The New Business Model in Real Estate - Good Bye Old Brokerages and Brokerage Models.

A Look at History

Years ago the Red Shirt Warriors of the Lakota Indian Tribe were highly respected. They were fierce, they were elite, they were the best of the best. There are stories about how the Red Shirt Warriors were fearless and could do anything. The Lakota tribe didn't give a bow and arrow to every member of their tribe and call them a Red Shirt Warrior. There were only 2 invitations extended every 4 years for new members. Yes the members of the tribe were hand picked and invited to become members. To be picked you had to be elite and have the skills and heart required to be part of the group. 

The Red Shirt Warriors had guidelines and requirements in order to be part of them. What if the Red Shirt Warriors let anyone who wanted to join their group? People wouldn't strive to be their best to get into the group. They would have become a mediocre group. But because only the best were in the group, other people strived to become their best so that they could one day be a Red Shirt Warrior.

Today's business model is full of mediocrity. You can tell mediocrity is rampant when the market becomes saturated and consumers base their choices on price alone. Is the market saturated? There were over 9000 agents in my area last December trying to snag 430 home sells in January. That is definitely saturated. What about price? Consumers in a saturated market assume that every person in it provides equivalent service. When all service providers as perceived as being equivalent, consumers make their decisions based on price alone. You see this equivalent service as real estate agents advertise "Full Service" at a discount so that you save. Consumers are confused by these messages. Agent X with Coldwell Banker or Prudential or RE/MAX has been an agent for 20 years and sells 50 homes a year. Agent X has refined negotiating skills and a brilliant marketing budget and plan. Agent Y with the same company is new to the business and has business cards hot off the press, but no marketing plan or negotiating skills or experience. The brokerage mandates that they charge the exact same fee. What is wrong with Agent X and Agent Y charge the same fee? Two totally different agents with differing marketing skills, experience, etc. and they get the same reward for selling the home? (Okay, so their split is different but the consumer pays the same amount for either agent.)

Who is at fault?

If you have read Good to Great you might say the Leader is at fault. If you have read the Tipping Point or the E-myth, you might say that the system is broken. Well let's look at the industry and see what the focus is on. What do brokerages focus on to make money? They focus on recruiting. Its a numbers game right? 'The brokerage with the most agents wins.' The traditional brokerage models focus on recruiting as many people as they can into their brokerage. As they do this, they do not focus on the actual agent they are hiring. You may say that brokerage A does training and offers marketing to help agents, etc, etc. But when their primary focus is on recruiting more agents, their training becomes a lower priority. How do we know this is true? Subconsciously and consciously people know they don't have to work hard to be part of brokerage A. Every traditional brokerage in town allows any agent to hang their license with them if they have a pulse and a real estate license. You could say, every one gets a bow and arrow.

How is the industry going to change? Should we pass new laws?

No, there is not going to be a law passed that forces brokerages to employ better quality agents or salaried employees instead of independent agents. What is going to happen is economic pressure will purge the industry. During a commoditization of an industry someone is going to do something different and stand out and be the Starbucks or the Cirque de Soleil of the industry. Economic pressure is coming that will force brokerages to change or die. The Industry will change when someone does not hand out a bow and arrow to everyone. The industry will change because there is a team so elite and good that it hits other companies hard in their pockets.

What is the change going to be?

It will be exactly what the book Blue Ocean talks about. The change will be the opposite of what is happening in the industry. If every brokerage is focusing on recruiting agents, the new brokerage will focus on quality of agents. The new brokerage will be as the Red Shirt Warriors. Elite agents will be chosen to be part of the brokerage because of their abilities. Not simply because they have a pulse. There will be a subconscious pressure for people to perform the best they can in order to be a part of the elite group.   The change will be 3 fold. 1rst: the brokerage will only focus on quality of agents. 2nd: the structure of how an agent works will change. 3rd: the service given to the consumer will be instant results, knowledge, and services. The consumer will also see the value of this New Brokerage because there won't be inexperienced agents charging the same commission as the experienced agents. Regarding the change in structure, I'm talking about how agents' work will change. If you read the E-myth you will read why businesses fail. The New Brokerage which focused on quality agents will have a new structure. Today's model of an agent's business fails 90% of the time. The structure will meet the other 10%. What about the service given to clients? 80% of clients browse the internet to look for a home. 70% of those, don't call their brother or cousin to go look, they drive by the house on their own. The new brokerage model will give these people what they want. The new business model will get these people in the homes that instant, when they want to see it. How do I know? Because I know why people are calling me to help them buy a home instead of calling their brother. I know why other real estate agents are calling me to sell their own homes or to help their clients. I am seeing the change firsthand. People want a higher level of service.

Why are other brokerages forced to change?

Well lets look at some statistics. There is an office across the street from me that had over 40 agents. In December those 40 agents sold 16 homes. That is an average of 1/3 of a home sale per person. In the same month I sold 15 homes myself with 7 agents helping me.  We averaged almost 2 sales per person. Our average was 5-6x better than the brokerage across the street. These numbers came from when our market hit bottom. When the market picks up the statistics will start to grow exponentially better than the traditional brokerage across the street. As this grows, people will take notice. (They already are.) I didn't have to advertise to recruit and one of the best agents in town just joined my team. Agents want to be part of the New Brokerage model because it means more success. The other brokerages won't be able to keep the quality agents. Their overhead will be too high and they won't be able to compete. They will be forced to change.

What should I do?

If you want to be successful, you will have to start doing the opposite of what everyone else is doing. You already know what everyone else is doing, the question is do you have the courage to do the opposite?