Berkshire Hathaway HomeServices – or any other “premium franchise brand” – could change the game of real estate….but they won’t. Why? Because the existing model is very profitable, and there is no threat from outside.
An example of how the existing model works:
A review of the sales history of one of the local “premium franchise brand” offices for the summer selling season, June 1st to September 30th, 2012:
MLS dues-paying members: 310
Transaction sides: 223 (109 sellers, 114 buyers).
“Round-trips”, where both buyer and seller was represented by an agent in this office: 18
Number of properties sold: 205
We know that almost a third of the agents (223/310 = 28%) in the office didn’t make a sale during the four-month selling season when mortgages rates were in the 3s – and that’s only if every other agent only sold one. But the common rule-of-thumb is that the vast majority of the sales are done by the top 10% of the agents….so it’s probably more likely that two-thirds of the agents didn’t sell a lick this summer.
Bottom line strategy: Hire every licensee you can and give them lousy commission splits, conduct a ‘mentor-training program’ (trained by fellow agents), and hope that the brand name helps them to sell at least a couple of properties before they drop out of the business. Meanwhile, have a manager conduct an office meeting every Tuesday morning to promote the new office listings, which is a very common practice, and every office does it. This promotes selling the listings “in-house” before they hit the MLS – in hopes that giving the agents an insider-preview might help them get a sale.
This program is run by every real estate franchise in America, and it works great, if you can get thousands of agents on board. Yes, there are expenses with having the brick-and-mortar offices, but agents rent space in them, which minimizes the cost to just a manager and receptionist. The unproductive two-thirds just work out of their house, to save money.
What Could Berky, or Any Other Franchise Do?
1. Promote video tours of houses.
Why don’t they? It’s because of the audio – it would expose how little the agents have to offer.
2. Implore the MLS to better serve the sellers, and minimize fraud.
There are simple solutions – for starters: A) allow video tours to be seen by the public, B) insist on high-quality photos only, C) require every data point on the listing must be completed before it can go active, D) showings must begin the day of listing input, E) once a listing is inputted, it has to stay active for a minimum of four days.
3. Promote consumer education.
In the era of transparency, consumers are craving education. Yet none of the big franchise companies have capitalized on the opportunity to provide a constant stream of consumer-education videos or articles. When you check their websites and blogs, all you see is the usual self-promotion.
4. Provide effective sales training for agents.
Instead of allowing the old has-beens to mentor, send the new licensees to Dale Carnegie to teach them how to be salespeople, not realtors. Then send the old realtors there too!
5. Develop new innovations, or at least promote the best ones available.
They will tell you that it is up to their agents to utilize the best internet gadgets for their own individual business. But anybody could develop a hot-shot public-MLS and take over the industry – and the field is wide-open. Redfin doesn’t have the killer instinct to dominate, so they will just slowly nibble away at the edges. Or if you don’t have the ambition or thirst for a public-MLS project, at least help coordinate and promote the other more minor innovations. There are new real estate apps and ideas being developed every day by people outside of the industry – and one day they will find the right mix, and then the old guard will be toast.
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I said in the beginning that there is no outside threat, which keeps the old-style franchise fat and happy. But there will come a day when real estate as we know it will become obsolete – which will be a shame because the old-fashioned personal touch is by far the best method for agents to assist people with buying and selling houses.
The internet has caused consumers to be as educated, or more educated than the agents. The franchises could re-vamp their packages and give agents a better set of tools in order to excel, but it seems they are destined to repeat the same tired old ways, and gobble up more agents instead.
These big companies could throw their weight around, and cause real disruption if they wanted to – but they don’t. Why? The current system is working great for them, so they don’t see any reason to change. But change is coming, and either you adapt and hopefully lead, or get run over.
Links of interest:
http://www.prudentialcalblog.com/blog/
http://www.vendoralley.com/2012/10/30/warren-buffet-bets-big-on-real-estate/
http://www.inman.com/buyers-sellers/columnists/roberthahn/buyer-agency-in-information-age
