Find the Real and Useful in a Crowd of Wow
What is WOW often crowds out what is real and useful–even in real estate.
It seems that sensationalism gets a lot of attention—even in the residential brokerage industry. What is wow often crowds out what is real and useful. Wow may be neat, but it won’t help your business.
Here are some real and useful thoughts.
To be arrogant or dismissive of competitors, whether new or existing, is a deadly disease. This attitude kept traditional incumbent brokerage firms from effectively competing with RE/MAX during their early years, and the same attitude prevented firms from competing effectively with Keller Williams during their surging growth years. It’s scary to think that the industry will look at Compass, Redfin, and eXp in the same manner today.
Key Element: Recruiting System
You can’t build and grow a successful residential brokerage firm unless you have a system to recruit and develop talented real estate professionals. It means a real system, not just wishful thinking. Far too many brokerage firms who bemoan new forms of competition or pine for the good old days have no system for recruiting and developing agents.
If it was only about the money, that is, if agents and teams only cared about the cost of joining a brokerage, most leading brokerage firms would already be out of business. Finding out what else agents and teams’ value from their brokerage should be a high priority goal for every brokerage, regardless of brand, business model or location.
Don’t Get Distracted
Many brokerage leaders get distracted by the noise in the industry. Along with arrogance and dismissiveness, this can have deadly consequences. There are already enough distractions running a brokerage without getting caught up in who said what at which conference. Brokerage is not a complicated scientific endeavor. It’s mostly a relationship business. How much of your time is spent in this area
Gross margins (what a brokerage has left after the agents have been paid) are shrinking, and they’re going to continue to do so for most brokerage firms. There will always be someone in your market that is less expensive than you are. Our benchmark studies show that the average Gross Margin among REAL Trends 500 firms has dropped from around 22 percent to about 14 percent in the last five years. It may be useful to plan on 14 to 16 percent as a target over the next three to five years. How would you, or are you now, managing in this environment?
Core services, such as mortgage, title, escrow and property management, are crucial additional income and profit opportunities. Also, many successful firms are supplementing their incomes with fees for risk management, technology, and marketing services. Each will be more important as gross margins continue to be pressured.
This remains a great business. If it weren’t, why are so many outside investment firms entering? If the business wasn’t viable, why have firms like Redfin and Compass been able to raise so much capital? Why is it that so many private equity firms now have an interest? In our 31 years of merger and acquisition work, we have never had more interest in the brokerage industry than we have today. And while many owners have chosen to exit, there are just as many new entrants. Independents and franchised firms alike are appearing in our top rankings each year, some that didn’t exist five or ten years ago.
To the difference between what is sensational and threatening, and what is real and useful, REAL Trends will continue to focus on the latter. We care less about what is fashionable and more about what matters.