February 9, 2010.
The real estate industry continues its serpentine ride through a huge change period in how the business is done.
Until the mid-70s, all information and all sales people were controlled by a real estate company. Realtors were more like employees of their company. The mls system was not as varied or as wide-ranging in format. Many listings were company "exclusives". The consumer of the service chose on a company level, when they decided to list their property. Buyers went to a company "name", when searching for a property to buy. Companies trained their sales people, took 50 percent of the commission earned, and paid for company oriented ads, Board fees, office supplies, etc. The agents were incidental to the company "name".
In the mid-70s, Dave Linegar invented the agent-oriented system under the name Re/Max. The company controlled business models fought this new concept, and it took some years for the then revolutionary agent-oriented business model to become the "norm".
By the late 80s, the agent oriented business model was in place, as the accepted model. Many old companies disappeared, and those who remained in business had to copy the Re/Max model, and change their format. Franchises sprang up -- each office was individually owned and operated, with the corporate presence an umbrella title over all the individual offices.
The corporate office sold products to the agents working at the individual offices (letterhead, signage, cards, promo pieces) -- some agents paid for such extras/others didn't. There was choice.
The agents paid a fee to the corporate office, for the franchise connection, and also paid a fee to the owner of that individually owned and operated local office. Theoretically the remainder of the commission went to the real estate agent. (However, individual advertising, marketing the agent, not the company, plus Board/MLS fees, office supplies, signage, biz cards, etc., were now the responsibility of the individual agent).
Control of their own mini-real estate business was the responsibility of each agent, working under a company "label". Again, it was up to each agent how much they wanted to spend to create an individual market presence in their local area, and this was not a corporate mandated decision.
Re/Max, Coldwell-Banker, Royal Lepage (a Canadian franchise), Century 21, Sotheby's, Macdonald Realty (a Vancouver firm now just beginning to franchise offices), Prudential, Coast Realty (a Vancouver Island franchise, made up of many now defunct NRS/Block Bros franchise locations), Realty Executives, Keller Williams (the fastest growing franchise in the U.S.), 1 Percent Realty, etc., are all agent-centric and franchise business models.
The owner of the individual office would be able to subsidize the office operating costs, off the fee charged to the real estate agent working there, but would only make a profit if a lot of agents chose that corporate "umbrella" name to operate under. This is why franchises prefer large offices.
The consumer of the real estate service mainly chose an individual realtor to contact, in this agent-centric model of business, to sell or buy, and only marginally was influenced by the company the realtor worked under.
A realtor who treated him/herself as a business, spent money to market themselves, would come to the fore in the consciousness of the public. The corporate offices had logos for other things they offered, including company membership in other specialized groups, and individual realtors could use these logos in promoting themselves. Unless they paid, though, to utilize what was offered, it was just corporate window-dressing. It was up to the individual agent what they chose to use (cost to them). Consumers would have had to inquire whether a realtor was actually taking advantage of these extras, or just "borrowing" the logo from their corporate office.
Underneath these two very different business models (the company centric and the agent centric), however, it was basically business as usual, from the consumer's perspective.
The information on properties was held by the realtors. The MLS system had become much more important in the agent-centric world, and the consumer, teased with some partial information on the MLS customer side, had to contact a realtor to get "all" the information.
Real estate, then, was still being treated as a regional/local matter, and if someone wanted the information on an area/a neighbourhood, schools, services, etc., not just property information, they had to contact a realtor. Instead of a company, they would seek out a particular agent. Referral business between these franchise "pods" was important, pre-internet, but not after.
Now, we're well into a new phase, and the real estate industry is late to the table of change. It is the outcome of the internet revolution. This third business model is consumer-centric, and it affects all businesses. The customer is now in control of all processes.
The car industry, the travel industry, and the stock market side of investment felt this significant shift earlier, and it is now real estate's turn, as a style of business to be changed completely.
The internet erased time and geography, first. This opened up local regions to a buyer from somewhere else. Suddenly, real estate trends were global, and "local" patterns could no longer be isolated.
Once the internet became mainstream, the consumer was searching for all information on the Web. The realtor was no longer the repository of information about schools, civic opportunities, services, amenities offered, climate, business options -- all that could be found on an internet search, and the "choosing" of an area had taken place before any call to a realtor.
Now, recognizing the new business shift to the consumer, we are finally seeing new real estate business models coming forward. Some may last, some may evolve, some may disappear -- it's the brief transition period between "what was" and "what now is".
The most dramatic new company model is Redfin. This company is looking towards Canada. For the past couple of years, CREA (Canadian Real Estate Association) has been involved in a lawsuit, brought by a real estate company in Ottawa, and challenging the control of information by CREA / MLS system. Under this system, all consumers must still go to a realtor for full information on a property. CREA has been fighting this challenge.
In the U.S., there are competing "mls style" companies, such as Zillow, where a consumer can find out all property information, and not "have to" contact a realtor. The U.S. mls system is now offering something similar -- to remain in business, they are having to evolve their platform, to be able to answer the consumers demands.
Redfin is a company that hires office employees, not agents. The seller's commission has 2 parts -- half to the listing agent and half to the buyer's agent. With all information available via the web, Redfin's approach is to give the buyer's side of a commission to the buyer. Very different, and, yes, totally consumer oriented.
I think we will see a lot of new biz models, plus amalgamations of the old 20th Century franchise/agent-centric models, as they try to change to meet the demands of this consumer revolution.
It's not clear, yet, what the outcome will be for the real estate industry.
For myself, I continue to offer both a strong "local presence", plus partnerships with both national and international affiliations. I do think this is a way to reinvent the service for today's "global village" and tech saavy consumer. I look forward to discussing these important aspects with you, and to sharing my ideas.
I remind everyone that change offers opportunity. There is a door in every wall. It's usually wallpapered over, so you do have to feel around, to find the doorknob, and to open it onto the "next great thing". It's there, though!
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