Steve Murray discusses where brokers go wrong in today's environment, how brokers can compete in today's environment and a few data tidbits from the REAL Trends 500. Let's jump in.
From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, episode 35. We're breaking down trends of the week and showing how they impact brokers and agents. I'm Steve Murray, president of REAL Trends. Today, we are discussing where brokers go wrong in today's environment. Secondly, how can brokers compete in today's environment? And third, just a few data tidbits from the REAL Trends 500.
Where do brokers go wrong in today's environment? Here it is. Most brokers that we meet with and talk to, or let's fairly say far too many, don't actually have a real plan for declining housing sales, and for a market where gross margins are shrinking, and where net margins are under pressure. They don't really have a plan, and if they do have thoughts and plans, those thoughts and plans are not shared with the leadership team. This doesn't matter whether this is a one-office firm with two employees and 25 agents, or someone who's 20 times that size. Far too many brokerage companies are not focused on the fundamentals, and the mistake they make, and the biggest mistake that we find brokers are making is they are paying attention to what's going on with disrupters and technology firms, and all the things that don't really matter to their prosperity, not to mention their survival. We've said many times in the past that it's not a complicated business. You have to recruit talent, you have to develop talent, and you have to spend less money than you have coming in. Few, too few brokers that we're aware of, not only do they not have a literal plan, and secondly, they don't have a plan that is shared by and bought into from their leadership teams, but they're not allocating the time to execute on that plan. So there's my question of the day. How do brokers compete in today's environment? Which is our second topic, but where brokers go wrong, it's not a formal plan. There's no accountability for such plan. There's no inclusion or buy-in by the leadership team, or by the agents of a firm. Where brokers go wrong is they don't understand this is now a real fight for prosperity and survival. And brokers, too many brokers, get distracted by all the news and trends about disruptors, and technology firms, and low-cost brokerage models, and discount brokerage models. To all of our friends in the brokerage community, we've been tracking this information for 25 years, good markets and bad, expanding and contracting. And the fundamental truths about recruiting and developing talent and managing your bottom line have always been true, but particularly in times where the market is flat. Don't get distracted, number one, about all the things that are going on out there. Most of it doesn't matter for your prosperity. What will matter for your prosperity is to focus on the basics. Have a plan. Have an actionable plan. Have a plan where your team has bought into that plan. And lastly, that you're holding people accountable for results of that plan. There's no other way to deal with this kind of environment.
So how do brokers compete? Let's go back to my previous comments in section one. How do you compete? What are you doing to recruit and develop talent and to control costs? That's it. Another area is what are you necessarily doing to generate opportunities for the people of your company? I'll give an example of something that is commonsensical. Meeting with a client some years ago, we were talking about how to generate leads for the agent and agents of their company. We talked about online marketing. We talked about TV. We talked about radio, billboards. We talked about all kinds of things, including direct mail. And how do we get agents to do direct mail, follow up with their customers, reach out to their friends and their prospects. How do we do all that? I suggested that since this particular company had approximately 50 employees, whether they're administrative, or managerial, or accounting, finance, and marketing. I pose the question that one imagine that each of those employees knew 50 to 100 people or more, their friends, their sphere, their network, their church friends, their workout friends, whoever they might be, wouldn't it make sense for the employees of the company to have their own direct mail program, as an example, and that they could reach out to their own spheres of influence, and when people called and wanted help, the employee could refer those to their agents? Now, the stunning thing was, we figured, well, this might be 5,000 direct mail pieces a month, assuming 50 employees and 100 friends, and if direct mail response is 1.5%, that's 75 transactions. It's not just the transaction count. It's the fact that the company's doing everything possible to generate opportunities for the agents of their firm. I won't spend a lot of time here talking about online marketing, except to comment, far too many of our clients are not really monitoring what's going on with leads that come through their website, or their blogs, or their apps, not to the extent they should be, and tracking to see, are they being contacted? Are they being converted? We have business all around us, and competing in today's environment, the winners are going to be those who do a lot of these kind of things extremely well. But most importantly, and at the top of the funnel, what does your outreach program look like to talk to the kind of men and women who you would like to have in your brokerage company as agents? What kind of active, ongoing outreach program do you have? To give you a basic piece of information, there's some data from one of the large national companies, who's pretty good at recruiting, that indicates that it takes roughly five in-person interviews to get one good new agent. Well, if that metric is true across the board, and we don't have any reason to doubt it, how are you filling your funnel? How are you getting your employees, managers, and agents engaged in the effort to recruit the kind of men and women you want at your firm? Last point is core services. You may not be big enough to have your own title joint venture, or mortgage, or other things, but you can build supplier systems with handyman, repairman, home insurance, home warranty. There are numerous other businesses affiliated with brokerage with whom you can form a marketing alliance of some sort, that doesn't violate RESPA (Real Estate Settlement Procedures Act). It's looking for every little edge you have. How much time have you spent, lastly, looking at every single part of your business to make sure that where you are spending your money and time is focused on developing your people, getting them to be engaged in activities that lead to listings and sales? What are you doing about those fundamentals?
On the last topic, I was looking at some REAL Trends 500 and up-and-comer data recently. It's interesting to note that if you look over one, three, five, 10, even 20-year periods of time, most of the largest brokers in the United States, not all but most, the great majority, are not growing the number of agents in their offices on an average basis, across all brands, independents, et cetera. Most brokers are not growing. Therefore, the productivity of those agents is not growing either. Therefore, office transaction productivity is not growing. In fact, it's shrinking for most. And the only thing that is causing growth is growth in the average sales price. We'll be producing the REAL Trends 500 study very soon for calendar 2018. I can already tell you there will be a lot of surprises. A lot of new firms are now in the top 10 or 15, that weren't there two or three years ago. So the whole market is changing, and it's going to continue to change. Learn more about industry trends, marketing, and technology strategies, as well as listen to past REAL Trending episodes on our website, www.realtrends.com/blog/. This has been Steve Murray. Until next time.
REAL Trends has been The Trusted Source of news, analysis, and information on the residential brokerage industry since 1987. We are a privately-held publishing, consulting and communications company based in Castle Rock, Colorado.
Accessibility: We are making efforts to be ADA Compliant. Should you have any challenges or questions please contact us at (303) 741-1000.