When Will Big Data Make a Difference in Brokerage Strategy?

We reviewed a new dashboard from one of the largest transaction management firms in North America a few weeks back. The current data on the performance of agents and the brokerage was incredible. Even more, it had a forecasting toolset that allowed brokerage firms to know its 30-, 60-, and 90-day likely results. It also compared and contrasted how the brokerage was performing against the market.

THE DATA IS THERE

Which brought to mind tools such as Broker Metrics, Real Data Strategies, and TrendGraphix, each of which reads MLS and sold data to do some of the same things. Then, there are the available data tools from companies like Adwerx, BoomTown, SmartZip, and others, that provide excellent information about consumer behavior for their brokerage and agent customers.

REAL Trends provides a variety of such data, having access to 25 years of performance data on all forms of brokerage firms through our ranking reports and over 10 years of data on agent performance. Also, REAL Trends has 25 years of brokerage financial performance from which we derive metrics about brokerage firms’ financial performance.

ARE YOU USING IT?

Most brokerage firms do not use this information. Whether it’s their own firm’s financial performance, their performance against the market and competitors or the behavior of consumers, the majority of brokerage firms don’t make strategic or tactical use of this data to operate their companies.

There is one case of a firm doing so. Keller Williams Realty International makes use of its global operating platform to track the performance of its market centers in every aspect of the business. Among other things, they can track recruiting results, agent performance, training, and educational involvement by their agents and teams, along with typical financial results. There is little argument that this has been a contributing factor in their growth over the past 15 to 20 years. Imagine knowing the correlation between agent performance and involvement in training programs and how that could be used to increase the credibility of a brokerage leader in the use of that training.

Trainers like Brian Buffini, Tom Ferry and Larry Kendall each have systems for tracking the performance of agents and teams who have adopted their programs.

USE THE DATA

In short, it isn’t a lack of big data that holds brokerage firms back from using it to improve performance. In our view, it’s the leadership of the brokerage industry that needs to learn new ways of operating their businesses using this data.

Much like the concept of Moneyball (the book and movie by Michael Lewis about the Oakland Athletics’ use of big data that changed how sports teams of all kinds are operated), the leadership and management teams of brokerage firms must not only look at the performance data of their firms and the market, but also must act on that information. It does little good to know you’re getting kicked around in the market if you don’t respond to change your performance. Billy Beane and Paul DePodesta of the Oakland A’s knew their team was underperforming and recognized the data that told them how to improve that performance. However, they had to take the next step and change how they used that data to produce a winning, profitable team.

SUCCESS STORY

One example from our consulting work was from an assessment we did with a reasonably successful brokerage firm that asked us to perform a valuation. The valuation includes a benchmark analysis of revenues and expenses against the firm’s peers. We were able to point out that the data showed that the firm was underperforming in gross margin, had higher-than-normal employment and higher occupancy costs on a per-dollar and per-agent basis. As a result, his EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) was lower both in total and in per-agent contribution. Armed with this knowledge, the principal focused on improvements in those areas. Now, the firm is much larger and leaner. It now leads its peers in EBITDA and most other vital measurements of performance. The firm is also more valuable than it was by a significant factor.

The leader saw the data. He restructured his business to target the key areas the benchmark provided, changed the allocation of the firm’s leadership team in critical areas, and built a firm, as Good to Great author Jim Collins would say, “built to last.”

We do believe that the national firms are all headed in this direction with big data and artificial intelligence. Indeed, it will give them a leg up in the environment of the future—although their affiliates must buy into the use of these tools and rearrange how they manage their business. As a result, nothing much will change.

One might view, therefore, that nothing has changed. It’s still about the quality and intelligence and relationship skills of the brokerage leadership that will determine who wins.

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