INNOVATOR SERIES: Brokerage Roundtable

Much of a REALTOR®’s life focuses on the present, what it takes to succeed today, tomorrow, or next year. But if you expect to build your business for long-term prosperity, you have to explore what the industry might look like in the future. REALTOR® Magazine’s 2007 Innovators Series lets you sit in on four freewheeling discussions with some of the industry’s thought leaders in brokerage, technology, marketing, and customer service. Find out where the sharpest minds in the field think the industry is going. And then you can get there first.

Being consumer centric today means being willing to instantly gratify your customers’ appetite for information about listings, communities, mortgages, and other services necessary to the transaction. At the same time, brokers acknowledge, companies need to support their sales associates with the training, resources, and one stop settlement services that enable them to concentrate on the value added services that consumers want.

Consumer centrism is also driving brokerage leaders to look with fresh eyes at industry fixtures such as the MLS and REALTOR.com. Those assets could be marginalized if they don’t evolve to look more like the online search sites that information-hungry consumers are making so popular, said participants during the roundtable.

REALTOR® Magazine convened the roundtable of some of the nation’s most innovative and successful brokers to get their views on where the real estate business is headed in the future. We asked them for their thoughts on the future of the MLS, what it takes to be profitable today, and whether minimum service standards are necessary.

Discount brokerage

REALTOR® Magazine: With the housing boom behind us and with customers looking for more marketing from their salespeople, do you think the growth we’ve seen in alternative business models such as limited-service brokerage will slow?

Bill Evans: I do see consumers coming more to full service brokerages today than they were when the market was heated. Still, there’s room in the market for all players.

Lyle Martin: There needs to be a third category between full service and limited service brokers: discount full service. What we’re finding is that sellers need to be very competitive on pricing today. The full service discount model combines professional real estate services with a lower commission, which equates to sellers having the opportunity to price their home competitively.

Dave Jenks: The discount brokerages have tried to position the industry as rigid on commission structure and as high priced, yet our research indicates that rigid pricing isn’t true. Pricing isn’t the issue. Most people continue to look for service they can trust and for associates with a good reputation.

Evans: I’m reminded of what’s sometimes the problem with discount brokerage models: They give consumers the feeling that the only issue is pricing. But that’s not the only issue; consumers need associates with expertise in marketing, negotiating, and understanding the transaction.

Sharianne Daily: I agree that success in the slower market has nothing to do with pricing. Consumers want a trusted adviser. They already have the ability to get their information on the Internet. We need to offer something of relevance to them, and we have to tell them what they can expect by working with us. We need to be bold enough to put those expectations in writing. We need to have service standards.

Minimum service standards

Martin: That’s a hot potato, but I’ll jump on it. Legislating minimum services such as a brokerage’s obligation to present offers or negotiate contracts is the wrong direction for the states to be taking. Consumers will decide whether discount models work. We don’t think the limited service models will survive in the long run. Quite frankly, the level of services that are delivered varies so widely from associate to associate within one office, and from office to office, that once we start legislating services, we’re going to regret it [the floor on minimum standards might continue to be raised].

Matt Carroll: I agree with Lyle [Martin]. The marketplace will dictate the proper level of service, with consumers saying, “These are our baseline expectations.” All of us, limited or full service, have to exceed those expectations, or we won’t survive.

Jaren Davis: Minimum standards aren’t intended to keep an industry from having varied services. They’re intended to help ensure that consumers have a basic understanding of the services they’re getting. Without minimum standards, sellers working with an MLS entry only broker naturally look to the buyer’s representative, as the only licensee in the transaction, to get questions answered. But that professional has a fiduciary duty to the buyer. With standards, sellers at a minimum are ensured they have a professional to rely on for advice. It’s not an effort to do away with competition legislatively.

Changing consumer demands

REALTOR® Magazine: Everyone seems to be saying that, regardless of market conditions, you’re going to have buyers and sellers who need different levels of service. How has that mix of services changed in the past 30 years, given the role of technology?

Davis: One technology driven change has to do with what you might call the chamber of commerce tour. When people were relocating, the introduction to the community was often done by a real estate associate driving them around, showing them the highlights, educating them about the housing stock. Now consumers go to the Internet for that. That frees up time, enabling associates to concentrate on the professional tasks that consumers want: keeping up with appraised values, negotiating the transaction, ensuring that the mortgage transaction is fair and competitive.

Lead generation

REALTOR® Magazine: What is the biggest challenge facing associates today?

Jenks: Creating the opportunity to do business: lead generation and the willingness to invest in getting leads. As an associate, you have to ask, “What do I have to pay to get long term lead generation for myself, and what do I have to pay somebody else to do it?” You’ll find it’s about two or three times more expensive to pay somebody else to do it and you don’t get to build your own database.

Carroll: And what to do with leads once they come in the incubation of those leads is a key part of the equation as well.

Jenks: Particularly with Internet lead generation, where you get leads so far in advance of when people are ready to do business.

Consumer-centrism

Davis: This need for lead generation is consumer driven. Consumers today surf the Internet and expect immediate gratification, an immediate response. At Coldwell Banker, if a consumer goes to any of our lead-generation sites ColdwellBanker.com, UtahHomes.comand checks “Contact Me,” the system will call the listing associate’s cell phone within 15 seconds and read the consumer’s e-mail so that the associate can answer that need at once.

Carroll: I agree that Internet buyers want immediate gratification. If they can get a response in 15 seconds, that’s commendable. The request might not turn into a lead, but the quick response does say to the public that you’re on top of the market. And that builds confidence and brand awareness.

Davis: And yet, do all our associates use the contact management we’ve put into place? No. That’s why, in our system, if a consumer clicks on the request to be contacted, and the associate doesn’t respond in a set time, the request defaults into a system through which the consumer is contacted by our brokerage.

One-stop shopping

REALTOR® Magazine: Let’s look at one stop shopping. The industry has been talking about that for years. Do you now consider mortgage, title, and other operations part of your core business?

Carroll: Those nonbrokerage operations aren’t a huge part of our business. And one of the questions you asked [in preparatory material for roundtable participants] was, “Is brokerage becoming a loss leader?” I was shocked at that. Those services are growing, but in no way will they surpass our brokerage business.

Jenks: I agree with Matt [Carroll]. We believe that brokerage is our business and that the other services are good. But if those other services aren’t competitive, if they don’t serve the associate and the client, they’re not going to be used.

Davis: You wouldn’t find us performing those services if our consumers weren’t requesting them.

Evans: I’ll piggyback on that because I agree the consumer is the one who’s driving this. Anything that relates to the home moving, renovating consumers expect us to have the answers for.

Associate vs. consumer interests

Davis: [And yet, alternative] brokerage models haven’t really been developed with the consumer in mind; they were developed for the real estate associate looking for something different, such as a 100 percent commission. Keller Williams, for example, caters to associates by passing along to its salespeople a share of the commissions earned by associates those salespeople have recruited. Many business models today are answering the needs of the salespeople, not necessarily the consumer.

Jenks: It’s true. And that raises questions: Are associates going to companies that offer them more service but keep more of the money? Is the associate commission getting higher or lower?

Davis: When associates elect to go to a brokerage that has a higher commission split, the person who often suffers is the consumer. The associates who have gone for that 100 percent commission and are expected to spend their dollars on marketing the property don’t do that. So the consumer isn't realizing the benefits of a full service brokerage. If somebody goes for a 100 percent split and suggests that the client base is receiving the same level of services, that suggestion is absolutely wrong.

Martin: You’re saying RE/MAX associates aren’t full service associates? We’ve got to define what this full service thing is. You suggest that [discount full service] can’t deliver the same services you can. I beg to differ. I’m willing to bet we offer all the same services you offer. It’s just a difference in the price we charge.

Associate demands

REALTOR® Magazine: There are fewer buyers, and inventory is up. Are associates demanding more services from you?

Jenks: What they particularly need is training in how to succeed in this market. One way Keller Williams has responded is by launching KW Connect, a 24/7 Internet based program whereby we deliver courses as well as role-model videos. In the videos, our best salespeople do listing and buyer rep presentations. We’ve also created training modules, so a salesperson can take a live course during the day and then reinforce that learning via the Internet.

Evans: Salespeople also need systems and tools to demonstrate to consumers they have the resources to succeed in the slower market. In the past 12 months, we’ve launched our Real Living 2.0, which is an online interface between the associate and the consumer. It enables consumers to manage their content and their experience the way they want to. They can create their own profiles [of home criteria, communication preferences], communicate with the salespeople, and set up a showing.

Future of the MLS

REALTOR® Magazine: Turning our attention to the MLS, must an MLS controlled by REALTORS® be part of the real estate industry’s future? And what will the MLS look like?

Martin: The sooner we support the movement of the MLS to a system of providing all the information and all the listings—including information from builders and FSBOs the better. If we don’t do it, [home valuation sites] Zillow or Google or somebody else is going to take that service away from us. We’ve got a window of opportunity to stop fighting about protecting our information. We’ve got to open all our data to consumers, or the MLS goes away.

Carroll: Consumers want all the information. They want it now. They want it to be accurate. And they’re really not concerned about our business models. They’re saying, “Give us the listing information, and don’t make us register to get it.”

Jenks: Well, here’s the point. You just said they want it to be accurate. And that’s what real estate professionals provide. They provide the accuracy.

Carroll: I don’t disagree with that. But it’s a mistake to say, “Oh, we’ve got the golden goose, and we’ve got to protect it,” because outside parties are nibbling away at our data. Protecting information isn’t the thing. Google is a good example of the competition we face. It’s strictly an information warehouse; it wants to provide information to the world, and it’s doing it.

REALTOR® Magazine: Don’t REALTORS® already provide a great deal of online access to information through REALTOR.com and their brokerage Web sites, even though they leave some information behind a firewall, such as where the seller keeps his dog?

Martin: What about sold listings? Visit Zillow and see what it provides that consumers are raving about. We’re trying to keep the information under lock and key, and other [technology] companies are getting that information from MLSs, home sellers, and other consumers. There’s going to be one national source for listings, and I hope it’s NAR. But if there aren’t some changes made, it’s not going to be. Look at how much eBay paid for [online payment system] PayPal. I think it was $1.5 billion. What if eBay buys Zillow and throws $1.5 billion at them? The guys that started Zillow started Expedia, one of the companies that brought down the travel agency industry. We’ve got to get information to the public, and we’ve got to stop worrying about compensation agreements between brokers. If you tie compensation agreements to the data, you’ll kill the whole thing. REALTOR.com is No. 1 now. All we’ve got to do is offer the same benefits the other sites are bringing to the table, so they don’t get the momentum.

Carroll: I don’t know that I’m a proponent of REALTOR.com being the national [source for listings], but I think a national MLS will come, and it should be brought to the world by brokers, those who are providing the information. That seems fundamental.

Jenks: Why does real estate, which is such a localized business in the nature of its laws, procedures, properties, and pricing, even need a national database?

Carroll: Well, each of the 37 MLSs that our company [Windermere] belongs to has different IDX [Internet data exchange] feed standards, different rules, different ways of doing business. It’s a logistical nightmare. And those MLSs want to put up more restrictions rather than fewer. Since information is going to be congregated by someone, why not start at the regional level?

Jenks: You don’t have to aggregate information to get the advantage of the Internet; all you have to do is point people to where the best source is. If they want to know the listings available in Austin, point to the Austin MLS.

Davis: One of the reasons Zillow is popular is its promise to consumers that no one will contact them [if they request information about a listing]. Unfortunately, consumers feel that if they go to a REALTOR® page, they’re going to be hounded by a salesperson.

Profitability

REALTOR® Magazine: Profitability has long been an issue, and that’s why we asked in our preparatory material whether brokerage was becoming a loss leader. Is brokerage today a profitable business?

Davis: The competition for the broker dollar is fierce. We’ve gone from a model that was close to a 50-50 commission split and everybody was happy to a model where, just to keep some of our higher-producing associates, we need to be very competitive in what we offer in terms of a split, tools, and services. Our profitability pressures result from that competition. [That said], did we launch ancillary services to pay some of that off? In reality, the new services were more of an answer to satisfying the consumer’s need for one-stop shopping. It just happened at a time when it was beneficial to the brokerage to have that additional income to maintain profitability.

Jenks: For the past 20 years, we’ve been dealing with the issue of [setting commission splits based on associates’ market power]. All company leaders face the same challenge: associates saying, “Is what I’m paying you out of my commission worth the value and the services I’m receiving?” That’s probably the biggest question the industry faces.

REALTOR® Magazine:You seem to be giving the associates the upper hand.

Jenks: They do have the upper hand. You have to do something different to retain a top associate who brings tons of listings in and has a presence in the marketplace.

REALTOR® Magazine:If you’re doing that, you’re not making a profit out of them [because they cost you too much], so what are you gaining by retaining them?

Davis: We still make a profit out of the associate. Is that going to be threatened [as the market slows]? It depends on the selfishness of the associate. If I were to pick the associates whom I consider very loyal, I’d pick those who want me to make money. It’s those people who’ll sustain our brokerage model and enable us to continue to make a profit. Is that everyone? No. There are people who make selfish decisions and move to places where they think they’re going to make more, when all they’re really doing is withholding some services from the consumer.

Evans: The bottom line is you have to be both agent-centric and consumer focused to win.

Check the online discussion room from March 1-14 to see if one of the innovators answers your question.

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