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THE BUT HYBRID FURTHER BROKERAGE IN DESIGN BUSINESS MODEL: CLOSER IN TIME In July the HAR leadership participated in a very intense training program that brought it in direct contact with some of the key players in today's dynamic real estate industry. Following briefings regarding the key issues of the new real estate transaction, participants were given the opportunity to interview a diverse panel of ten national experts ranging from incoming NAR president Richard Mendenhall to Doug Dayhoff CEO of iProperty.com and David Clark, CEO of HomeBytes.com. By the conclusion of the program it had become quite clear that neither the pure "dot com" Internet based business model nor the traditional brokerage business model were favored to survive the next three years. Such a disclosure will not come as a surprise to the regular readers of this column. This information does however bring into clearer focus the concept of "clicks and mortar." Three years after the initial online business explosion it now seems certain that few if any segments of the American economy will be destroyed by the new Internet based technologies and delivery systems. However, just as Marcus Welby shall never return to triumph over managed health care neither will the real estate transaction ever again be the same. Having sampled the simplicity, affordability and accountability of the Internet empowered transaction the American consumer is not likely to continue to embrace the faux complexity of the agent centric "take it or leave it" service model that has dominated the real estate industry for the past fifty years. Faced with these circumstances the challenge for brokerages will be to seek out and claim the middle ground of what is now being called the new brokerage business model. The current wisdom strongly supports the idea that this brokerage high ground will be located midway on the spectrum between the traditional model and the "dot com" models. Herein lies the problem. Too many brokers believe that adding e-mail and a new Internet site will propel them into this winning position. This is simply not the case. The new brokerage business model by any current definition will require today's brokerage to transition to a business profile that in some ways will be as different from the traditional brokerage as many "dot coms" are today. A successful transition will require substantial change especially in terms of service delivery, management design and capital investment. The specific components of the new brokerage business model have been identified and are, in some cases, enjoying the benefits of second or even third design iterations. • The centerpiece of the new model involves the creation of a direct long-term relationship between the brokerage and the customer. The traditional business model was designed in 1947 to service a consumer who long ago moved to a new space with new needs and perspectives. • New relationships must be created between the brokerage and its agents. Whatever the original rationale might have been, the current "them and us" relationship between agents and brokers is reaching a point of complete dysfunction. Neither the agent nor the brokerage in their present format can meet the needs of the new Internet empowered consumer. • The economics of the new business model will likewise differ greatly from its predecessor. Few suggest that the current downward trend in commissions will end in the near term future. It
seems equally clear that a sub five percent commission will not support either the agent or the brokerage. The current focus on "market share" must shift to an acute awareness of "wallet share." A key component of the new brokerage business modelwill be its ability to broaden its revenue and service model in order to reduce its present level of commission vulnerability. • Technology for the new model will represent a tool set that enhances the brokerage experience for all participants most importantly the consumer. • Finally, brokerage management in the new model will retreat from the traditional "sales" model with its very limiting emphasis on agent production. Brokerages will switch to a "service" based management program that will emphasize the use of real time information to provide for and monitor the provision of a unique consumer experience each and every time. The time to begin this transition is now. There is a journey to be taken, a destination to be reached and new successes to be achieved. Don't be left on the trail. Fast Facts • Brokers must create a new business model that is a hybrid between the traditional model and "dot com" models. • The centerpiece of the new model is a long-term relationship between the brokerage and the customer. •Few experts suggest that the current downward trend in commissions will end. • Brokers will need to broaden their revenue and service models in order to reduce present levels of commission vulnerability. • Technology in the new business model represents a tool to enhance customer experience. • The traditional "sales" model will need to be replaced with a "service" based program that emphasizes the use of real time information and provides each consumer with a unique experience.
Jeremy Conaway is a national real estate consultant who serves as HAR's strategic architect.