It's time for your wake up call...

Rob Hahn of The Notorious R.O.B. put a post up about a week and a half ago that has been sticking with me ever since.  The title of his post, “The Real Estate Story Awaits the Next Chapter” was in response to a post written by Brian Boero of 1000watt Consulting entitled, “The end of the real estate story?”  Why do I feel the need to give you all of the information on where this info. came from?

Because my fiancee and I were part of the “dinner conversation” in real life that Brian wrote about… and because I don’t believe that Brian (as much as I love his writing – and 1000watt is our company consultant that we couldn’t work without) really “got” what Amanda and I had to say.  Here’s the basis of the 1000watt post:

“Have we reached the end of the real estate story now that FSBOs and discounting have lost their menace?”

A. Real estate is exceptional. The complexities and emotions that characterize the real estate transaction will forever shield it from structural change. Bill Gates, Barry Diller and about a billion dollars in VC have been thrown against the barricade with no transformative impact. The story is over.

B. We’re due for a cataclysm. The forces of change, of technological innovation, of inchoate consumer frustration, are stacked high against the dam of Real Estate As We Know It. It will not – it cannot – hold. The story is far from over.

My dinner pals were in the “A” camp. I argued for “B.”

I believe that the “camp” that Mrs. @homepartner and I were in is was more along this line.

“Real estate is exceptional. The complexities and emotions that characterize the real estate transaction will forever force the agent to provide a level of empathy and understanding that cannot be provided through technology, social media, or any other “quick fixes” discussed so often today.  The story is FAR from over, but elements of “real estate basics” will transpire throughout its evolution.”

The model is flawed.  As we are quick to point out, the largest amount of profit money (actual dollars) are generated from the lowest splits.  It’s the “quick buck” element and like a virus…  use, consume, move on.  Not all companies “filter” leads to the bottom quartile, but this “earning potential” does hinder the company desire to elevate agents to “superstar” earning status.

However, there are a number of non-measurables that you need to incorporate into your model.  The top agents (let me rephrase that – the IDEAL top producing agents) provide the following:

1.  Signage
2.  Marketshare statistics
3.  If they’re good pricing agents, good Sales to list price ratio
4.  Brand Awareness through direct mail, signage, etc.
5.  Mentoring of lesser agents
6.  Pride in brand
7.  Leads via advertising, online and print
8.  WOMM through client interaction, marketing, listings, etc.

There’s more, but I think that you get the idea.

The top producers DO however cost much more.  Support, marketing, IT, manager interaction, coaching, etc.  The top agents tend to take advantage of many of the programs, trainings, and tools that a company has to offer as well, not even touching on the fact that top agents tend to take up more physical space with assistants, team members, and often times spend more time in the office.

I talked to a broker out of Miami the other day that actually thrives on the lower producing model.  He spends all kinds of money on leads from sources like Homegain, sells the leads to his agents at 50-65% splits, and trains them to follow directions exactly from listing presentation to buyer interview.  As soon as an agent begins to think “outside the box” and is set to pass the 65% split, he lets them go, keeping their database…  talk about your churn and burn.

Here’s my thoughts for the office of the future:

1.  Get that office full of great, team-playing, top producers together.
2.  Get some killer marketing, IT and coaches together to support them.
3.  Invest in the absolute BEST CRM system on the market
4.  Hire about 10-15 Virtual Assistants to serve them with all of their paperwork, showings, generating feedback, and overseeing marketing projects.
5.  Go to the best website company out there and have them create “The Best” website for your company complete with co-branded agent sites that reflect the company brand to some level – all will utilize the same backend.
6.  Hire a professional PR company that will write all copy for the agents that would go out to their clients (newsletters, blog posts, etc.)
7.  Get involved in every single local organization that you could (softball teams, chamber of commerce, school programs, CSR campaigns)
6.  Institute a “split program” that would start at X% (to help cover your expenses) and charge accordingly for the following

% per transaction to cover the VA’s
% per transaction to cover their website
% per transaction to cover a marketing fee
etc…

I’m a firm believer that if you got a group of top producers together, told them they were going to get x,y,z for their % split and (—this—) is what I’m going to do for you to make your job easier… they would join and would do so happily.

As i said at the Leading RE event, “the time for this us versus them mentality from the broker is dead and over with.  If you approach your business like this, without love for your agents, they will leave you… and i’ll have no sympathy for you.”

Unfortunately, this type of office would take money to startup and this isn’t the market to do so.  But I am confident that 95% of the really good agents in this market would not balk at paying an additional % out of their commission check if they perceived VALUE for what they were paying.

Matt Dollinger
www.theyoufactor.com

In the post entitled, “Take it from an agent — sell by owner”, foreclosure and investment specialist Dr. Danielle Babb lays blame to Realtors and their commissions, for hindering the recovery of the real estate market.  Babb has also written a post on her own blog (http://findingforeclosures.entrepreneur.com/2008/04/30/real-estate-agents-hinder-real-estate-recovery/) going further into depth with her theories and findings.

As you would expect on both her blog and Inman, this posting has issued a peppering of posts from Realtors and discount brokerages alike condemning and praising Dr. Babb.  In her article, “Real Estate Agents Hinder Real Estate Recovery” Dr. Dani starts the article by leading in with the following:

But I have to say that agents–while protecting some home buyers and sellers–are adding an incredible amount of extra work and effort to the real estate recovery. Their added fees are creating inflated home prices, keeping sellers and buyers from reaching deals.

“(Realtors) are adding unnecessary work, rules and negotiation to an otherwise easy process.  In addition, sellers, knowing they have to pay 6 percent to an agent (5 percent if they’re lucky), simply add this to the price so they still get their ultimate bottom line out of the house. This means the buyer actually ends up paying, even though the documentation shows that the seller is paying the agent’s commission. Therefore, we could have a faster home recovery without agency fees!

On top of all this, the agent adds to the process wasted energy and time, which could be spent house hunting, financing or moving.”

Babb then goes on simplify the home buying process into a sugar-coated journey through cyberspace to find their dream home, (although she is good enough to stress the fact that this is how the process SHOULD WORK). 

1. A buyer goes online
2. They find their dream home and submit an offer
3. They come to terms on price (or not… where they simply walk away)
4. They sign contracts, assign escrow, and find a title company
5. If anything goes wrong, they call in their lawyers.
6. Happily ever after

She then goes on to talk about how an agent complicates the process (or hinders it by playing tag-along).  I’m serious… EVERYONE has to read her play by play with regards to how an agent simply focuses on the money throughout and only slows the process moving forward.  Babb, goes so far as stating the following:

1. Buyer has to find an agent to represent him or her, or buyer gets “dual representation” from seller’s agent (thereby increasing seller agent’s commission for doing little to no extra work, but adding 2 percent to 3 percent to the purchase price).
2. Buyer still looks at the same houses he/she would look at it with or without an agent.
3. Seller’s agent has to take offer to the seller, present it, “mull it over,” discuss it, decide how much can be squeezed from buyer and present a counter offer to the buyer’s agent.
4. Buyer’s agent presents counter offer to buyer. Buyer tells agent what he or she wants to counter with, and steps 4 to 6 repeat until everything in the situation without the agent is finished–the same process that could have been done in one hour with the seller and buyer together.
5. Seller’s agent and buyer’s agent “stay in touch” throughout escrow to make sure they get paid.
6.  No direct communication exists between seller and buyer, so anything the buyer or seller needs must go through an intermediary, thereby justifying ridiculous commissions and inflating home prices.

She then ends this wonderful post by stating that unless you have an overly complicated situation, you’re better off selling by-owner.  So… I don’t know about what market Dr. Babb was selling in, or if this is a representation of how she treated her clients, but working in the Chicago Market for the second largest company in market share, I know for a fact that there are glaring holes in this “Simple” equation.

Pricing – How does someone come up with a price?  Zillow?  (82% of their home appraisals fall within 20% of sales price here in Chicago)  http://www.zillow.com/howto/DataCoverageZestimateAccuracy.htm

More Money? – According to the 2006 NAR study on FSBO’s, not only did over 80% of all FSBO’s end up listing with an agent, but those that initially listed sold on the average of 32% higher than those that sold By Owner.  http://www.realtor.org/research/research/fsbofacts  (Yes, I know from her past posts that Dr. Babb blasts all NAR research, but I will honestly say that no one has spent more money on the subject)

Finding the Dream Home – So, say your dream home is a 2 bed 2 bath condo in Chicago for under $350K.  Log in to Realtor.com and prepare for some homework.  ONLY 13,000 matches!  Take into consideration schools, transportation, hi-rise, mid-rise, parking, pets, pets under a weight limit, proximity to lake, assessments, etc, etc… 

Attractive Offer – So you want to make a strong offer but only have a fixed amount of money to spend?  Well take into consideration things like home sale & mortgage contingencies, closing date, money down, and a number of other things that I’m sure are in Babb’s book, can help your case.

I could go on and on with this topic, but I think we get the point.  I refuse to blast Dr. Babb’s post any more than to point out some glaring loopholes.  I’m sure she has helped countless individuals build wealth and succeed through her many ventures.  But DON’T… I repeat DON’T reduce the real estate community to money hungry peddlers.  You’re casting stones to those that have helped millions of Americans achieve the goal of home ownership or home sales and simplified their lives.