Transcript Brokerage Business Model Design

SHIFT HAPPENS
The results of the research …
• What we know …
• What we fear …
• What we sense …
What we know …
The continuing uncertainty
regarding the national economy
is negatively impacting the real
estate market.
A pronounced and/or prolonged
economic downturn will impact
the industry to a point that it
may not be able to remain
viable.
The sub prime trigger is
continuing to impact the
national economy and the
industry at several levels
The reformation of the mortgage
process and industry is more
expansive than generally
recognized.
The vanishing real estate
investor is and will be a factor
The evolved Internet consumer
will play a major role with
respect to all aspects of the real
estate market moving forward
Generational and ethnic
imperatives must be addressed
The consumer’s continuing
questioning of the REALTOR®
value proposition will place
additional downward pressure
on fees and commissions.
The inadequacies of the
traditional brokerage business
model must be addressed if the
industry is to maintain its position
in the recovery market
What we fear …
Increased government
oversight, regulation and
intervention will negatively
impact the industry’s ability to
stabilize when the sustainable
market returns.
The continuing media assault and
the difficulty of rehabilitating the
REALTOR® image will play a
powerful role in the equation
The Internet’s disintermediation
of the role of the agent may go
beyond the point of
rehabilitation
The industry’s lack of resources
will dry up innovations and
creative research and
developments
The fact that current market
share holders are not moving to
meet consumer expectations is
creating a environment of
opportunity for non-traditional
entrants
That today’s searching,
inquisitive and capable
consumer, especially in the 21 –
43 year old demographic, may
discover an acceptable
alternative to traditional real
estate services
What we sense …
That there is a changing vision
of housing and home ownership
in America especially among the
generation X and Y demographic
That the average brokerage is in the
process of shedding capability to a
point where innovation and
creativity will take a back seat to
survival. In the same vein when the
market recovers there will be a
substantial lag in those firm’s
ability to achieve relevance and
competitiveness in the new market.
That when the market returns to sustainable
levels it will be defined by the following:
•
•
•
•
A pent up demand for housing
Low interest rates
Higher requirements for mortgage lending
Lack of equity or cash resources combined with
higher income requirements will force consumers to
reevaluate their expectations
• The market for higher priced homes will recover more
slowly
• The recovery market will not be characterized by the
2003-2005 production levels.
• The strongest market dynamic will occur at the lower
end of the price spectrum
That, in general, generation X and Y, a
group that will constitute a significant
percentage of the buying market, will
have less financial resources available
with which to engage the housing
market
Why?
•
•
•
•
•
Significantly lower joint and household incomes
Heavier credit card debt
Educational debt
Wedding debt
That this lower level of financial resources
combined with higher mortgage requirements will
propel this buying demographic into lower cost
homes and delayed home ownership
• That in response to these factors the “frugal
chic” lifestyle will be predominant within this age
group for the foreseeable future.
That the Internet will have
completed its evolution as the
primary site for the fulfillment of
the real estate experience from
search to discovery, to purchase
and closing, and to the post
closing experience.
Strong, capable and well-funded
competitors, drawn by both the
obvious opportunity and weakened
in place market shareholders, will
appear very early in the recovery
cycle.
That the downturn will also affect franchises
resulting in weakened franchisee support
• By general downturn in revenues for both basic fees and
optional services. Moreover franchisors will have record
levels of account receivable from unpaid fees.
• With less revenues franchisors will cut services and will
trim their own organizations further weakening the
over-all system
• Collection efforts and remedies will cause stress and
discord
• This combination of circumstances will also weaken the
relationship between the franchisors and their
franchisees.
Franchise issues continued …
• Franchisee abandonment and new recruiting
rates may be affected as some brokers
discover lessened service levels
• Those franchise entities that are owned by
equity firms will find it increasingly difficult to
service debt and meet franchisee expectations.
Their surviving product may be the brand.
The team next recognized that a major impediment
lying between the current situation and success in
the recovery market was the belief held by many
brokers that the current down market was similar
to previous down cycles and that the only
necessary remedy was to hunker down and make it
through to the next boom.
The team strongly disagrees with this idea and
developed the following response.
How is this down cycle different …
• There are multiple pressure points as opposed to the
traditional cycle that centered on a down national
economy or extremely high interest rates
• Because during this down cycle the consumer has
continued their evolution to becoming a more data
and information powered buyer and seller. Moreover,
at the end of this down cycle the consumer will use
this increased sophistication to demand a higher level
of service and a different level of involvement in the
transaction.
How is this down cycle different …
• Consumers from the demographic group that will
constitute a large share of the recovery market will
be looking for homes on the lower end of the price
scale.
• Non-traditional vendors in the market (Google,
Zillow, Trulia) will continue to enhance their
services and products for further intrusion into the
real estate buying cycle.
How is this consumer different?
• A significant percentage of real estate consumers
within the recover market will either be or will be
associated with the X and Y generation, a group
that is noted for being self sufficient, self reliant,
independent, and involved.
• This same consumer will be techno-fused and
Internet empowered
• The recovery market will be characterized by a
consumer who, for a wide variety of reasons, is
more financially grounded and thus far more
discriminating.
How are traditional brokerage firms
vulnerable?
• Most traditional brokerages have yet to decide
whether to change their business model
• The recovery market consumer will demand
higher levels of service and safety while at the
same time wanting to pay a lower commission or
fee.
• Traditional brokerages are being weakened and
may be unprepared
• Well funded non-traditional competitors will be
waiting in the wings
• The ability of new entrants in the business to
compete will be enhanced by the fact that they
have no baggage.
13. Service Delivery Representatives
• The economics and service delivery standards
necessary for success in the recovery market will
likely necessitate a substantial adjustment in
commission splits and overall compensation
policies.
• The service and informational standards
necessary for success in the recovery market will
likely necessitate the creation of a standardized
service and informational offering
USER DEFINED CONTENT
• 80% OF Gen X and Y prefer user generated
content over that of source information providers
• Our industry is yet to embrace user contributions
• User sites and blogs are being created and used
by consumers
• Realtors generally refuse to admit to the
existence of or contribute to user sites
• See SWAMPLOT.COM as example
TRANSPARENCY
• Consumers are demanding and getting complete
transparency
• Consumers prefer to pass up those who will not
subscribe to transparency
• Transparency in our industry means sharing all
the data, all the process, and all the fees
THE ROLE OF MLS
• There is a definite need for a robust data source
that can serve the members as they strive to
accommodate the desires of new buyers and
sellers.
• The Listing is only the beginning of the required
data.
• The Listing may not be the beginning of the data
needs of consumers and members alike.
• What scale undertaking is required?
NEEDS
• Single technology platform for MLS and public
facing web sites
• MLS data standards such that all local needs can
be accommodated.
• Transaction management data exchange
standards
• Data transparency (ex sharing of sold data)
• Maintenance of robust property data base
Consumer Centricity
• Of all the needs, consumer centricity is the
greatest.
• Understanding and satisfying consumer needs is
the first step.
• The role of the consumer is being transformed
from passive buyer to active participant in cocreating value.
• Setting and enforcing service delivery standards
is an early stage must to begin the transition
continued
• The organizational changes demanded to achieve
such a shift are massive.
• A change of this magnitude can only come from
the top of the organization.
• The first source of conflict in achieving this goal
relates to weather the vision is embraced as a
cultural goal or is seen as an independent project
And finally:
• Web centricity in Web 2.0 is consumer interaction.
• Establishing and enforcing service delivery
standards also implies encouraging consumer
rating of you and your organization.
• Success will come to those who embrace the new
world order.