How Do You Find Real Estate Success in Disbrokeration?

The real estate industry is a never ending source of change and excitement.  I can remember only two years ago coaching agents on what disintermediation meant, how it was affecting the mortgage industry and how it (and the internet) would affect their success.  I was never too worried that the mortgage broker would be eliminated, but some agents were more than a little concerned about their future.  As it turns out, agents are embracing the internet; they are alive and well and thriving.  So, is there a problem?

No, disintermediation is not a problem: but disbrokeration is.  Teri Lussier, blogger extraordinaire, recently posted a thoughtful article on BloodhoundBlog.  I certainly found it thoughtful.  I have been gnawing on the state of the current real estate brokerage system like a hungry dog with his last bone.  I have speculated that the current Broker based system is outdated and weathered beyond its useful life.  I am quite sure I am not the only one to have said this.  But how do we play this out?  What happens, or what is happening, as this model fades away?

I believe the new model is in place, we are just not calling it that yet.  Going back at least twenty years to when I was first licensed, the existing Broker model seems to be based on a simple premise: work hard as an agent and eventually, if you have the desire and the money and the wherewithal, you will create or purchase your own real estate shop.  You are then the Broker and you hire agents to represent you in dealing with clients who wish to buy or sell a home.  In many ways it was a grand retirement plan.  New agents counted on the Broker for everything from an office to phones; from training to accounting and from organization to guidance.  In return the broker kept a hefty portion of the commission.  It was rare for an agent to even reach 50% as it was the Broker who had taken all the risk, fronted all the bills and established him or herself as successful enough to own a brokerage in the first place.

But times change and the intermediary that is now serving less and less of a function: the Broker.  The internet has given the agent unfettered access to the buyers, sellers and available inventory.  The fluid nature of the business dictates that agents brand themselves now, making the need for a big name obsolete.  Pricing structures and commission splits have driven training out of the picture at most of the brokerages.  As a matter of fact, very few agents receive anything for free and those that do are likely “loss leaders”: top producing agents that are there not to make the brokerage money (quite the contrary); they stand as a beacon for recruitment and a large marketing tool for the rest of the agents.  Brokers are now engaged in the lowest common denominator: “putting butts in seats” and profiting on the first few deals before the revolving door swings another agent through.  I am not judging this.  As long as everyone knows up front what they are getting it is a legitimate model of business… just not a very good one.

So what is the future model of the real estate industry?  I believe there is nothing future about it.  We already see it in just about every large brokerage now.  It is commonly called The Super Team.  It looks like this: one or two agents are the named agents.  Beyond the named agent(s) there may be nothing more than a part time administrator; or there may be multiple buyers’ agents, listing agents, lead coordinators, customer service managers, marketing directors and so on.  What makes them unique is the fact that they all work for the named agent(s).  They may bring in some business of their own (and the splits on that business may be higher) but the primary responsibilities of those that work on the Super Team are to benefit the team and the named agents(s).  For instance, the buyer’s agents are charged with handling the prospects that come to them on behalf of the team. They need not worry about marketing or creating business.  In return their splits are usually less than 50%.  A listing specialist may also be on a lowered commission due to the direct feed of clientele, or they may be on a straight salary.  Most of the other parts to the team are salaried (and possibly incentivized with bonuses).  The entire team operates to enrich the named agents; to help them in their mayoral marketing – to help them become mayor for life.

Sound familiar?  It sounds a lot like the brokerage model of old.  Only there is no longer need for a gatekeeper.  If someone on the team decides they are ready for their own team, away they go.  For those who excel at real estate but have no interest in the commission lifestyle, they have found a cozy home.  It is the brokerage business of yore, but made streamlined, agile and appropriate to the long tail markets in which agents must now thrive.

Here is the best part: the Super Team has no interest in the “putting butts in seats” model because they are already rainmakers.  The only butts they want in seats are people who can get the job done and build the team name.  This model is based on the purity of profits rather than the bloat of over-rides and middlemen.  This model embraces training because turnover costs the named agent(s) money in lost transactions.  This model embraces new forms of marketing and can move quickly to opportunities.  This model is an evolution that must always happen.  As information becomes more readily available there is a natural progression: middlemen go from providers to gatekeepers to restrictors (chokepoints as Greg Swann calls them) and eventually they just become unnecessary.

While this post has gone well beyond the recommended daily allowance of verbiage, I will add two more quick benefits of this model.  One, it provides for greater specification of work, which in a free economy usually leads to greater efficiency and better pricing.  Two, it requires a lot less agents to take care of the same number of clients.  Without the constant requirement to feed the revolving door, the education level, experience level and quality level of the real estate industry as a whole improves.  Are you ready for the Super Teams?  They’re coming to a neighborhood near you soon…

Filed under: DISBROKERATION or "The New Model", LIFE THAT POPs, MARKETING, REALTORS, Brokerage, Disbrokeration, Real Estate Future