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INDUSTRY KNOWLEDGE | THE CHALLENGE OF BEING DISCONNECTED

May 4, 2018 10:26:30 AM

To lead the industry, you must be immersed in it. And, you must understand it.

A few years ago, I spoke to a few hundred CEOs of Realtor® Associations about how to build relationships with their brokerage members. I first asked some basic questions of the audience about brokerage fundamentals. For example, the questions included testing their knowledge about brokerage gross margins, net profit margins, average productivity among their member firms along with a few others. I was surprised to find out through a show of hands that very few knew any answers to these questions. Not wanting to push the matter further, I spent most of the remainder of the time sharing some of that information, particularly about how leaders of brokerage companies think and act. I also explained that they are willing to work to build relationships with people both in the business and outside.

Seek to Understand

If I ran a local association, I would certainly want to have relationships with top brokerage firms and would likely spend some time understanding their business. After all, it is the brokerage firms that take on the responsibility of supervising, guiding and supporting agents, not the Association. And it is brokerage firms that ensure dues are collected in most associations. It seems like the least that a CEO of a local association could do is get to understand their brokers and some basic things about the economics
of brokerage.

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I also have the privilege of working with a group of CEOs of 15 state and large local associations. And, as I have written before, they are the most intelligent, well organized and successful men and women I have met in any part of the industry. I am confident that most of them would be very successful had they chosen to build and run brokerage firms.

A New Logo?

But the truth is that most of Realtordom don’t seem to care about what is happening under the hoods of their membership. I mean a new logo? OK, it’s always good to have a refresh. A $30 per-year, per-member dues increase with built-in annual percentage increases? I assume they must need the money for something. And those who have been around for 30+ years know that the decision to approve the dues increase is a given—the votes are already counted.

But while NAR still wants to pour millions more into technology—that train already left the station. The industry is flooded with technology, most of it fairly useful. Flooded. But, here’s the thing. It isn’t technology that is driving this market directly. It’s only doing that for firms like Compass and Redfin who have raised billions based on the supposition that they are tech firms and not realty firms. Their tech is good but not that much better than some others. Keller Williams has spent tens of millions of dollars, with more to come, building its own platform. Realogy, RE/MAX and Berkshire Hathaway aren’t far behind. So, what is NAR still doing in the tech business? Has it occurred to NAR that within a few years the 500,000-plus agents in those four franchises entities will be paying for their franchise’s tech and NAR’s tech?

Conflicts

How long will firms like HomeSmart, Realty One Group, Redfin, Compass and eXp want to have their agents pay for their own internal tech plus NAR’s tech? Which will they default to? And what do you suppose will happen to NAR and its relationship with these national companies and some regional brokerages (who are also buying and building their own tech) come into conflict? Is anyone in leadership thinking these issues through?

One leading state-level Realtor® CEO believes it’s the brokerage firm that is in jeopardy. He might be right. Gross margins are declining; commission rates are declining, sales are going to begin to decline due to higher interest rates, housing prices and lack of inventory. Tech plays no role in any of those factors. Economics does—both housing economics and brokerage economics. But, you don’t hear much about those issues from NAR.

One thing that should occur to the Realtors—check the percent of non-Realtors now practicing in the states of Georgia, Colorado and Washington. Check their growth rates. Then, project that the same thing happens across the country.

Now, there’s something for a NAR PAG to dig into.

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