Build a better brokerage (or other business)
Key opportunities for residential real estate brokerages
Brokerages and agents have long been the gatekeepers of residential real estate—the largest asset class in the U.S., valued at somewhere between $34-$40 trillion.
After more than a decade in this extraordinary industry, I’m still fascinated by its transactional dynamics. And now, more than any other time in the history of housing, there are significant disruptors emerging that are changing how deals are transacted—changes that accelerated due to Covid, certainly, and that are already woven into the fabric of this industry.
SOURCE: David McBee from Pexels
For these reasons, and because everything else is generally (at a good) status quo economically and in the markets, I thought it would be interesting this week to look at opportunities for brokerages, using ideas that can be applied to every business.
First, a quick update on the economy and markets
Stimulus funds have arrived or are on the way for millions of households across the country, which will give a boost to the overall U.S. economy. So, too, did President Biden announce this week the outline of a $3 trillion infrastructure plan that could have massive and long-term positive impacts across employment and manufacturing sectors related to construction, technology, travel and more. While inflationary concerns continue, the lasting impact of infrastructure improvements—long delayed and very much needed—could be substantial. Rather than look at this as a potential drag on the economy, then, we need to realize it as the investment as it is, with significant potential return for decades to come.
Other interesting events included the first known sale of a digital home as an NFT. The Mars House sold for a whopping $500,000 in Ether, a digital currency. It is nothing short of mind-boggling, especially given that even in our hot-hot-hot real estate market, there are still tangible homes to be had for that amount of money. Maybe not as large as Mars House, maybe not as well-sited and certainly not that come with their very own musical composition by a member of the Smashing Pumpkins. But they’re out there and if you ask me, I’d rather have a tangible place to hang my tangible hat.
Still, this is where we’re at.
Elsewhere on the crypto front, as of March 24, Tesla started accepting Bitcoin for cars. Real cars, too, not just digital addresses to a video of a car. As CNBC reported:
SOURCE: Tesla.com
‘You can now buy a Tesla with Bitcoin,’ tweeted Musk, who was officially made the “Technoking of Tesla” this month.
A support page on Tesla’s website explains how customers can pay for a Tesla using the digital currency. The company’s electric vehicles typically cost between $37,990 and $124,000 before tax.”
In more economic news, and as we look forward to a world following Covid or, at least, a summer that feels more like a “normal” summer, everything related to travel is booming. Vacation homes are nearly booked solid for the summer months, even less desirable locations and less desirable homes.
As this Wall Street Journal article highlights, “Economists surveyed by The Wall Street Journal this month raised their average forecast for 2021 economic growth to 5.95%, measured from the fourth quarter of last year to the same period this year, from a 4.87% projection in February’s survey. The higher figure would mark the fastest such pace in nearly four decades.”
So, too, is spending up on personal services, clothing and other retail goods and just about every other nook of the economy. As I predicted in past posts, the forecasts for growth are the strongest that we’ve seen in decades, possibly since the boom years of the 1950s.
A history lesson for brokerages and others: The store that changed the world
Before we move on to today’s topic, let’s look at a bit of recent history. When Jeff Bezos started a company to sell books online, we barely shrugged (no one will buy something online when they can go to a store to get it!!). When Tony Hsieh started selling shoes online, we laughed (no one will buy shoes if they can’t try them on first!!). And in 2009, when Amazon bought Zappos for the stock equivalent of $1.2 billion, we were astounded by the amount of the sale, but many still didn’t see the writing on the wall.
In the biggest evolution since the mail-order catalog, online stores were about to upend everything about how retail had been conducted for millennia.
Those that embraced change found new opportunities to grow and thrive: New markets, new customers, new revenue streams. The rest closed or have struggled since.
When you find a winning strategy, use it
I mention the retail examples because the residential real estate industry is quickly evolving. Up until now, many brokerages were content to do business the same old way but now, change isn’t just knocking at the door—it’s in the house. You only need to read the tape to see what’s ahead.
When I bought an Orange County, CA, brokerage in 2008, the business was on the financial brink. Ten years later, through the Great Recession and the collapse of the housing market, revenue increased more than tenfold. Success came when we embraced change, built our brand and put our clients first.
It’s how we grew from several hundred-million dollars a year in revenue to several billion annually. It’s also a method that I used in business before I entered real estate and one that I’ll continue to use because I know it works. Still, things have changed vastly over the years and some of what we did then simply wouldn’t be effective now.
Here are some insights:
The interplay between tech and human relationships is key to success
From my vantage point, today most brokerages either lean too far to the traditional model, in which there’s an assumption that clients need you, or they veer too deeply into technology.
At the end of the day, we’re still just people buying homes and we generally like and appreciate the help all around. Brokerages that understand the correlative opportunities between tech and people will win, especially when they realize that technology isn’t eroding market share but, rather, continuously opening it up and enabling new ways to gain customers and make their lives easier.
Looking ahead, I see enormous opportunities for brokerages that successfully find the balance between property technology (aka, proptech), optimization of data (improved AVM models) and human interaction. And when Plunk launches we’ll build an invaluable cache of data that will further help agents and their clients reach more accurate valuations based on granular, home-specific information and maximize potential valuation.
Relationships between clients and agents are critical
In my view, when there’s a crisis or massive volatility, everything comes back but it always comes back differently. For example, both the creativity and competitiveness of the real estate industry helped to fuel home sales during the pandemic: When people were inclined to flee, agents and brokerages made it happen.
Despite this, the pandemic changed the relationship between agents, buyers, and sellers because there was little-to-no face-to-face interaction.
And in my observations, many brokerages tend to give the highest levels of service to high-end clients. I believe that to succeed, you have to make all clients feel valued. As the role of technology grows, the quality of human interactions becomes a competitive differentiator and when agents and brokerages demonstrate their value through these interactions, then buyers and sellers feel that commissions are earned—something that’s particularly important in this sellers’ market. Making it even more important that agents and their brokerages embrace all the cutting-edge technologies.
Consider this, too: According to a recent article in the Wall Street Journal, there are now more agents than there are homes for sale. As reported:
“The National Association of Realtors’ membership count has exceeded the number of homes on the market only once before, in December 2019, when the number of agents dipped slightly but the inventory of homes for sale declined by more. It happened again last October and has held ever since.
At the end of January, there were 1.04 million homes for sale. That is down 26% from a year earlier and the lowest on record going back to 1982, according to the National Association of Realtors. Also in January, the NAR had 1.45 million members, up 4.8% from a year earlier.”
Empower agents
As I see it today, clients are more loyal to agents than to brokerages. This point became more pronounced in the last year, when innovative agents thrived in the face of new challenges.
The best agents drive brokerages and when brokerages find ways to help their agents thrive, agents don’t feel compelled to go elsewhere. The fact that brokerages haven’t fully recognized this point, though, is the reason that many talented agents are leaving for emerging agent-centric businesses. (Although we invested tremendous resources on behalf of our agents, I’d likely approach this differently now, in that I’d spend even more developing their skills and individual brands.)
And although ibuying and other online channels are here to stay and will grow, the vast majority of real estate transactions are completed with the assistance of agents and brokerages: There simply isn’t a flow-through system that works in all markets for all aspects of the transaction process yet. AI will eventually understand the granular nature of homes and streets and communities like agents do. However, at this time, agents are still an important piece to completing a transaction and valuation metrics.
Embrace and leverage technology to win
Technology doesn’t eliminate the need for agents and brokerages: It frees you up to do the things that you do best.
SOURCE: Instashowing.com
Brokerages that fully leverage the ways in which technology can build efficiencies for their agents and clients will come out ahead. Tech helps clients because the typical property-transaction process is cumbersome, time-consuming and long even in the best circumstances. When brokerages adopt tech for showings and closings and any points in between, it’s more efficient while reducing errors and oversights.
And while I won’t advise on how to approach emerging transaction-related tech and alternatives such as ibuying or adopting cryptocurrencies (because they’re new and I don’t have relevant experience in them), I do think it’s wise for brokerages to stay on top of every potential industry trend, no matter how far out or unrealistic things seem to be. It’s impossible to say what the level of adoption will be and you’re better off staying informed than playing catch-up in this quickly evolving landscape.
It’s not enough to change now and then, either. Businesses that aren’t responsive and fluid will lose in this environment. Remember Blockbuster, the business that disrupted how we watched movies?
At its peak, Blockbuster had more than 9,000 stores. Today it has one.
Consider diversifying revenue streams
There are only so many ways that a brokerage can increase revenue and profitability -- a fact that’s further impacted by regulatory issues that hinder progress. When I realized that fact, I started looking for other ways to diversify and grow.
Consider what you do best and how that could translate to additional revenue, such as launching or acquiring related financial services firms, like title and escrow companies or insurance. Or, if your brokerage has outstanding branding and marketing capabilities, providing those services to related businesses can help boost your bottom line, too.
A quick evaluation
If these points seem like second nature already, then you’re on the right track. If any stand out as areas that can be improved, focus on them.
And if you’re not on board, I encourage you to keep this in mind: We’re 25 years into the adoption of online retail and many brick-and-mortar store owners are still scratching their heads, surprised by its impacts on their businesses.
Whatever you do, don’t get left behind.
