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.

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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.

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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.”

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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?

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According to a recent Standard&Poors/Case-Shiller home price index of the top twenty metropolitan area home values, we are seeing record declines. Get a copy of the report.

Here’s the breakdown synopsis (source: Standard&Poors/Case-Shiller) (arrow highlights by REALonomics):

In these and hundreds of other markets, home value declines are taking a toll on individuals and families whose financial security is predicated almost entirely on home ownership.

There are at least three things local real estate companies in partnership with mortgage and title service providers could do for struggling homeowners.

1. Set up financial support workshops led by experienced brokers/agents designed to coach homeowners with respect to their property values, the current trends, their specific mortgage situation and how to take positive steps to stay in their homes unless they absolutely must sell at this time. Such workshops should utilize skilled mortgage service counselors (not loan officers) who can give them answers;
2. Real estate agents in troubled markets should be literally returning to the old practice of knocking on doors, not to get listings but to meet homeowners as “Property Consultants” to discuss specific home values within their neighborhoods and offer advice. In addition, brokerage firms should deliver resource information to homeowners that will advise them about market conditions, refinancing and other information they need;
3. Brokerage firms should turn a portion of their print media budget and Internet costs toward creating blogs that are specifically administered by trained “Property Consultants” who can interact with property owners and deliver solid advice in real time.

During the next 24-36 months brokerage firms who want to build and retain consumer loyalty and predisposition should take a serious look at engaging in the creation of a group of “Property Consultants” who engage homeowners who are facing uncomfortable times.

Such an emphasis sends a powerful signal to consumers that we are serious, skilled, well trained, competent and knowledgeable professionals who can and will assist them with any property question they have, including financial counseling.

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“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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