In January, REAL Trends will be offering a video series entitled Lessons Learned Along the Way. Here’s one lesson that I think is particularly important right now.
The Naïve Principle
Paul DePodesta shared this at the 2013 Gathering of Eagles. DePodesta was the young, data-driven exec hired by Billy Bean of the Oakland A’s to restructure that baseball team.
The back story that DePodesta shared was that Oakland had several years of losing both baseball games and money. DePodesta said that first, he and Billy Bean looked at each other and asked The Naïve Question—How would we be doing things if we weren’t doing things the way we have been? What if we started our planning from scratch and, using our experience, and access to data, we reformulate how we run the Oakland A’s?
Real estate brokerage firms have had to do a lot of adapting these past 40 years. There have been at least four different housing recessions since 1979. There were the entry and growing strength of RE/MAX and the 100% commission concept, and the entrance of financial giants from Merrill Lynch and Sears in the 1980s. Then, we had Realogy and Berkshire Hathaway in the late 1990s, and the rise of the web and online listings and resultant portals from the late 1990s to today. Add to that the emerging strength of the systems of Keller Williams, the growth of the number and size of teams, and the rise of very low-cost brokerage models.
That’s a lot to deal with since 1979.
For the most part, incumbent traditional brokerage firms and national real estate organizations have tweaked their commission splits and service delivery methods to accommodate these changes. Many also focused more attention on core services, such as mortgage and other settlement services, as a way to grow earnings over the same time.
We do sense, however, that firms are going to have to do more than that to prosper in the future. How do incumbent firms thrive given what they know about the market, the changes in agent behavior, and these new forms of competition that have arisen in the last three to four years?
We don’t see any evidence that the role of the agent has changed, nor do we see any slackening in the use of agents by housing consumers. However, the economics of how brokerage firms develop and support agents has changed.
What does one do now?
Perhaps it’s time for brokerage firms to take a page from DePodesta and step back, gather data on what is working around the industry (and there are many emerging, fast-growing broker-age firms today) and ask the question—“If we weren’t doing things the way we are, how would we be doing them?”
Look for the video series in January for this and other “Lessons Learned.”