No future for franchise brokerage?
Essay: Roadmap to Recovery
By Inman News, Monday, November 24, 2008.Bookmarking Sites
Editor's note: Jeff Bergstrom, a real estate broker, submitted this essay for the Inman News Roadmap to Recovery editorial project, which focuses on the future of the real estate industry. Essays should be 400 words or less and should detail your views on how to reinvent the industry and revive the housing market. You can pick a specific industry category -- such as brokers, agents, technology, title or lending -- or discuss the entire industry. Our editorial team will review the essays -- authors of essays published in full will get a free pass to the upcoming Real Estate Connect conference (for new registrants only), and the author of the top essay will receive $500. Send your essays to future@inman.com. There are other ways to participate in the Roadmap to Recovery project, too. Click here for more details.
By JEFF BERGSTROM
The business relationship between real estate brokers and their agents hasn't changed much in the past three decades. But think how much every other aspect of the real estate industry has changed. Does that mean the 1973 broker-agent business model is still viable? No. It does mean those who benefit from that business model are the ones who are least likely to promote its change.
In the age before the Internet -- before the computer for that matter -- the broker-agent business model made sense. The broker was the critical source of all information. The broker acted as the business hub for hundreds of agents. Today, information comes at us from every imaginable angle. There is no single source of information. Today, everything is online and instantly available.
Remember when the personal computer cost $5,000? That was about 20 years ago. The broker provided banks of computers to be shared among agents. Does anyone refer to "computer time" anymore? Back then, the idea of personal copiers and facsimile machines was crazy talk. If you wanted to copy and fax a contract, agents had to go into the broker's office. Obviously, things have changed. Today, there isn't a technology that a broker could offer an agent that isn't readily available from other sources.
"Going into the office" is another concept, at least in real estate terms, that is rapidly becoming an artifact of the past. If you don't go into the office for information or technology, what do you go into the office for? There was a time, before Starbucks, when agents met with their clients at the office. Today, the only way a client will visit an office is if it happens to be on the way to where they are going. It used to be that agents would use the office to meet with other agents and discuss any number of issues. Today, that is done online.
So if the value-added benefits of broker affiliation have been minimized through information-sharing and technology, is the broker-agent business model still valid?
The "brand" is the one hammer the franchise broker still yields. But, given a decade of lax requirements, no regulation and broker greed, hasn't that differentiation been diluted as well?
Brokers like to talk about being selective in their agent hiring, but the fact is many are not. And while the industry likes to self-promote its brands, the reality is fewer and fewer people really care about the "name" on the yard sign. This fact was confirmed recently in a "Consumer Reports" study of the real estate industry (see Inman News). The study concluded negligible differences in customer satisfaction and customer retention among a variety of brokerages.
That study also confirms the axiom that real estate is local and it is personal. Given that, doesn't the "agent" have the more critical role in the broker-agent business model?
As the industry downturn begins to heal, I believe every methodology of real estate should be questioned and potentially changed to better reflect the current marketplace. Many things the brokers brought to the table have been made obsolete or replaced.
And what new technology or invention do you see that would make the broker a critical component again? Now is the time for the agent-first business model. And what if I'm wrong? As long as you are willing to pay the fee, you can always return to the way it has been.
Jeff Bergstrom is owner-broker for Wynd Realty, a brokerage company based in Alpharetta, Ga.
***
What's your opinion? Leave your comments below or send a letter to the editor.
All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.
You must login or register to post a comment.
Submitted by Teresa Boardman on November 24, 2008 - 5:06am.
unfortunately in the consumers eyes the brand is still alive and well. They need to be educated. Real estate companies do not sell any real estate at all. Yet consumers talk about this company or that company selling a house because of the sign in front of it. They are often not even aware that the agent who actually sold the home was from a different company than the agent that listed it. We have all been marketing these brands for years. We even have logos on the standard legal forms.
Submitted by Rob Aubrey on November 24, 2008 - 5:11am.
I agree with Jeff on the reasons of the 1973 broker model failing. However the smart franchises are way out ahead of that. They realize that real estate is local and controlled by local agents. Now the smart franchises are leveraging the strength of numbers to negotiate on behalf of the agent.
Keller Williams is the perfect example of that. The main office negotiates tools for the agents, like an IDX solution. All KW agents have an account with WolfNet IDX, the local agents and owners have to get the feed to WolfNet. KW built their own listing system called KWLS, so that all KW agents have control of where their listings are syndicated and how the leads are distributed. They have leveraged their strength in education, KW University, “Keller Center” at Baylor.
It is an Agent Centric model and that is why it is going to be the leader at the end of this buyer’s market.
Submitted by REALonomics .net on November 24, 2008 - 7:13am.
Jeff is right on track here, with one exception, respectfully; "The business relationship between real estate brokers and their agents hasn't changed much in the past three decades."
Since 1996, e-Partner, www.ePartnerUSA.com, has written extensively about the changes taking place in the industry. We even issued an article entitled "The Ten Commandments of the New Real Estate Economy" which can be easily retrieved at no cost at www.ePartnerUSA.com/presentation.htm.
Any Roadmap to Recovery requires a thorough understanding of how the industry changes from era-to-era.
Indeed, the relationship between Broker/Owners and their agents has changed significantly over the decades and this change continues today, threatening the economic viability of traditional brokerage models, not to mention the relevance of the role of Broker/Owners.
Where Jeff is truly right-on is his statement, "Many things the brokers brought to the table have been made obsolete or replaced." However, whether the franchise brand is any "hammer" is seriously open to question. See www.REALonomics.net and the posts regarding franchise economics.
When we contemplate the development of the real estate industry's business models, the eras are distinct and what creates each economic era are shifts in technology. It's always technology that creates the next generation of wealth AND it is noteworthy to say the least, that with each new historical era the profits of the Broker/Owner diminish and the consumer gains more and more access to OZ of real estate, property information.
Read this post and observe its presentation as well: www.realonomics.net/2008/05/realonopoly-does-anyone-still-wanna-play-thi... .
Back to the Roadmap project and Jeff's subject of hiring practices. Ouch! Yikes! Right on Jeff...we are horrible at profiling, training and limiting the participants in this industry. We talk big, but after all is said and done more is said than done!
REALonomics.net and e-Partner both advocate a top-to-bottom Roadmap analysis that looks at the role of each segment of our industry and all of its components. We should critique each box in the organizational flow chart, analyzing it for its relevance in the Consumer-Centric Era.
Nice piece Jeff!
www.ePartnerUSA.com and www.REALonomics.net
Submitted by Ralph M on November 24, 2008 - 7:58am.
There is a writer here who get's it....
Don't change on us now your famous at inman.
Next article - Value thyself as a professional?
Good article.
www.aarsteam.com
Submitted by Bill Lublin on November 24, 2008 - 1:10pm.
Bill Lublin CRB,CRS,GRI
CEO CENTURY 21 Advantage Gold
Visit me at MovePhilly & REreflections Click Here to
Find Homes in PA & NJ
I am constantly surprised by the publication of essays which are more self serving than informational, including this one. And this one was also inaccurate, so since I lived through the time frame referenced I thought I might clear up the inaccuracies.
First of all the comment that "The business relationship between real estate brokers and their agents hasn't changed much in the past three decades" is fallacious. Nothing could be farther from the truth – well, maybe something could but it would be a real stretch. In the past 30 years the relationship of agent and broker has been modified drastically, and would be the topic for another essay involving a complex analysis which relating to changes in compensation, business models, and even the perception of the participants in the industry. But the relationship of brokers and agents has evolved substantially during that period and undergone massive change. A large part of that change results in a chasm being generated between brokers and agents as the relationship when the relationship is framed as adversarial rather than symbiotic.
The second fallacy revolves around the perceived role of the broker in the real estate company. This writer asks "So if the value-added benefits of broker affiliation have been minimized through information-sharing and technology, is the broker-agent business model still valid?" To which I would respond that the basis of that model was never about technology - it was always about business risk, economy of scale, and more importantly professional synergy, broker assistance, support and supervision (the relationship is an interesting phenomenon since no agent believes they need supervision and support, and every broker believes they provide it - the truth is obviously somewhere in the middle). Our business is unusual in its perpetuation of the myth of the agent being in business for themselves. Though real estate agents are obviously paid by commission they are not actually in business for themselves, but work for a company. Generally, agents are either unwilling or unable to run the all of the risks of truly being in business for themselves, regardless of the smoke and mirrors that abound in the industry. In fact, when an agent does decide that they wish to be in business for themselves, they open an office, recruit agents, and become a new version of the person they were complaining about when they were an agent. And yes, everyone who opens a new business is determined that they will blaze a new trail, only to find that much of what was done by their former broker was done because it needed to be done in a specific manner, and not out of sheer cupidity.
The next statement I have issue with is "The "brand" is the one hammer the franchise broker still yields. But, given a decade of lax requirements, no regulation and broker greed, hasn't that differentiation been diluted as well?"
Branding is an important part of a brokerage firm’s value, but it has nothing to do with the soapbox the writer climbs on. Franchises, or strong regional companies that can actually lay claim to a viable brand build that brand through their marketing efforts, and the rest of the sentence is mere rhetoric - If the writer had a point to make about marketing or branding I just don't get it. As far as broker greed, let's not be disingenuous - nobody goes to work for free. Brokers should be in business to make a profit, because any business that does not have being profitable as a core requirement does not stay in business. I would submit that even the writer of this essay is in business to make a profit - does that make him greedy?
Another failure in logic came in the following statement "And while the industry likes to self-promote its brands, the reality is fewer and fewer people really care about the "name" on the yard sign. This fact was confirmed recently in a "Consumer Reports" study of the real estate industry (see Inman News). The study concluded negligible differences in customer satisfaction and customer retention among a variety of brokerages." What does customer satisfaction and retention have to do with the pre-disposition people have towards a specific brand? And what in the survey indicated that brands fared differently than non-branded companies?
And finally, I need to disagree with my dear friend Teresa Boardman (a scary prospect but I will be brave!) Real Estate companies do sell real estate , much as baseball teams win games. Each are comprised of the individuals who perform specific tasks, but who are part of the larger group - No single baseball player wins the World Series, but their team does as a result of their efforts.
Submitted by Bud George on November 24, 2008 - 1:44pm.
Not broker-centric nor agent-centric...the winners will be brokers and/or agents that figure out how to be consumer centric.
Submitted by Robert A. Hulme on November 24, 2008 - 3:26pm.
I happen to agree with Rob Aubrey, Brokers in our area realize that Real Estate is local and controled by the Agents. The smart Brokers do understand that leveraging their strength in numbers only helps the agent to be more successful. Franchises are not going away, I feel they will only get stronger when we work together as a team, finding ways to be successful, especially in a down market.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
www.UtahCountyRealEstate.us
www.UtahCountyHomes.ws
801-885-2586
Submitted by Don Gurney on November 24, 2008 - 3:40pm.
When I read this article I was scrambling for words to address the many inaccuracies and misstatements that were made and couldn't wait to retort. But as I started reading the posts I was shaking my head but when I got to Bill Lubins comments I had to go no further. Bill that is a great post and thanks for clearing it up for our misguided friend.
Submitted by Deede Wockenfuss on November 24, 2008 - 6:58pm.
Deede Wockenfuss
CybrSold Concepts
A Frugal Virtual Real Estate Company
480-248-9500
http://www.CybrSold.Com
Submitted by Deede Wockenfuss on November 24, 2008 - 6:58pm.
Deede Wockenfuss
CybrSold Concepts
A Frugal Virtual Real Estate Company
480-248-9500
http://www.CybrSold.Com
Submitted by Bill Fooks on November 25, 2008 - 3:50am.
Bill Fooks
TFT realty Marketing Service
Warwick, RI
I agree with too much space. We agree with improper concentration on desk cost insted of desk profitability.Somethings are overlooked, in times of change. We on our team agree with most of the conclusions.
There is an area that is left open, with all the change. The wise use of this change to help families make a decesion, that if left to their own fears, (and newspaper headlines), they probably would not make. We owe it to the public, our consumers, our clients, to encourage them to make a positive decesions to build wealth over the long haul. Not the short term, but the long term. When we put all our info, wisdom and "tech", stuff together, this shuld be our goal as agents, and companies.
The older, progressive agent has more wisdom to bring to the table then most "newbe's". If they learn the new stuff, intigrate this, you will have a really winning team and a dynamic office whom the public trusts.
Submitted by Sol Sek on November 26, 2008 - 11:57pm.
This statement from Bill sums up well...
>>>>>>>>>To which I would respond that the basis of that model was never about technology - it was always about business risk, economy of scale, and more importantly professional synergy, broker assistance, support and supervision .>>>>>>>>>
I might add, consumers -- too -- will be assessing risks when hiring non-productive agents that lock them into listing contracts. The outcome will include new models that shift accountability to the agent/broker when houses don't sell as promised.
The industry must balance business risks with customer service accountability.
Sol P. Sek
CEO/Founder
http://www.forsalebyweb.com