what we once knew and that new operating and economic rules are being devised and implemented that will forever change our relationship with the consumer and thus, our viability.

There will always be time as long as we have a pulse. Like any weakened or wounded entity, the longer we wait to implement decisive corrective action the more difficult becomes the chance of survival. And if we squander our resources on internal battles that do not equip us for the next generation of our industry we will surely succumb.

We can survive but not without a herculean effort to save ourselves. Then, after survival comes the art of rehabilitation and full sustainability. The industry as we know it today is in need not of a stint but of a radical transplant in order to produce the type of organization that is in possession and control of the requisite tools and willful capacity to perform in a new global real estate economy with new rules and new regimens.

There is a set of irreducible minimums that e-Partner sees as industry priorities and this set of principled changes must be considered before we can arrive at protracted sustainability.

• Redirect key NAR Resources to industry redevelopment and Broker/Owner support.
• Redefine the meaning of real estate “market” in contemporary terms.
• Redistribute property information via transparent MLS economic packages.
• Retool local Realtor Association models and services for tomorrow’s reality.

These four principled changes serve as the nucleus for rehabilitation and sustainability of our industry. Let’s address each of these briefly.

Redirection of Key NAR Resources. NAR holds sway over much of the industry. Our money flows from the grassroots members upward to NAR and is used to promote the priorities of our industry.

Promotion is an integral component of the function of NAR. But more must be done to create the conversations that will lead to transformation of the industry. This requires a consideration of the redistribution of our capital assets. The motivations behind how NAR prioritizes the allocation of our resources is just as important as where these economic resources are directed.

NAR does a great job defending and promoting the industry. But it does a less than stellar job tending to the needs of Broker/Owners and the demands placed upon them by the massive economic and technology changes taking place within the rank and file. We are not collectively managing the economic and operating changes at a pace commensurate with the consumer nor the profit margins required for survival.

In order to insure survival and sustainability, the industry needs to take a serious and candid look at the economic priorities implemented by NAR and ask the question, “Is this what we should be doing with our money?”

Redirecting key economic resources toward targeted initiatives designed to re-define the economic model, our relationship with the consumer and how we transact business for profitability should be emergency priorities.

Redefining our Market. Second on the list of priority principles is the notion of market definition. All businesses must be predicated upon an accurate definition of their market in order to produce sustained economic success.

I believe that our previous definition of market as a zip code, city name or a set of buildings positioned therein, is now defunct because the customer has changed the definition for us.

Until we understand what the real estate market is we cannot expect to move to a new platform where profitability exists and where the industry can flourish.

Although transactions take place in a fixed geographic location, I do not believe location is the market and furthermore, I believe the market is much more distant, unpredictable and illusive than in previous economic eras.

The market is Jell-O, not dirt. It is water, without concrete. Yet our institutional structures and operating models are still captive to bricks, mortar and steel.

The chemical and behavioral composition of the “new real estate market” is a highly refined set of consumer characteristics finding their origin in the freedom and power granted by technology and the Internet to self-access information and it is therefore in a constant state of uncontrollable flux. Indeed, the new real estate market never gels. Our industry must then be as liquid as possible in order to play effectively.

Learning the components of market definition will lead us to new models. Until we reach an understanding of what constitutes our market and how we fit into this new paradigm, profit will continue to erode and sustainability will continue to place us in peril.

What is a real estate market? Is it my city? Is it my customers in my database? Is it my hot list of prospects? Is it consumers pledging loyalty to my brand?

No, it is none of these anymore. It is a complex set of consumer bents, biases and behaviors that are shifting the center of control away from lead generation, massive corporate models and universal branding to stealth and fluid exchanges that result in trust and conclude with transaction. The Trust = Transaction formula, although not new, is, however, comprised of new dynamics that create it and it is precisely these dynamics that we need to capture and shape into models that create what I have been referring to as “new real estate model math.”

Brand loyalty, process control, property information containment, website contact forms, registration requirements and the host of Web 1.0 schemes are dead or dying, being replaced by freedom platforms that move the consumer to the center position and us into orbit around a unique set of moving and ever changing requirements.

This is the new market.

Redistribution of Packaged Property Information. Once the new real estate market has been defined we can then create new property information models that can become economic products and marketable services to the consumer.

It’s not the house, it’s the information. It’s not the brand anymore, it’s the information. It’s not the broker, agent or NAR, it’s the information. Any semblance of control techniques, tactics and models will be loathed.

Grouped informational products designed by the consumer, then defined and deployed by us can provide the new profit stream for the industry.

As a whole, we as an industry have spent inordinate time, money and effort sweating over the loss of our precious MLS data while, at the same time, failing to understand the economic power that exists in packaging this information as a product for consumer distribution.

It is not just property information the consumer wants packaged up, made accessible and delivered via the portals of cyberspace. In the real estate and relocation process, there exist a myriad of ancillary information data sets that are marketable, including health care, community lifestyles and much more.

Old MLS control models are largely defunct, too expensive and more importantly, they are inoperable as economic tools. They are increasingly failing to perform for Broker/Owners.

Retooling Realtor Association Models. This leads me to my final dribble.

Heretofore, our local Associations (formerly “Boards”) served a valuable function in supporting local real estate businesses in a non-technical, disconnected world where real estate transactions were virtually all initiated on site and in a building owned and/or operated by a Broker/Owner. (See the post “The Four Bs” at Realonomics.net).

The localized value proposition for Associations has changed. The importance of the traditional functions of Associations is diminished from its pre-Internet apex in the early 1990s where Associations were controlled by local Brokers, printed MLS books and hosted MLS meetings where agents shared wants and needs. A total control model.

Yet, despite the transition away from the centralized control wielded by the Brokers, Boards, Books and Buildings (the “The Four Bs”) geographic model, we have been largely unwilling to break our addiction the now false and unsustainable notion of property information control through Associations.

Can and do Associations have value? Yes, no and maybe. Yes they can and many do, if they are functioning and providing the types of services necessary to the new real estate economy.

No, Associations are not valuable if they are simply self-serving paternalistic job banks at the expense of Broker/Owners and local agents.

Maybe Associations can bring new value to the industry if they equip themselves to provide the types of cutting-edge business services related to the creation and sustainability of Broker/Owner profit.

Translation: If an Association can justify its existence (and they should be required to do so at regular intervals) and its functional costs to Members when measured against productivity standards and market conditions, then maybe they can deliver value.

Retooling Realtor Association models is a tall order because of historic entrenchment and a perception of need that is probably misplaced.

Almost all functions currently executed by Associations could be centralized and even made more effective through consolidation of services, marketing and training. Small is good, agility it the first of the Ten Commandments of the New Real Estate Economy. Generally, the refinement and redirection of general and administrative costs is good for business and profit.

In my own geographic area in northern Arizona there are Associations in Flagstaff, Sedona and Prescott, just to name one small geographic area. Remarkably, the distance between these locations is less than an hour.

Each of these Associations has its own Executive Officer, staff, facilities, operating costs and Board of Directors. What are we protecting?

The reality of the situation is that agents in central and northern Arizona are now servicing all three markets because that is what the consumer wants them to do AND that is what they must do in the prevailing market to produce income.

However, despite the needs and wants of the consumer and the dictates of market realities these Associations are an impediment to change and Broker/Owner profit because their membership structures are prohibitive rather than inclusive. Some legal minds even view these structural impediments as economic and therefore potentially subject to anti-trust law.

Associations were largely constructed upon the old definition of the real estate market being purely a localized function driven by sign calls, newspaper ads and up-desk lead generation.

Why have we not adapted our administrative model so that it matches consumer reality and Broker/Owner needs in a market defined by bits and bytes? The layers of bureaucracy inherent in the Association structures and their relationship to NAR would make a career bureaucrat blush.

Simply said, our administrative models are labor intensive, bloated and we are spending too much money on infrastructure and organizational maintenance at the expense of profitability.

We are spending approximately the same amount of money per transaction per Association as we were in 2002-07, money that could be used to redevelop the industry. Why?

In conclusion I can only ask, “Tenus terminatio cuspis?”

Related posts:

1. NAR’s Tail Wagging the Dog National Control Model
2. The Four “Bs”

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.

Mandatory Agility

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.

Dancing to a New Beat

Dance or be cut! The stakes have never been higher. But can owners find revenue, create revenue, jettison unnecessary expenses and learn the new beat fast enough to escape the razor’s edge?

Short answer is yes. The long answer is that we can only only escape the razor’s edge if there is the will to accept the truth that some of the old operating fundamentals are no longer adequate and may never be.

Many brokers are holding on, digging in, hunkering down, waiting for the much discussed and heralded market turn-around.

Standing still on a razor’s edge is not recommended. What we do recommend are these immediate actions:

1. Redirecting bricks-and-mortar costs to new market penetration models that can reposition your brand, create recruiting opportunities and new transaction revenue. Shift from facility management and uni-market branding to horizontal branding and multi-market management. ASK US HOW.

2. Include fee-based cash flow models as a part of your total market revenue model. This includes remodeling for up to 65% of you agent team being fee-based agents…AND…including pay for placement models where local supporting services such as insurance companies, new homes contractors and property management companies become total market revenue partners with your firm via flat fee online ad positions. ASK US HOW.

3. Acquire and merge with smaller companies that can open markets to your brand in minor and intermediate markets and create these acquisitions with a “work from home” model, such as e-Partner advocates. This M&A approach allows an owner to expand his/her company without the corresponding capital demands associated with traditional business models. ASK US HOW.

4. Develop and implement consumer-centric social networking models and make them a part of the core personality of your company. Pursuing transparent Internet models that bring the consumer into a partnership with your online presence. There are reasons for the success of Twitter, Facebook, MySpace and YouTube. Consumers want to be empowered to express themselves and create online presence through dialogue. ASK US HOW.

Should the current economic trend continue for 2-3 years it is predictable that many organizations will be forced to close their doors. However, Broker/Owners are still in a position to re-define their business models by cutting and redirecting expenses into affordable growth models.

Our websites will not save us. Our brands will not save us and technology alone is not the solution.

However, understanding the economic eras of the real estate industry and how technology dictates and defines Broker/Owner profitability can help Broker/Owners see the relationship between their models and current trends. Please watch this presentation and post your comments.

Related posts:

1. By Owners, for Owners
2. Dear Owners, the Border Patrol is out in Force
3. Mug Shot: A New Front Face & Profile

Brokers, Boards, Books and Buildings remain the economic blocks that continue to drive our brokerage profit models. Three of the four are still alive and kicking. What are the Four Bs, how do they function and what, if anything, do they mean to us now? More importantly, how do they meet contemporary consumer expectations?

Broker/Owners are literally the financial backbone of the real estate industry. e-Partner and this blog, REALonomics, support the importance of sustaining the roll Broker/Owners play in perpetuating real estate transactions and indeed propping up the industry at large. It is Broker/Owners who literally guarantee the financial stability of the industry. They are real estate’s preeminent risk-takers.

They are almost always the sole guarantors of market presence and it is they who take most of the personal financial risk for the real estate organizations operating within thousands of communities.

Fact: Broker/Owners are losing their ability to produce and sustain profit for their local brokerage firms. The risks now out weigh the rewards, as many are discovering. TWe are facing the financial collapse of many Broker/Owners.

Broker/Owners have increasing lost their grip on the consumer due largely to (1) the widespread availability of property information to agents and consumers; (2) the industry’s empowerment of the vast numbers of agents with cutting-edge tools that tie them directly to consumers and (3) the irrelevance of their control over local Associations, formerly called “Boards of Realtors” and the centralization of power over consumer access to property by NAR.

Broker’s once maintain an iron grip on local property information through NAR’s establishment of Boards of Realtors owned by Broker/Owners. Broker/Owners still have stated authority over local Associations but their is little or nothing for them to control and their role is primarily administrative and therefore without economic benefit.

WATCH THIS PRESENTATION

Each local Board of Realtors (BOR) (now called “Association of Realtors”) once commanded total control over local property information on behalf of the paying members. It was the Broker/Owners that owned and controlled the local property information data, how it was received, formatted and distributed.

Through the BOR, Owners owned (no pun intended) and controlled ALL property information and ALL access to the information, whether by agents or the consumer. Therefore, they were assured of income and barring reckless squandering of funds they were also assured of a perpetuation of their profit and existence.

Through such property information control, Broker/Owners were able to set individual brokerage listing fees, control agent commissions and literally decide who could play and who could not play.

The union of Brokers and Boards coupled with geographic market definitions and control of property information meant that ALL consumers were required to work through one channel of expertise for any real estate investment, that being Broker/Owners.

Local BORs were compelled to comply with local Broker/Owners who were the ligitimate owners of property information within a specified regional area. All of this engineered and mandated by NAR.

WATCH THIS PRESENTATION

It might surprise many of our readers when we tell you that the primary technology used during the era of Broker and Board control was ink and paper.

The Board of Realtors’ MLS Book was the officially designated and exclusive repository for local property information. It was, in fact, the technology used by Brokers and Boards to distribute property information to consumers through the Broker’s agents.

To distribute new property information for use by agents, who were the monitors and purveyors of current property data to consumers, a new MLS book was printed at regular intervals. At the moment of printing, the data was defective, as some properties were sold and other listed for sale prior to print.

Data updates were facilitated through thousands and thousands of local MLS meetings held each week across the nation. At these ritual gatherings agents arrived, books and marking pens in hand, for the local property information “update” wherein properties were declared “sold” by agents and then robotically lined through in the MLS book.

Price adjustments were written into the margins of the MLS book along with other information verbally supplied by agents.

These meetings were quite the scene. Nonetheless, they represented the manner in which property information was collected, distributed, managed and updated for the ultimate end user, the consumer.

Let’s also remind ourselves of the operative phrase of that generation of Broker/Owners, Caveat Emptor, Latin for “Let the buyer beware.” In those days, the buyer was an unsuspecting consumer who was not at all represented in a real estate transaction but instead was told by us, “we only represent sellers but promise to treat all parties to the transaction fairly and honestly.”

WATCH THIS PRESENTATION

This brings us to the fourth “B” and the central pillar of the real estate business model used by Broker/Owners…Buildings.

The Brokers who owned the Boards published the Books that were placed in the hands of agents who were warehoused in Buildings in just about every market in the U.S.

The Buildings were the primary real estate market expression used by Broker/Owners. Bricks and mortar was the economic junction where consumers were provided with the most important and manditory requirement for acquiring relevant property information. Such information was only provides by agents in buildings owned or leased by brokers with books in hand that were printed by the boards.

In those days the components necessary for a real estate transaction to occur came together in a Broker/Owner’s office; these being buyer, seller, broker and property information. in those days we were the true “gate keepers” of the transaction.

Yard signs, newspaper ads, open houses and updesk calls were the path to consumer contact and ultimately a commission. These ingredients were the spider web designed to capture consumer buying leads in the local market.

Consumers had very little control over the process of buying real estate, a process completely controlled by Broker/Owners and their local marketing machines.

Circa 1970. Something began to happen in the late 60s and early 70s. National real estate franchising came into play and began to redefine a Broker/Owner’s market from local to regional and even national.

Franchising brought with it the first real attempt to provide Broker/Owners with a horizontal component to their business model, increasing their potential for referrals and relocation by means of national branding and networking with member of like kind.

During this same time frame, local Boards began to digitize property data and to generate computerized MLS systems that could deliver property data to a Broker’s office electronically. This would later prove to be the beginning of the end of one of the four Bs, the Book.

About 25 years after the first digitized MLS endeavors began . Computerized MLS, personal computers, modems and ultimately the Internet came into play and provided the empowerment of agents and consumers with ubiquitous real estate information.

In 1994, MLS property information became available on the World Wide Web (WWW), known then as the “Information Super Highway.”

Today, the MLS books are gone. Buyer beware is gone.

What still remains, hanging by an economic thread are the remaining three Bs; Brokers, Buildings and Boards (renamed Associations).

The total control of local property information by local Associations is being challenged and seems to be eroding.

Each of the remaining three Bs is now under scrutiny by an increasingly powerful consumer. It looks like the next “B” to fall is the notion of “Buildings” as an ultimate but now unaffordable retail expression of a Broker/Owner’s real estate market presence.

REALonomics, as a student, analyst, crytic and developer of concepts related to the real estate industry’s business models, can’t help but wonder which of the remain two “Bs” is most in jeopardy:

Will it be Broker/Owner or our local Associations of Realtors (Boards) that will be transformed or eliminated?

Your thoughts?

WATCH THIS PRESENTATION

Related posts:

1. The First Economic Wave
2. Home Price Declines Hit New Records: What Can the Industry Do?
3. The Second Economic Wave

Related posts:

1. The ‘07 Playing Field