Death of the Old Real Estate Brokerage Value Prop.
Internet and Tech is Changing the World
The internet and technology are changing the world in so many ways. People now have the ability to find an answer to any question they ask in seconds. Our mobile devices are like extensions of our body that connect us to our “online world” and we use them more and more frequently in our everyday lives.
These innovations in technology are changing (and disrupting) the way many industries are doing business. Humongous distribution channels that have been created over the last hundred years are now under attack and the businesses that control those channels are constantly being challenged by new innovative start-ups that aim to redistribute the “power” of the market.
Just in the past 25 years we have seen the big box bookstores and the publishing business become a shadow of what it was. Traditional retailers have been losing market share to people shopping online for years and that only has become more relevant as more and more companies are developing online strategies.
What a Real Estate Brokerage’s Value Proposition Looks Like Now
For years and years, the traditional real estate brokerage has given largely the same value proposition. Since our particular market is dominated by Franchise Brokerages, let’s look further into a big box brokerage’s value proposition on a local level.
Big box brokerage’s provide agents with the security of nationally recognized brand and a set of procedures given through structured training. This is in addition to the crown jewel of the big box brokerage’s value proposition… the nice office.
Brokerages will typically have one or two other perceived benefits that they sell to their agents and staff. Maybe this highlighted benefit is the marketing services the brokerage offers for high value homes, or the education and personal development associated with their brand. Maybe they offer a “family” type atmosphere or they have a structure that keeps the managing brokers from competing with the agents they serve.
How is Tech and Innovation Changing Our Industry?
The internet is completely changing the way people search for goods and professional services. People have never been more informed and are no longer paying as much attention to the traditional avenues for marketing that were used (and controlled) by the big brands like TV, Radio, and Print.
That coupled with the fact that the standard real estate brokerage structure has not significantly changed in decades. Brokerages are still charging for their brand and procedures while turning around and giving fees for services.
When someone wants to get more information about a product or service, they are not calling the front desk of a big box brokerage anymore. They are looking for a reputable contact through referral or by searching online.
I’ve had many conversations with various agents from a number of brokerages in our area and they all say the same thing about their big box brokerages… “People work with me for me, not my brokerage.” They liken their relationship with their brokerage to a forced business requirement rather than a valued business partnership. This increase in a real estate agents’ ability to market their own services cheapens the real estate brokerage’s value proposition because it gives leverage back to the agent.
Increasing agent turnover in our area and a lower regard for brand loyalty are also symptoms of real estate agents not finding real value in their partnerships with their real estate brokerages.
This lack of value offered by these traditional real estate brokerages lowers the perceived value of the standard real estate brokerage’s service. This leave a huge gap in the value of this age-old agreement and this fact is what is causing the onset of two new brokerage structures that offer much more value to the agents they serve.
When there is an opportunity to add value in an industry, there are two common routes that seem to take place.
- The Cheapest Route. These brokerages see a gap in the value of what is being offered by big box brokerages and what agents are paying in regards to broker /agent agreements.
The strategy with these brokerages is to provide the absolute lowest cost of doing business with their broker / agent agreements; costing a quarter of what the big box average cost could be in some cases. However, like anything in life, you get what you pay for. These brokerages typically offer no support, very little training (if any), and no strategic focus on the growth of your business.
These brokerages use the internet to provide digital tools at scale. With this format, training and coaching by these brokerages is usually through pre-recorded videos or webinars with hundreds of agents following along at one time.
This brokerage typically attracts the agent that is just looking to pay the minimum they can; to be in the business. They do not care about the value that a brokerage could offer their business and they see the relationship as forced and not beneficial. These agents tend to do all of their own client services, lead generation, and marketing.
Furthermore, every agent will tell you that there are business expenses that they pay each year that total in the thousands. Costs associated with the marketing and lead generation are some of the costliest expenses. The total out of pocket that an agent really has on a yearly basis is more than just the agreement they have with their brokerage.
NOTE: Agents typically have to pay these fees themselves through the big box brokerages as well.
- The Value-Add Route. This route tends to be a little tricky because your main goal needs to be to provide a product (list of services) to a real estate agent that is comparable to the monetary value of the Broker / Agent agreement.
These brokerages typically try to lower the costs of doing business for the agent on a yearly basis. This provides a trade-off of value for the agent equal to the cost of the expense absorbed by the brokerage.
They might offer a human resource aspect to the agent’s business. This might be adding administration, marketing, or even content creation to the agent / broker agreement; preventing the agent from having to hire these positions if they want to scale their business.
These two brokerage types are going to be the competitors of the future! The internet and technology have taken out the middle-man and empowered customers and agents alike.
Now you may be thinking; big box brokerages have staff that assist people with their questions and provide training to help agents grow their business. Albeit true, the service that will be required in the near future is much more in depth than what is currently offered.
The current standard for most big box brokerages is to provide 2-3 office personnel for every 30 to 40 active licenses (Agents) in their office. Each agent handles 98% of their own workload and the staff is there to curate the paperwork for the transaction.
This old brokerage model’s value is so heavily leveraged in their national brand; it is only a matter of time before they start to lose market share to smaller brokerages that are willing to go the extra mile for their agent’s bottom line.
This really is such an incredible time in our industry. There have already been so many changes in the way people interact with each other and share information. If you believe that this will only continue to be true moving forward, you may want to think about the future of your real estate business.