As Good As It Gets?

Dear brokerage owners and managers:

I know times are awfully tough right now and, believe me, I’m not trying to kick you while you’re down. But I have a nagging question I need to ask: have you considered the possibility that you may never make more money than you are today? I’m not even thinking about what you made, say, in 2004 or 2005. I’m talking about never earning more than you are right at this very moment. Think about that possibility for a minute. What if this is as good as it gets?

No, I don’t think the housing market is doomed. Quite the opposite; I’m bullish long-term. Home values and transaction sides will increase again. In some places, this is already underway. In many others, the turnaround appears near, even if the pace could be only moderate. Despite this, I still believe few brokers will see any real gains because too many are betting the ranch, so to speak, that these two drivers alone will whisk them back to profitability. Too few are thinking realistically about that most critical of revenue drivers: their percentage take per transaction (also known as broker commission rate or BCR).

Consumer demands and business models that are listening and responding to those demands have been chomping away at BCR for years. It seems very possible that any gains from price and sides will only accelerate the erosion of these rates. I just don’t see the day when BCR pressure will let up.

If you agree, then you know that we cannot fight this battle without a serious change in the value proposition (and, to be able to afford that, in the cost structure). I believe we need to erase much of what we have known about how business was done in the past. We all need to listen carefully to what our consumers are looking for.

As a broker, you need to accept the fact that many of your consumers will come into your office with more, and sometimes better, information than you are presenting them with. Trying to outdo the information (or, worse yet, dismissing what doesn’t come from you) is not where your energy is best focused. Concentrate instead on enabling your people so that they can do what data can never touch: deliver exceptional service.

Providing the kind of service to get today’s consumers to pay the rates of yesterday will come at a cost. The only way to afford this will be to eliminate the clutter of yesterday’s model that is weighing you down. Where do we start? For my next post, I want to propose some ideas for floor plans for tomorrow’s real estate office that I believe go hand-in-hand with the new, consumer-focused model. And I’d love to hear from some of you about how you envision the modern real estate office.

BCR pressure will never let up. That’s the bad news. The silver lining is that there will never be a better time to rebuild the model. If you do that, then maybe 2008 won’t be as good as it gets.

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