Be true to your model

December 07, 2009 | Jose Perez | Comments 1

 Print This Post

Due to our position at the forefront of all the changes occurring in our industry, I am often asked which brokerage model is the best one. Given where we are in the development of our industry and the many changes occurring driven by the down market, the internet, mobile devices, and consumer expectations, we believe that if brokerages are true to whichever model they are most comfortable with, they can succeed.

I realize this might sound sacrilegious to some, but let’s take it out of real estate for a second:

·    Which is the better model, Nordstrom or Wal-Mart? You are shopping at both.
·    Which is the better model, Starbucks or Dunkin Donuts? You are buying coffee at both.
·    Which is the better model, network television or cable television? You are watching TV on both.

The bottom line is that in these other industries, companies utilizing different models are successful as long as they have been true to their models. If Nordstrom even hinted at being a discounter, they would lose clientele. Similarly, if Wal-Mart tried to charge Nordstrom prices, they would lose market share. If you recall a few years ago, Starbucks was trying to be all things to all people and they started to suffer as a result.

My point is that if management stays true to what they set out to do, they can continue to be successful but it is going to require discipline, accountability, and laser focus. It is the same in real estate but many brokers constantly lament all the discounters, 100% shops, etc. that have “ruined” the industry all the way back to when Re/Max “messed everything up” back in the 1970’s and 1980’s as their “alternative” model began to be accepted.

As far as I am concerned, nothing in our industry is ever going to go back to the way it once was. We may as well start accepting that and start doing the things we need to do to truly understand our model.   Once we truly understand our model, even if we have to reinvent it given today’s environment, we will  know what we need to do to be successful given the seismic shifts that have occurred over the past few years.

Whether we are traditional brokers, 100% brokers, online brokers, niche brokers, or any other kind of broker, we need to know what our agents and customers expect, and what the limitations of our financial structure will allow. Once we have a true understanding of this, and we make sure that our management team and agents also understand and embrace this, we can move forward, stay focused and grow a profitable business as our industry begins to stabilize in 2010 and 2011.

Some examples of being true to several different models:

Traditional model – This model continues to be the dominant model, however, many traditional brokerages have eroded their profit because they have felt compelled to offer full service (i.e. great websites, referrals, branding, etc.) but also try to compete on price with models that offer higher commission splits. As a result, this model has become a low margin business. Traditional brokers can have a bright future if they lower their overhead, decrease the size of their foot print, figure out how to generate and distribute business online, and create ancillary revenue streams. These companies can be true to their model and have a bright future as long as they continue to provide service to their agents but figure out how to make up for lower profit margins by having other sources of income such as mortgage, title, etc.

100% model – Since “genie was let out of the bottle” 35 plus years ago, traditional brokers have looked down upon this model because it has caused commissions splits to rise and profits to decline. Although that maybe true, I would argue that the traditional brokers, at least originally, were not true to their model and tried to compete on price by offering higher splits. The 100% model is not going away any time soon and there is a certain segment of the agent population that will always be drawn to it. As a result, as long as the 100% broker stays true to his model and determines how to make their fixed cost monthly fee continue to work for their agents and, like the traditional broker, determine how else they can make money, they too can have a bright future.

Discount model – Like the Nordstrom and Wal-Mart example described above, there are certain consumers that will always gravitate towards a “deal”. Discounters can be successful as long as they remember that they are making less than their competitors down the street so they either have to make it up on volume or they have to limit the services they offer.

Virtual model – In the past couple of years, more and more virtual brokers have arrived on the scene. Clearly, with a much lower overhead structure, these brokers can charge dramatically lower fees and pay much higher commissions. That being said, as long as they are true to their model, they won’t have locations, office meetings, or many of the services a traditional broker, for example, might have. Virtual models can work as long as those brokerages remember that is what they are and don’t try to compete with some of the others at their level.

One of the biggest weaknesses of our industry is the lack of accountability and discipline. In most companies, the agents are afraid of their customers, the managers are afraid of their agents, and the brokers/owners are afraid of their managers. My argument is that if the industry, regardless of your model, holds itself more accountable and becomes much more disciplined, anyone can be successful as long as they are true to their model.

Filed Under: PCMS Blog • Real Estate Consulting