I’ve been incredibly busy with client work and with the excitement that is Neighborhood Advocates, so blogging has been light. Who am I kidding — blogging has been nonexistent. But I was at RETSO last week when one of the panel discussions really struck me. Since I also have an upcoming presentation about brokerages, it all fit in. So I’m writing this in order to figure out what I think about the issue… as I generally don’t know what I think about something until I’ve read what I’ve written.
The general question is around brokerage value. So much of the discussion in the industry — whether about syndication, brokerage AVM, whatever — has at its roots the problem of brokerage value. Advances in technology = loss of brokerage value to the agent. Changes in business model = loss of brokerage value to the agent.
So what can be done about it?
I Wanna Be Your One and Only Approach
One possible approach — the one currently being taken by a whole lot of brokerages — is to clamp down on data. The thinking appears to be that the way to restore brokerage value is to become the primary source of leads to the agent. If somehow, we all can return to the halcyon days when consumers walked into the local Coldwell Banker office to find out what homes were for sale, then brokers can fight the continual margin erosion and overly independent agents with their teams.
The idea is that if the brokerage becomes the one and only source for leads to the agent — or at least the primary source — then it wouldn’t be quite so hard to recruit and retain agents, and to get the higher commission splits that brokerages would love to have.
Relatedly, the broker deploying enterprise tools — whether transaction management tools, marketing suites, whatever — is driven by this need to be the agent’s BFF. If I’m providing state of the art productivity systems, then the agent won’t leave me for greener pastures quite as easily.
Trouble is, brokerages are not technology companies. Actual technology companies exist, even in our space, selling directly to agents every day of the week. That might explain why Zillow is a curse word for many broker/owner/managers. Plus, many brokerages don’t have the profit margins — after giving away 95% of it to the agent — to fund some of the better technology platforms. Rock, meet hard place.
Culture is another “I want you to love me” approach. And by culture here, I don’t mean the type of corporate culture that Nordstrom’s might have, that is outward-facing towards clients, and is ruthlessly enforced. I mean the type of corporate culture that Silicon Valley startups boast about, that is inward-facing towards the workers, and is all about how great it is to work at XYZ firm.
Thing is, as Silicon Valley startups eventually learn, culture goes a long way, but it does not ultimately trump economics. If you’re at a startup making $150K a year, and Ford comes calling and offers you $750K, chances are that you’re jumping ship. This is what I think many brokerages are facing: the agent might love you, but not enough to pay you $75K a year in commission splits.
All of these approaches place the brokerage in the position of the desperate lover, trying hard to hold on to her whimsical playa of a man. Like Zac Brown said, you’re a lover, I’m a runner, we go round and round.
In my thinking, there might be a different approach.
RETSO, The Comment, and Stewardship
The spark for the thought comes from RETSO 2014, which I just attended last week. Brad Nix, Mike Pennington, Ben Carter, and team consistently put on one of the best events on the real estate calendar. This one was no different.
One panel in particular featured a number of brokers from the Atlanta area discussing what they had just heard from the RETSO-Hear It Direct consumer panel. The topic was crappy photographs. Moderator Matthew Shadbolt, of New York Times, and formerly of Corcoran in New York City, pointed out that bad real estate photos are so common that there are multiple websites devoted solely to making fun of crappy photos. (I wrote about the crappy photo problem a while back and suggested a new role for the Association, which of course, every Association promptly ignored as they had new officer installation dinner parties to plan.)
The comment that got me intrigued was when one broker after another said that they encouraged their agents to go spend the $75 for professional photography. They went on and on about the benefits of professional photography, and stressed that it was their company culture to suggest using professional photographers whenever economically feasible. One broker did allow that if the home being sold was under a certain price point — say $100K — then yeah, he understood why the agent might try to save some money by using her mad iPhone skillz instead of hiring a photographer for $75.
So many questions here.
$100K might be laughable to the broker and the listing agent, but to the homeowner, that’s a HUNDRED THOUSAND DOLLARS. Most of those homeowners, I’m sure, have never seen $100K in one place in their lives. Plus, even on a $100K house, 3% is $3K. You can’t spend $75 out of the expected $3K in income? If you’re going to take the approach that a $100K house isn’t worth spending $75 on for good photos, perhaps fiduciary responsibility dictates that you (a) tell the client that his house is too cheap for you to do that, or (b) tell the client to find an agent who is willing to spend $75 on photography.
Agents often point out that after splits and expenses and whatnot, their profits are thin, thin, and thin from a cheap house. Out of the $3K in GCI, maybe they’re paying 6% to the franchise, then another 30% to the brokerage, and then they have other expenses, MLS fees, Zillow/Trulia/Realtor.com fees, whatever. So no, $75 makes a huge difference.
Let’s assume that’s true. This is where we turn to brokerages.
My question was, which I tweeted out, why can’t the brokerage pay that $75 out of its share of the split? Even if we’re talking about some high-producing 95/5 split situation, the brokerage will get $150 from the $3,000 in GCI. Since the brokerage is unlikely to go bankrupt by taking in only $75 from a cheap $100K house vs. $150… why not just provide it, pay for it, and prove some actual value to the agent?
This line of thinking actually led to my current topic of mullingoveration. It goes something like this.
Brokerage as Stewards
The current idea is that perhaps brokerages should think of themselves in a different way: as stewards of the industry. That includes, of course, the agents — the training, the guidance, the feeding and care of them. But it also includes the consumers, whether buyer or seller. It also includes all of the bigger issues, at the Association level and at the MLS.
Perhaps the way forward for brokerages is to stop acting and thinking so much like a business, and to start acting and thinking more like stewards.
Obviously, I don’t mean steward as in someone who serves drinks on a cruise ship. I mean the sense of stewardship, of taking care of something and protecting it for its own sake. Farmers often see themselves as stewards of the land. Fiduciaries see themselves as stewards of the money and property entrusted to them. Doctors aren’t mere mechanics of the body, but stewards of their patient’s health.
Professionalism has at its core the idea that the thing you do goes beyond mere commerce. In fact, the NAR Code of Ethics mentions this precise fact:
Under all is the land. Upon its wise utilization and widely allocated ownership depend the survival and growth of free institutions and of our civilization. REALTORS® should recognize that the interests of the nation and its citizens require the highest and best use of the land and the widest distribution of land ownership. They require the creation of adequate housing, the building of functioning cities, the development of productive industries and farms, and the preservation of a healthful environment. Such interests impose obligations beyond those of ordinary commerce. They impose grave social responsibility and a patriotic duty to which REALTORS® should dedicate themselves, and for which they should be diligent in preparing themselves. REALTORS®, therefore, are zealous to maintain and improve the standards of their calling and share with their fellow REALTORS® a common responsibility for its integrity and honor.
Well damn, fellas, call me nuts but picking up the $75 for professional photography even for a cheap $100K house so your agent can provide a higher level of service to the family that owns the cheap house — I call that living up to the obligations beyond those of ordinary commerce. Even if paying for photography might mean the brokerage makes no money on that deal, it has lived up to its stewardship of the family selling the house, and the young first-time homebuyers who love the house.
Of course, that’s just one example. There are innumerable areas of the business where brokerages can play that role of steward, even with 1099 independent contractors.
For example — and I’ve made this suggestion to every broker and franchise executive I’ve met in recent years — why can’t the broker, or office manager, or CEO of Century 21 pick up the phone, call a customer who recently did a transaction with one of his agents and simply ask, “How was your experience?”
My suggestion was for each broker/owner/manager to spend 15 minutes on a Friday morning to call three random recent clients. Most of those calls won’t even connect. The ones that do will be of the “Everything went great!” variety. But just the fact that the Big Boss is calling clients to see how the agent did changes the culture of the firm, the perception of consumers, and places the brokerage in the role of steward — steward of the client’s well-being.
That’s just on the client-agent relationship side. If brokerages are indeed stewards of the industry, then by the Code, they ought to be deeply involved with the Association, with the MLS, with political matters, and with industry matters. It’s shocking how many brokers plead frustration with the broken Association governance system, call involvement a waste of time, and generally think of organized real estate as a scam. If you genuinely feel that way, at least have the integrity to get out of the Association (sue the MLS if you have to for inclusion in the MLS) and not call yourselves REALTORS. Otherwise, if brokerages are stewards of the industry, it is their freakin’ obligation morally and professionally to be involved. You have to take care of things, boot out the incompetents, change governance so that it works for everybody, and create and drive change.
Policy? Brokerages will routinely say that the only thing that the Association does that is of any value is advocacy. There’s a lot of truth to that, yes, but if brokerages are stewards — not just shopkeepers practicing ordinary commerce — then they have to step up far more. PAC contribution has to be closer to 100% than it is to 0% — and guess which side of that line we’re on today as an industry. Calls to Action have to be things that the brokerage drives down through its ranks via its office managers, instead of something brokers encourage agents to delete immediately without reading, because brokerages are not flea market hawkers, but stewards of the industry.
The real value, then, of a brokerage to an agent is that it provides stewardship of the client, of homeownership, of the industry, of policy issues, of the kinds of things that the agent does not have the time nor the expertise to get involved in. The brokerage isn’t a desperate lover, but a steady leader above the fray of the day to day.
Perhaps then the brokerages will deserve all of the powers they claim, whether over data or over agent behavior or over leads or listings or AVM’s or whatever else it is that they want. Because they are stewards, not shopkeepers.
And maybe I’m far too idealistic — I have been accused of such — but I happen to think that this philosophy, this approach, would actually be better for business for those brokerages who embrace it.
Of course, I could be wrong… but that’s kind of what I think now. What do you think?
Can brokerages be stewards? Should they be? Is the whole thing unrealistic bunkum? Inquiring minds wanna know.