Jeff Brown wrote a great post at Bloodhound Blog about "Why the Traditional Brokerage model is fading away." I had a couple of points I wanted to add but it ended up being so long I thought I better post it here.
What real estate is going through is not so different from what a variety of other industries have gone through when facing a commoditized marketplace (lots of people all trying to sell basically the same thing). When that is the case, profit margin comes from being able to add value to the transaction. In some cases, this takes the form of brokerages getting involved with ancillary services. What ancillary services do is give clients a convenient alternative to shopping their business around. When it is of value to clients, it is a competitive advantage for the broker.
Before real estate, I worked for a consulting services firm that had to face this challenge in the wake of Y2K. The industry had grown too large to support the amount of business that remained after Y2K was over, and this had a lot to do with the "dot-com bust" of the early 2000s. I saw first-hand what happened to companies that didn't focus on competitive advantage. You didn't have to be the biggest or even necessarily the best to survive, but what you did have to do was provide something that your clients wanted. Mid-size firms like the one I worked for moved into a variety of what I suppose we might call "ancillary services" to ensure that they didn't leave potential revenue streams untapped. From the client side, it ultimately came down to whether they would choose a variety of "lowest bid" vendors to service their IT needs, or if they would pay a little more for the convenience of having it all under one roof. The latter were the clients we wanted to get, because with the advent of offshore outsourcing, competing for the lowest bid was just too low margin to be worth it. Of course, we also moved into offshoring, but it was intended to support rather than compete with, the primary business lines.
My job was to work with our various practices to help them create their competitive advantage statements, and to look at their businesses as part of an integrated service model. Given their origins as stand-alone companies that only did one thing, getting them to think in those terms wasn't always easy. That experience has flavored how I approach real estate. I am always thinking in terms of differentiation--"How can I set myself apart so that a client would choose me over the next person?"
And this is the right approach, it's the approach that led the traditional brokerages to provide ancillary services. But, when everyone provides them, they lose their status as a competitive advantage. Then you are back to competing on your other merits or coming up with something new that differentiates you. Which is kind of where we are today.
Now, there is something to be said for one-stop-shopping. Most of the clients I have worked with want to get a good deal but they don't REALLY want to shop around for title, mortgage and escrow. Also, their definition of "good deal" isn't always "who is the cheapest?" A lot of them will pay for convenience (ultimately this is why they have chosen a real estate agent versus trying to go it alone or do a private sale). That kind of client might choose to work with a different vendor than the person who is shopping solely on price. Each client has different requirements. I try to help them find someone who fits with their requirements. I give them a list and tell them the pros and cons of each provider (this one is less expensive, but that one is really easy to work with...whatever the case may be) and let them decide what criteria is important to them. I don't think I push them in one direction or another--I try not to anyway.
Ultimately, some will choose to use the ancillary services, some will choose to go elsewhere, and whatever they decide is fine with me as an agent. My broker might prefer if they used our title, our mortgage, etc. but I've never been pressured about it per se.
One other point I wanted to make about commoditization is that ultimately what happens in industries that have become commoditized, and particularly in industries where the internet has a disintermediating influence, is you will eventually have a thinning out until the level of competition returns to a level that the market will bear. When that happens, a lot of the "mediocrity" will by necessity leave the industry.
I always think it's interesting to ask agents what they do that is different or better, what makes them stand out, and it never ceases to amaze me how many can't answer the question. The ones who won't make it are the ones who can't think in terms of competitive advantage.
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Thanks for the kind words Sandy, they're very much appreciated.
>I always think it's interesting to ask agents what they do that is different or better, what makes them stand out, and it never ceases to amaze me how many can't answer the question. The ones who won't make it are the ones who can't think in terms of competitive advantage.
In the end Sandy there's only one thing that differentiates any of us from the oozing amoebic pack. My dad taught me this lesson when I was 16 and his company's janitor. He said, "If you never remember anything else I try to teach you, remember this: Nothing replaces consistently superior results - nothing.
That's what set him apart, it's what sets me apart, and I'll bet my $20 to anyone's $5 it's what sets you apart too. The rest is great for party time conversation. You do it your way, I do it mine. It's a lot like sports. What's the first question asked about a game you missed? Who won? Results. Only then do they ask how you won or lost.
Great post Sandy.