I love this new post by Brian Boero over at 1000watt blog.  Go read it in its entirety, right now.  I’ll still be here.

Back?  Okay, I don’t have a lot of time today to do one of my traditional 9,000 word essay, but this post raises such a set of good points that I had to address them briefly.

Brian writes:

First, technology is – in the real estate broker’s world – thoroughly paradoxical. That which offers brokers a promise of liberation (from legacy systems, from antique business practices, from burdensome costs) often ensnares them in a Web of confusion, dependency and waste.

That’s too often true.  But then Brian continues:

These words are relevant for any broker trying to reclaim brand equity with consumers and deliver long-term value to agents.

…

If you can pull it off, though, and once you determine who your target customer is and what it is you know that is most likely to engage them, then – and only then – think about the technology you’ll need to make that happen. (Emphasis mine)

This is where Brian — and the brokers who are trying to get un-confused — need to take it one step further.  The primary source of strategic confusion in real estate comes from not knowing who your customer is.

Who Is The Customer?

It is clear that Brian (and the good folks at 1000watt generally speaking) thinks that the customer is the consumer.  His prescription is for brokerages to tap into organizational knowledge, dress it up in the brand, then get that out to consumers.

I believe Brian’s idea is to segment the customer into addressable markets by demographic and/or psychographic factors, identifying the distinct needs of the luxury seller vs. the first-time home buyer and so on, and ensuring that one’s brand is effective and enforced throughout the organization.

This works.  Let there be no doubt about that.  The brand-centric strategy does work.

But it only works for brokerages that are prepared to treat the consumer truly as the customer.  In my judgment, there’s only one brokerage in the industry that does this: Redfin.  There are several that are trying to do this, but as long as the agents are independent contractors compensated through commission splits, the structure simply doesn’t support the business objectives.

To use Brian’s foodie analogy, this is akin to using the oven to make fried chicken.  It can be done, sort of, but the result isn’t exactly world-beating.

Not good for making fried chicken...

What has become clearer to me over the past couple of years in this industry is that the customer of almost every single brokerage in existence today is the agent, not the consumer.

We can decry this state of affairs, agitate for change, bemoan the fact that brokers are far more interested in recruiting agents than they are in providing customer service to consumers, and so on, but none of that changes the reality of the situation.

This is the source of confusion in the industry when it comes to technology.  Brokers believe that they have to build million dollar websites, embrace social media marketing, and dozens of other technology tools besides in order to serve consumers better.  That is incorrect (except in the rare situations cited above).  They need to pursue technology in order to fill their customer’s needs — i.e., the agent’s needs.

Brokerages today are essentially B2B companies whose value chain is intimately connected to the value chain of their agent-buyers, who in turn provide services to the consumer-buyer.  They’re less like Amazon.com, and more like Oracle (that powers Amazon.com).  The sooner brokers understand this, and the more they can drive discipline throughout the organization about who the customer actually is, and the more they can strategize around competitive models, the quicker they will escape confusion and identify where it is that they need to make investments and where they need to stop.

-rsh

Image: Barack Obama, on Flickr

Starting a few years ago, I’ve been hearing a lot about how the Gen-Y or Millenials (people aged anywhere from 18 to 30 today) are going to change everything — but particularly in real estate.

A random sampling of opinions about how the Millenials will affect real estate, from a Google search I just ran, turned up these recent posts and articles:

MILLENNIALS – The New Face of Real Estate:

Text messaging, email, IPods, Facebook and being mobile as ever is a part of the new generation, the Millennial.  The Millennial are the young workers ranging in age between 21 to 29 years old.  They have the potential to create a lasting change in the real estate workplace because of the way they live, communicate and more importantly, the way they view their jobs.

80 Million Reasons to start changing your marketing….Millennials.

What do you think , will typical marketing work to attract someone that is buried in a laptop, ipod, FB, Twitter etc.. and values friendship more than work?

Hear Them Roar: Millennials make up almost a third of the U.S. population, and they will fundamentally change how you do business.

“Real estate agents may wonder why they should care about the Generation Y age group, ages 18 to 30,” Jessica Lautz, a senior research analyst at the National Association of Realtors, wrote on the organization’s website in 2008. “These unique home buyers are the youngest of the home buying segment and are the most likely to purchase a home in the next two years in comparison to any other age group.”

Sustainability, Urbanity, and You: How Millenials will Change the World (and Architecture)

Millennials grew up in suburbia; bland environments dependent on others for mobility. They are entering the adulthood seeking lifestyle: vitality, diversity, and community. But, Millennials are not the only ones who will be driving this sea change from suburban to high quality urban environments. Baby Boomers will soon be retiring by the boat load. Retirement communities in their current form resemble warehouses more than they do the most desirable of retirement “villages”—real communities where retirees can be independent and empowered, such as the Upper East Side and Key West.

And so on and so forth.  If you cared to, I’m sure you can find dozens, hundreds of other musings on the Millenials and how they force real estate professionals to be ever more online, ever more sensitive to these 80 million strong “Generation We” people who care more about walkability and lifestyle than large colonials on three acres, and so on.

The whole drive towards social media’s ascendancy in real estate was fueled in part by the insight — as is clear in the ActiveRain post above — that these Millenials are the FaceBook generation who are natives of the digital realm.

But a couple of recent articles make me wonder just how the Millenials will impact real estate; it may be rather different than what we imagine today.

Millenials: Will They Have The Money?

The first article is a column in the Washington Post by Robert Samuelson, titled, “Will Millennials become the chump generation?”:

The deep slump has hit Millennials hard. According to Pew, almost two-fifths of 18- to 29-year-olds (37 percent) are unemployed or out of the labor force, “the highest share . . . in more than three decades.” Only 41 percent have a full-time job, down from 50 percent in 2006. Proportionately, more Millennials have recently lost jobs (10 percent) than those over 30 (6 percent). About a third say they’re receiving financial help from their families, and 13 percent of 22- to 29-year-olds have moved in with parents after living on their own.

The adverse effects could linger. An oft-quoted study by Yale University economist Lisa Kahn found that college graduates entering a labor market with high unemployment receive lower pay and that the pay penalty can last two decades. Writing in the Atlantic, Don Peck argues that many Millennials, overindulged as children and harboring a sense of entitlement, are ill-prepared for a “harsh economic environment.” They lack the persistence and imagination to cope well. That indictment may be unfair. My own experience is that Millennial co-workers are diligent, disciplined and determined in the face of frustration.

Regardless, more bad news may lie ahead. As baby boomers retire, higher federal spending on Social Security, Medicare and Medicaid may boost Millennials’ taxes and squeeze other government programs. It will be harder to start and raise families. (Emphasis mine)

You know what else is going to be harder to do?  Qualify for mortgages and buy houses.  And in case you think our current recession is just a little trough and we’ll get through it and out the other side with enormous growth… well, here’s the Atlantic for you with this cheery article titled, “How a New Jobless Era Will Transform America“:

But in fact a whole generation of young adults is likely to see its life chances permanently diminished by this recession. Lisa Kahn, an economist at Yale, has studied the impact of recessions on the lifetime earnings of young workers. In one recent study, she followed the career paths of white men who graduated from college between 1979 and 1989. She found that, all else equal, for every one-percentage-point increase in the national unemployment rate, the starting income of new graduates fell by as much as 7 percent; the unluckiest graduates of the decade, who emerged into the teeth of the 1981–82 recession, made roughly 25 percent less in their first year than graduates who stepped into boom times.

But what’s truly remarkable is the persistence of the earnings gap. Five, 10, 15 years after graduation, after untold promotions and career changes spanning booms and busts, the unlucky graduates never closed the gap. Seventeen years after graduation, those who had entered the workforce during inhospitable times were still earning 10 percent less on average than those who had emerged into a more bountiful climate. (Emphasis added)

Hmm… so 2 out of 5 of the Millenials are unemployed, 13% are living with Mom and Dad, and 6 out of 10 don’t have fulltime jobs.  And that gap is going to follow them through their entire life.

The recession we’re in now is looking like it’ll make 1981-82 look like the Roaring Twenties.  Our financial system is still in shambles, housing market is nowhere close to being out of the worst of the worst with anywhere from 1.7m to 7m in the “shadow inventory” while banks play “extend and pretend” games, private sector hiring is basically zero, and the real unemployment rate might be closer to 15% than it is to 10% once you take into account (a) those who simply have given up looking for a job, (b) the underemployed forced into part-time and temp work, and (c) the Census Bureau related hiring that won’t last past mid-2010.

For a generation raised in an era of 5% unemployment, bombarded by ads like this one from CareerBuilder, the new reality of employment in the ’10s is going to be a harsh one.

Forget buying a house; I don’t know if the majority of the Millenials can afford to rent an apartment.

Millenials: Stuck With The Check?

Add to that dismal news the undeniable fact that as the Boomers retire, the nation is going to have to confront some serious issues with entitlement spending.  Robert Samuelson is being cute when he writes “As baby boomers retire, higher federal spending on Social Security, Medicare and Medicaid may boost Millennials’ taxes and squeeze other government programs.”  There ain’t no “may” about it; it’s gonna happen, barring some miraculous unforeseeable event.

The Heritage Foundation estimates that tax rates would double by 2050 under current law, even for the lowest level.  Here’s a handy graphic:

Let’s assume anyone in the lowest bracket isn’t going to be buying houses anytime soon, unless we return to the days of the NINJA mortgages… which we’re probably not going to see again in our lifetimes.

So today’s unemployed and underemployed Millenials, who are going to make less money over time, will also face rising taxes.  This being 2010, the 20 year old college junior isn’t thinking about buying a house.  By 2025, the 35 year old newlywed might be.  33% over 40 years at the top bracket… let’s just say it’s a 8.25% per decade increase?  So they might be looking at 47.4% in Federal taxes alone if they’re in the top bracket?

And that’s without any other government spending programs between now and 2025, like nationalized healthcare and Cap & Trade — both of which Millenials support, generally speaking.

Well, People Will Buy Homes

Of course people will buy homes.  The economy will eventually turn.  Today’s slackoisie Millenial will learn some hard lessons about life, and become productive hardworking thirtysomething, get married, have kids, and think about buying a house.

When they do, we all assume that they’ll be flocking to the Interwebs, to Facebook, to Twitter, to social engagement, to their 4G wi-max third-generation iPads, to find that eco-friendly green condo in the cool “community” areas like the Upper West Side of Manhattan (as the AIA post above suggests), and so on.  And some will, no doubt.

But the gloomy economic picture suggests an alternative impact of Millenials on real estate.

Dammit... another condo I can't afford...

Once the Millenial finds the condo of his dreams on his 4G iPad and contacts the realtor via Twitter, we may find that due to his lowered earning potential from the lingering effects of the Great Recession of 2009-2014, combined with the fact that he’s paying 65% in combined local, State and Federal taxes, not to mention the banks refusing to lend to anyone who can’t put down 30% and has a FICO above 750, he can’t actually qualify for the mortgage.

Lower your sights, young man.  That New Urbanism looks fantastic, and it’s the lifestyle you really want, but sadly, all you can afford is a $200,000 fixer-upper somewhere in the shadows of Giant Stadium with a 45 minute commute to your not-so-grand job in some corporation you used to rail against as a college student as evil, greedy corrupter of the environment.

And realtors everywhere may suddenly discover the incredible allure of Gen-X and the Post-Millenials….

On the Other Hand…

Detroit and Camden may be revived thanks to Millenials!  They’re walkable cities with cheap housing available.

So there is that.

I know, I know — I’m being entirely too gloomy and pessimistic.  But tell me, from the evidence we have to date, what gives you such optimism about the Millenials as the Future of Real Estate?

-rsh

Edit: Replaced a broken image link on 3/13/10.

Click here to view the embedded video.

I understand that the people behind the video, one Pantless Knights, were making a parody.  I hope to God that they’re ridiculing the people being held up as examples of successful entrepreneurs by the media.  The intro in the sidebar hints that may be the case:

This is a Pantless Knights tribute to our favorite entrepreneurs (who are all “new dorks”). It’s a spoof of Jay-Z and Alicia Keys’ “Empire State of Mind,” from the guys behind Grasshopper.com (thank you!). We made it because there’s a new type of dork that is cooler than ever. Look at tech entrepreneurs, hipsters, Computer Science Barbie – they’re all super popular new dorks! Don’t forget to rate, comment and subscribe!

Trouble is, even if Pantless Knights were ridiculing the hipsters and Computer Science Barbies who flock to the latest get-rich-quick schemes that make up so much of the “Web 2.0/social media” world, there are entirely too many slackoisies in that industry making fools of themselves and cheapening the word “entrepreneur”.

Let me rage properly at these fools.

Entrepreneurship Is Easy!  NOT

Now I’m in the blogosphere, Now I’m in the twitterverse
Fans get so immersed, But I’m a nerd forever
I’m the new Zuckerberg, And since my website
I been cookin’ dough like a chef servin killa-bytes
Used to be the basement, Back at my mom’s place
Buildin’ web traffic so that we could sell an ad space

Too many idiots think that being an “entrepreneur” is just a matter of putting up a website, doing some blogs, getting on Twitter, and watching the money roll in.  Fucking juvenile.

Even with tech entrepreneurs, let’s skip over the sleepless nights, the neverending work; ignore the spectre of poverty that hangs over your shoulder every hour of every day since you’ve put your life savings into your idea, and borrowed money from friends and family to boot; don’t look into that yawning pit of despair that every entrepreneur has to go through when you’ve got $10 in the bank account, you need to bring a product to market and you’re not even close; disregard the pitch after pitch after pitch after pitch to investors where they look at you like you’ve got a serious case of brain damage; forget the phone calls with parents where you have to beg them for more money to make rent… let’s skip over all that.

You want a decent idea of what it’s like to be an entrepreneur?  This is a pretty decent, short article.  And those are Yale students, being partially supported by the University, with all of the advantages that being connected to one of the best academic institutions in the world bring them, and often with wealthy parents who can support their wild dreams.

“I’m going to build this website, and it’s gonna be great, because everyone wants to socially network with other blind quadraplegics looking for condos in Miami, and we just need to get to a million page views, and we’ll get significant advertising revenues.”

Except you got no team, no pro forma, no market studies, no experience, and no business plan.  Build a website, get on Twitter, and make money — all you need is an idea, man!

Fake-ass entrepreneurs, who have no earthly idea what it takes to start and run a business, latching onto the latest fad, thinking that “If that Zuckerberg kid could be a billionaire, damn, so could I!”

Real Entrepreneurship

Now I’m pitchin business plans, From the backs of napkans
Micro-lend to Africans, Monetize Kazakastan
Catch me up on linked-in, Dog, C.E.O.
You can see where I be, With the I.P.O.
Now I’m up in skinny jeans, Now a hipster’s lurkin’
Used to be a reject, But now I’m steady jerkin’
Now my glasses mainstream, Now the girlies eyein me
Popular kids copy me, The new swag is irony
Comin’ from the small time, Girls couldn’t find me
Now I scale models, Like I climb on top of Heidi
Start big trends, with tweets that I pass on

Let me tell you one of the reasons why I love the real estate industry: it’s full of real entrepreneurs.

My first week working at Realogy, I met one of the franchisees — a very wealthy, successful commercial broker in San Diego.  He was a white-haired dignified man, full of smiles and charm, and kind.  I figured he was the scion of some ancient California family who inherited a real estate empire.

Wrong.  He told me the story of how joined the Marines straight out of high school, did two tours in Vietnam, got injured, and left the military.  He came home to a young wife and a newborn babe, and found there was no work to be had.  The factory where he had worked prior to the war had gone bankrupt, the economy was bad, and he found himself with about $20 in the bank, and a new family dependent on him.

He started in real estate because it was a pure commission job (as it is today); the brokerage company wasn’t paying him until he sold something, so they were cool to bring him on as an agent.

The man went door to door every day in his neighborhood, in nearby towns, talked to everyone he knew, hustled, then hustled some more, and then hustled even more until he started to pick up a client here and a client there.  He told me about driving 80 miles in the middle of the night in a nearly broken down car to some farmer’s house to get a signature on a contract, knowing that if he didn’t get that deal done that night, he couldn’t make rent.

Over the next thirty years or so, he worked twelve hours a day, seven days a week, without a vacation.  He built up his real estate practice, then opened his own brokerage firm, went up, then went down, came close to bankruptcy several times, then got back up again, fought for market share with bigger, stronger competitors, won a few battles, lost some battles, and over time built a business.  He built that business, almost brick by brick, customer by customer, dollar by dollar.

After achieving success, for his wife’s sixtieth birthday, he bought her a brand new Mercedes convertible; it was the first new car that he had bought in forty years.  This was no easy-street “entrepreneur”, nor was he a rich kid born to all the privilege in the world.  This was a real entrepreneur who took chances, who faced failure after failure, and somehow clawed his way back from the brink.

He then turned to me and said, “So when I signed with you guys, licensing your name and your brand, I want you to know that I’m entrusting you with my business that I’ve built over forty years of my blood, sweat, and tears.  Don’t screw it up.”

That stayed with me throughout my entire time at Realogy, and it stays with me now.

Even today, even in the age of Twitter and YouTube, real estate entrepreneurs go out every single day hustling, then hustling, then hustling some more to get customers, get clients, and to meet those customers’ needs to put food on the table and to pay rent.  Some of them are crooks and liars, and some of them are incompetent fools, but others are hardworking, honest, ethical people trying their best in tough times.

These are real entrepreneurs.  Few hipsters toting around business plans for monetizing Kazakhstan exist in that world.

A friend of mine is the owner of a small brokerage company.  She confided in me a while back about some of her issues.  How to make payroll so that her two staff people, whose husbands had lost their jobs, don’t have to go on welfare?  How to compete with better funded, bigger brokerages with what little she has?  She wasn’t living in the lap of luxury, and nearly every evening was spent looking at the books, then looking again, to see where costs can be cut and where more revenues can be brought in, so she herself could make mortgage payments, and tax payments, and a hundred other things that an entrepreneur has to do.

My friend is just one small broker-owner.  She’s no Zuckerberg.  She’s not on the frontpage of TechCrunch and going to parties at 1Oak, burning VC capital.  She’s making it work, every single day, with every agent, with every client.  She’s making money, one ingredient at a time.

That is real entrepreneurship.  I’m proud to know people like that, to call them friends, and where I can, to help them in what little ways I can.

The slackoisie mentality, where one thinks that one is entitled to business success, that VC’s are lined up to hand them money for some random idea or another, that being an entrepreneur is getting wined and dined and partying at A-list nightclubs with rockstars, is pure unadulterated idiocy.  May some of them get the chance to learn what real entrepreneurship is like.

It’s the hardest work in the world (after maybe raising children).  But if you persevere and make it, it’s the most rewarding work in the world (after maybe raising good kids).

And there ain’t no rap song that will capture that essence.

-rsh

Click here to view the embedded video.

There is an interesting little dichotomy in the results of the survey that Inman ran recently, and published as a Special Report: “To Be A Broker: Charting a Course for Recovery“.  It’ll cost ya some money, unless you’re an Inman Premium subscriber, but I think Inman did a great job here in putting the information together.  If you care about the industry, brokerage models, and the like, you’re going to want to check out this report.  So go buy one, or subscribe.  (Disclosure: I am a columnist for Inman.com… so uh, if you subscribe and such, I think I benefit through that.  Plus, you can see my archives on Inman.com, which might be entertaining later.)

My first thought upon reading the Report was that the sample might be skewed — after all, presumably Inman contacted brokers in its database of subscriber or some such.  They have to be among the tech elites, these brokers, to be subscribers of Inman.  Then my second thought was, that real estate brokers, more than perhaps any other group of business owners in America, need a remedial class on business strategy.  My third thought was, hey, this might be a good blogpost!

Said blogpost follows.

What Brokers Said…

Let us first turn to what the brokers actually said in this report.  They spoke about government programs, HVCC, dual agency, about MLS and Associations, about first time homebuyers, about tech spending, recruiting, and then this gem:

When it comes to competing for buyers and listings, having experienced, trained agents trumps the size of a company or its brand, real estate brokers surveyed by Inman News say.

Carving out a niche market or area of specialization was also seen as a less important competitive advantage than staying abreast of technology and conducting online marketing.

Fair enough.  The report goes on:

Similarly, experienced agents were considered a “highly important” competitive advantage by 69 percent of brokers, but only 37 percent rated having a specialization or niche as “highly important” and 24 percent viewed the size of a company as “highly important.”

…When it comes to keeping agents happy, real estate brokers again emphasized training over their brand ap- peal, or even a company’s ability to provide leads and listings.

Brokers think the most important service they perform for agents is advice and training, including the mentoring market expertise they can provide, and the ability to answer questions and resolve issues with contracts, transactions and legal issues.

Interesting.  So I ran a wee little survey (highly skewed, not at all scientific, and completely unreliable) on my Posterous site earlier this evening.  With all of 20 results in (!) despite 360 views, which implies significant voter apathy, 40% of respondents (whole eight people) said Training and mentorship were the most important service their broker gave them.

So far so good.

But just a few pages above, here’s what brokers had to say about what government is doing wrong:

When asked what government law or regulation is needed to benefit the real estate industry, 22 percent of 133 brokers responding to that question wanted to see tougher licensing and education requirements for agents and brokers to raise the bar for entry into the business.

“Brokers ‘wholesale’ recruit, train lightly, (and) supervise even more lightly,” said a Lincoln-based broker who advocates a tiered licensing structure.

When new agents take on business they are not comfortable or competent to execute, the broker said, “the client feels the value received was out of balance, and all Realtors are branded with blame for the newbie’s performance.”

“Real estate is too complicated for many agents,” said the Pennsylvania broker who liked the state’s seller disclosures. “The bar should be raised in order to weed out part-time agents and … those who are incapable of representing their clients professionally.

“Make the admissions test harder. Raise the membership fees. Increase the number of (continuing education hours). Consumers and agents will benefit alike.”

To quote The Captain, what we’ve got here is a failure to communicate.

Making Sense, Out of Nothing At All

So on the one hand, we have brokers saying that brokers don’t train their agents much at all, and therefore, the industry, the people, nay the great nation of the United States of America, needs higher standards to have the privilege of being a licensed real estate agent.

And on the other hand, we have some 69% of brokers saying that having experienced agents is a “highly important” competitive advantage.  Far more than lead generation, far more than brand of the brokerage, far more than any other factor.

Then in the same breath, we hear that training and education are the most important services that a broker performs for the agent.

Am I the only person experiencing total eclipse of logic?

Turn around, bright eyes.

A threshold question is, “Does training equal experience?”

If a broker ran training classes non-stop, every single day, for four hours a day, after two years of that training, would that agent be considered “experienced”?  Or like any other industry, training is training, and wonderful in its own right, but not a substitute for experience?  If you need a heart transplant, do you go with the surgeon who’s gone to Harvard Medical School, interned at the best hospital in the world with the best doctors, but had never actually done a heart transplant?  Or do you go with the guy for whom this ain’t his first time in the operating room?

Presumably, the experienced agents who are such an important competitive advantage don’t particularly need the training or the mentorship.  Seems to me, these experienced agents might not agree with the broker who says “my knowledge of the industry and my ability to help (agents) through their problematic transactions” is the most important service the broker offers them.

So even if we agree that training is the most important service of a broker, that only applies to the inexperienced agent who is learning the ropes.

So uh… why are brokers agitating for higher standards for licensing?  Aren’t they training these agents? These newbies?  Isn’t that where their value is?  Who cares what the licensing standards are, since the most important value of a broker is in training these baby licensees into becoming superstar experienced Realtors, no?

Seeing as how training is the most important service, according to both brokers and agents, it would be a simple matter to look at what percentage of the total cost of operations goes into training and education.  Last time I checked (with the 2007 RealTrends report, that is sadly no longer published), most brokerages were spending less than 0.5% of total GCI on training.  They were spending more on office supplies.

Wow, must be some important service there, that training piece.  Whew!

Have things changed?  Really?  I know @Properties in Chicago employs two full-time performance coaches for their agents.  How many brokerages have full-time training or performance coach staff on payroll?

I know just how to whisper...

So let’s try to make sense out of what those in the To Be A Broker is saying.  A broker’s most important service is training, which is valuable only to the agents who provide no real competitive advantage at all, which is why brokers want the government to do much of the training for them, so that they can provide even less of a service to those who provide no real benefit to the brokerage.  o.O That’s making money, out of nothing at all.

May I, a humble observer of the industry and consultant who has never sold real estate or operated a brokerage, make a suggestion to brokers everywhere?  Spend time and money on the things that give you competitive advantage — try that for a change.  If that’s recruiting harder, better, stronger, faster agents, well.. do more of that.  If that’s providing technology, then do more of that.  Whatever it is that gets you competitive advantage, try doing more of that, and less of the other stuff.  What do you think?

Competitive Advantage

It’s too bad that my column for Inman didn’t go up today, as it was supposed to.  But I think it might be worth talking more about competitive advantage, what it is, how you get it, how you sustain it, in real estate.  Those of you who are familiar with the works of Michael Porter already know the basics.

Competitive advantage can only be gained through one of four ways: Cost Leadership (you can provide the service at the lowest cost), Differentiation (you can provide a unique value that no one else can), Cost Focus (lowest cost to a segment of the market) or Differentiation Focus (unique value to a segment of the market).  Note the emphasis: lowest, not low, and unique, not sings of different colors.  And we measure competitive advantage by profits, not by market share, not by revenues, not by awards won at national conventions, but by profits.

Having experienced agents is not a competitive advantage in and of itself; you might be losing money hand over fist with a stable full of experienced agents who are on 95/5 splits and demand the world and a bag of chips from you to have the privilege of having them grace your brokerage with their presence.  Having a great website is not a competitive advantage in and of itself.

Everything you do, taken together, that lets you earn higher profits than your competitors is.

So… (a) are you earning higher profits? and (b) what are you doing to earn said higher profits?  Think on those; therein lies the real course to recovery, through the fire and flames of the Hope and Change economy.

Click here to view the embedded video.

-rsh

EDIT: I edited this to clarify that my criticism was meant for some of the brokers and their response, not for Inman who did the report.  Heck, if anything, I think Inman did a grand old job of creating valuable information that fuels debate, and I rather think it’d be a nice if more people read reports like this one.

As I’ve disclosed before, MRIS has been a client of 7DS Associates for some time now.  We have done and continue to work on a number of business projects for them.  One of the assignments I’ve taken on recently is to fill-in as an interim capacity while MRIS searches for a Chief Marketing Officer.  I asked that the mistake about my being the Director of Marketing for MRIS be corrected because MRIS was at that moment trying to recruit a Director of Marketing, and I didn’t want that person thinking that she had been rejected.

I didn’t talk about this because I don’t discuss client matters in public.  Confidentiality is one of our core values at 7DS Associates, along with Competence (we give it our best) and Loyalty (we don’t take on clients where conflict of interest may arise).  We don’t even disclose who our clients are unless (a) they give us permission, (b) they disclose the relationship first, or (c) other ethical considerations mandate that we disclose the relationship.

Something to keep in mind is that Notorious ROB is my personal blog, of my personal opinions.  In some cases, they reflect the position of 7DS Associates, but I simply do not speak for my clients on this blog.  In some cases, our clients agree with my take on things; in other cases, they disagree.  They will vote with their feet if things go too far astray from their own points of view, or if they think our views get in the way of whatever assignment we are working on.

Finally, our client work is between us and the client, and we keep those strictly confidential; only our clients can decide whether they like the work we do for them or not.

I hope that clears up any mystery.

-rsh

This is the rent-buy worksheet I used while writing my latest Inman column (subscription required).  I took it from Khan Academy and then modified it.  Feel free to point out errors, etc. right in the comments, and I’ll modify what I can.

Rent/Buy Analysis Worksheet (Right-click, and “Save Link As…”)

Enjoy!

-rsh

See that green pattern on the bark! That's 3.2(b)(iii) of the License!

Once again, I find myself in the curious position of praising the good folks at RPR while at the same time ending up on a negative note.  On the one hand, RPR’s posting their Content License Agreement (complete with redlined corrections) is by far the most transparent thing that I’ve seen a company do in real estate industry thus far.  Kudos not just to Reggie Nicolay, the Social Media director of RPR, but also to Marty Frame and to Dale Ross, the executives in charge of RPR.  These guys talk the talk, and walk the walk of being open and transparent.  Thank you guys, and I really mean that.

If you’d like to look at the entire Agreement, including the Terms of Use for the RPR Website, go to the Google Doc here.

Some of the critiques already on the web may be entirely valid, but I think they largely miss the point.  For example, Mike Wurzer’s post suggesting that the new License Agreement allows RPR to sell listing-level data to various customers may be accurate (or may not be, as Marty Frame points out in the comments), but… this falls into the category of missing the forest because you’re too busy looking at whether the tree is a douglas fir or a pine tree.

There are three major, fundamental issues that the License Agreement does not address — primarily because those issues stem from RPR’s business model and its basic value proposition.  If the goal is to nitpick the language of the Agreement in the hopes of finding a provision on which one can base a future lawsuit, I suppose the detailed analysis being done now is interesting.  If the goal, however, is to understand the fundamental challenge of RPR, then we need to raise our eyes up a bit.

Issue #1: Non-Competition

The language of the License Agreement is very clear: RPR will not compete with a participating MLS.  Indeed, the changes to the document adds even more stringent non-compete language, indicating that the non-compete will survive the termination of the Agreement if RPR is the one doing the terminating:

3(g).  Restriction on Competition.  During the term of this Agreement, RPR shall not, directly or indirectly, carry on or engage in the business of providing a Multiple Listing Service to licensed real estate brokers or salespersons in Provider’s market area in competition with Provider’s MLS business.  Licensed Content shall not be used to compete with Provider.  RPR’s use of RPR Offerings is not subject to this restriction.  In the event that RPR terminates this agreement, this Section 3(g) shall survive for three (3) years.

Sounds pretty darn clear, doesn’t it?  Except that it isn’t.  Further up, under the Definitions section, the Agreement defines “Multiple Listing Service” as:

…an organization or association that collects information directly from real estate professionals and then aggregates, compiles, displays, maintains and distributes that information principally for the benefit of those same real estate professionals and includes the use of related or peripheral information and technology needed to support the information technology and business operations of the MLS.

I suppose if you think of an MLS as the above, then it makes sense to say that RPR will not compete with a MLS directly or indirectly.  This is the tree-view that attempts to isolate and list the activities of the MLS, then says, “we won’t do those activities”.

The modern MLS: your office

The forest-view, however, is that the modern MLS is far more than an organization that collects information then does stuff to it for the benefit of its members.  The modern MLS is where the real estate professional goes to get work done.  In a very real way, the modern MLS is the “office” of today’s realtor.

Since RPR in essence proposes to replace the MLS as the place where the real estate professional goes to get work done, it is hardly necessary to “compete” with the MLS on the direct collection of information, the aggregation, compilation, and even most of the distribution.  Once the MLS becomes just a place to which the realtor goes to do the tedious task of data entry, after which she waits for the feed to kick over to RPR which is where she runs CMA’s, neighborhood analytics, runs reports, maintains the mailing list, and so on, the value proposition of the MLS becomes more-or-less non-existent.

Dressing up the License Agreement language doesn’t change the essential fact that RPR shifts the locus of a realtor’s day to day work from the MLS to the RPR.  That’s the forest.

Issue #2:  Governance

The second issue, which the License does not solve, is that of governance.  Yes, there are plenty of restrictions on the use of data.  Yes, there are numerous contract provisions about what the RPR is and is not allowed to do.  Yes, some of the language is imperfect in its precision; but then, a smart attorney can probably find ambiguity in the statement, “The sky is blue” so imprecision is not quite the serious problem some make it out to be.

The Galactic Senate: not local governance.

Because the issue is governance: control over the RPR.

Under the License Agreement structure, RPR and its staff is answerable only to the Board of RPR and ultimately to the Owner, NAR.  If RPR uses the data in some way the MLS finds objectionable, the MLS is limited to contractual remedies.  Suppose the issue isn’t connected to data at all, but in some technology or UI piece that RPR implements.  Suppose the MLS develops a serious problem with the Terms of Use of the RPR Website.  Suppose the problem has to do with “User Generated Content” on the RPR website.  What then?

Suppose that the MLS objects to the creation of some RPR Offering that is within the scope of the License.  Now what?  MLS can suspend delivery, perhaps even terminate the Agreement in case of breach followed by a failure to cure, as per the contract.  But it doesn’t truly control the RPR and its policies the way it controls its own database and website.

When licensing away the most valuable assets under its control, it is reasonable to expect that MLS’s will want some significant say in how the business of RPR is conducted.  But the structure of the RPR, the value proposition to the MLS, the RPR Offerings, etc. simply do not allow for local governance to any real degree.  Sure, a Board of Advisors or some such can be created that has no binding authority, such that Cooperating MLS’s may make suggestions to RPR.  But that isn’t real governance.

A lengthy list of delegated authority, specific grants of license, etc. are good things; they are the trees.  Governance, the ability to direct how RPR conducts business, the ability to hire and fire the staff of RPR if it comes to that, is much more than contract terms.  That’s the forest.

Issue #3: Local Markets, Local Benefits

Finally, although absent from the License Agreement, the blogpost on RPR makes it clear that intentionally missing from the Agreement is any mention of revenue share with the local MLS:

No less importantly, what has not changed: there is no formula for revenue sharing with an MLS provider.  While the reasons for this have been described and discussed in dozens of forums since RPR was first announced, our thinking behind this remains that as a NAR member benefit, in which NAR members have already invested, it is critical that RPR be able to sustain the services that we will provide to the members without charging them for access, enhancements, advertising, or services.  Recently, we have begun to engage large brokers – both individually, and in several brainstorming groups – who have generally supported the rationale behind this approach.  Also, there is now a competitive offering which compensates the MLS providers without offering anything to the members, and we are pleased for the line between the two to have been drawn as brightly as it has been.

Plainly put, this is a red herring.

If the real goal of the failure to share revenues is to enable “RPR to be able to sustain the services” at no cost, then RPR could have offered sharing of profits.  Since profits are revenues net of all expenses, including the expense of offering RPR services to NAR members, RPR would be able to sustain all of the services at no charge and still share with the local market.  For that matter, given that NAR itself is a non-profit, and RPR is characterized as a NAR member benefit, it is not clear why the RPR, LLC must be a for-profit enterprise.

That large brokers are generally supportive of the rationale is irrelevant.  After all, I doubt that RPR is ready to say its rationale is not valid if large brokers generally turn against it.

Finally, the idea that one can compensate the MLS without offering anything to the members is a curious one.  What else would the local MLS do with extra money in their pocket but do stuff to benefit members?  Even if that ‘benefit’ is not raising the price to its subscribers, because they have a revenue stream from the data partner, isn’t that going to the members themselves?

If the answer is, “Well, the MLS executives could just pocket the money”, two responses exist.  First, those local MLS executives are subject to local governance; the Board can fire such irresponsible executives, or refuse to give them pay raises or whatever.  Second, are we to be suspicious of local MLS executives while not questioning the RPR executives at all?  So local execs are corruptocrats who just want to line their pockets, but the folks at RPR are saints who would subsist on cup ramen while pouring all the profits back into member benefits?

Combine the local governance issue with the lack of revenues to the local markets, and you have a toxic brew.  Now you’ve got profits (that’s net of expenses) going to a group of people who cannot be held accountable by the local MLS or by the local members at all.

I emphatically am not suggesting that the people at RPR are crooks or something; if anything, they’ve proven that they are upstanding, trustworthy, transparent human beings.  I am saying, however, that if sending money to the local MLS is not sending money to the members of that local MLS, then the same suspicion has to apply to RPR as well.

The argument over revenue share or profit share or whatever, statements of principles, member benefits vs. non-member benefits, and so on are the trees.  Why the RPR is a for-profit venture that plans to keep all of the money for itself is the forest.

The Forest Emerges

So let’s not get hung up on what section 3(b)(ii)(A) says about 7(c)(iii) or what this word or that word might mean in the new RPR License Agreement.  Fact is, until the big issues of Loss of Relationship, Local Governance, and Local Benefits are addressed, such in-depth hairsplitting is an amusing exercise for attorneys to do.  (Speaking of which, I’ll be over later Brian.)

The forest emerges, and this one is dark and full of shadows.  Stay focused on the big picture, because that remains hazy still.

-rsh

image: Polly Jordan, realestatecafe.com

Once in a while, realestistas get around to discussing tame, non-controversial topics.  And as any regular reader of this blog knows, I am simply allergic to controversy and disagreement.  I am glad, therefore, that people are talking over at Agent Genius about the entirely boring and controversy-free topic of dual agency.

As it happens, I happen to have a view or two about dual agency, and figured I’d meditate on a few unrelated (or maybe related) topics as follows.  Most of them are inspired by the comments to the AG post:

1. Dual Agency and #RTB
2. Dual Agency and Brokerage
3. What Dual Agency Says About Agent Value

Twitter version: Dual Agency is a symptom of so much that is wrong with real estate today.  Long version follows after the jump.

On Dual Agency and #RTB

#RTB of course, is the hashtag for “Raise the Bar” — the current obsession of many of the RE.net.  The goal of the RTB movement is to make it more difficult for people to become real estate agents so as to raise the standards of professionalism within the real estate industry.

The practice of dual agency makes a mockery out of the notion that real estate is a profession, period.

The duty of loyalty is one of the strongest elements of what makes someone a professional as opposed to just a businessman.  We expect the used car salesman to try to rip us off; we don’t expect our doctors to try to rip us off because we expect that the doctor owes us a fiduciary duty of loyalty.

The responses (from the comments on the AG post) are interesting, to say the least.  A few examples follow.

Not breaking any laws!

“The law in my state allows it.”  Congratulations, you’re not a criminal.  Do you want a medal or a statue?  The law in my state may not require that I pay child support for an illegitimate child; that doesn’t make it ethical not to do so.  The law establishes the floor, not the ceiling, of ethical behavior.  Just because something is legal doesn’t make it ethical, any more than something being illegal makes it unethical (see, e.g., Jim Crow laws).

“The parties want to do a deal, so there’s no problem.”  The idea that dual agency is okay because buying and selling a house is not an adversarial situation, but one where the parties want to reach agreement, is an interesting one.  By that token, when you go to negotiate an employment contract, you should have no problem using the lawyer who represents both you and the company.  And your financial adviser should be putting you into those stocks his investment firm is getting paid to market.  After all, the parties want to agree; it doesn’t have to be an adversarial thing.

“Dual agency is okay if it’s disclosed to everybody, and all parties agree.”  Frankly, this is a variant of the “it’s legal so it’s ethical” argument.  On the surface, it’s a strong argument: the seller’s okay with you representing him and the buyer, and the buyer’s comfortable with it.  What’s the problem?  The problem is that disclosure and agreement are the absolute bare minimums that society expects of a so-called fiduciary.  Put another way, disclosure and agreement by the principals are factors that excuse behavior that would otherwise be a breach of duty.  Homicide is also justifiable in some circumstances, but we don’t go around celebrating taking of human life as a wonderful thing.

During the recent real estate bubble, there were a number of mortgage brokers who engaged in practices that were entirely legal, like selling interest-only ARM loans to people who were ah… “unsophisticated”.  Disclosures were fully made.  The client agreed fully to those disclosed terms, supposedly fully aware of the disclosed risks.  Nonetheless, can we agree that the actions of the mortgage broker were far from ethical?

So to my friends in the #RTB movement, I say unto thee, if you’re serious about improving professionalism in the industry, relax the clamoring for higher educational requirements and apprenticeships.  Agitate to eliminate dual agency instead.

Dual Agency and Brokerage

One of the more interesting insights into a fundamental issue with the real estate industry today is what dual agency reveals about the role of the broker.

“It isn’t really dual agency if I’m representing the seller, and another agent in my office is representing the buyer.”  The idea is that Agent Jones represents the seller 100%, and Agent Smith represents the buyer 100%, so even if it’s dual agency to the brokerage, it isn’t really dual agency.  Single-agent dual agency is a no-no, but with two agents, that isn’t really a conflict of interest.

This is, frankly, the strongest argument for a form of dual agency: dual agency at the brokerage/company level, but not at the agent level.

real estate brokerages in dual agency situations

The trouble is, more than just about any other issue in real estate, this form of dual agency reveals just how impotent and unimportant brokerages have become in our industry.

In theory, when I go to list my house, I’m not listing it with Agent Jones; I’m listing it with Broker Jackson who has employed Agent Jones to be his representative.  The fiduciary duty actually accrues to Broker Jackson, and Agent Jones acquires it by being Broker Jackson’s agent.  In reality, I don’t know Broker Jackson, never met the man, couldn’t care about him, have no idea what the name of the brokerage is, and only know Agent Jones.  My relationship is with Agent Jones, and Agent Jones and Agent Jones alone considers herself any sort of a fiduciary to me.

Is it any wonder that brokerage brands are so meaningless today?  That consumers couldn’t tell one brokerage apart from another?

Sure, broker dual agency is more or less the norm in the industry.  Sure, it’s not likely to change anytime soon.  But as brokers move further and further away from seeing themselves as having real clients, as having real duties to real consumers, and see themselves more as recruiters of agents and renters of desk space, their importance and value continue to plummet.

Dual Agency and Agent Value

Dual agency also goes to the heart of what the value of a real estate agent is in a transaction.

“As long as disclosure is made, there’s no problem.”  This is an interesting perspective.  The comment is worth quoting:

However, it is legal in PA if both sides agree and it is disclosed, and I have closed transactions as a dual agent. You must take special care with it, and be super diligent in your documentation to be able to prove you have not favored one side or the other. (Emphasis mine.)

If I’m hiring someone to be my agent in any other situation, I’m not looking for a dispassionate referee who doesn’t favor one side or the other.  I’m looking for someone who is 100% in my corner, advocating for my interests and my interests alone, and trying his damnedest to favor me in the deal.  Isn’t that at least a part of why I’m paying you?

At least Florida has recognized the situation and created the “transaction broker” who owes no fiduciary duty at all to either party.  Their duties are spelled out in statute; they are entirely creatures of legislation, rather than of common law or of long-standing principles of Anglo-American tradition.

transaction broker?

Of course, whether the transaction broker is as valuable to the consumer as the more traditional fiduciary broker is for the consumer to decide.  I know where I fall on that question (less valuable) but the market dictates value.  And of course, it’s difficult to consider the “transaction broker” as any sort of a professional.  I don’t consider Ebay to be a professional services company either.

In an era where realtors are struggling to define their value to the consumer, as realtors are trying to be taken seriously as knowledge experts, trusted advisors, and advocates for clients, the practice of dual agency drags them back into being classified as glorified price-transmission systems.

Guess what?  There are things that are far better than real estate agents at transmitting prices to principals.

The Solution?

There are two possible solutions that I can think of to the dilemma of dual agency.

One is the transaction broker, as in Florida.  Drop the pretense to being a fiduciary to either party, and go with being a guy (or gal) who just facilitates the transaction.  No loyalty is owed to anyone, and everyone is acting ethically as long as the law is followed.

The other is to enforce fiduciary responsibility at the broker level, whether through legislation or through ethical standards.  This is my preferred option, as it has the benefit of bringing the brokers (and brokerages) back into the business of having clients as opposed to the business of having a stable of agents who have clients.

All of my little pet causes — enforcing brand standards, having enterprise CRM, discipline and education, etc. — are advanced by brokers taking a far more active role in serving clients.  Those in turn help reestablish the value of a brokerage, and the importance of the company.  It will also likely lead to greater specialization amongst brokerages, and a proliferation of number of brokerages.  Both of those things strike me as something that may be beneficial to consumers on balance.

And it would go a long way towards establishing the real estate broker as a true professional, a fiduciary worthy of trust:

“The distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.” ASIC v. Citibank, 62 ACSR 427.

-rsh

I found something recently that bears directly on my post on Employer Liability for Employee Social Media, and I’m somewhat hopeful that we’ll see more clarity on this topic.

Michael Yon is an independent journalist who reports from Iraq, Afghanistan, and other parts of the world where the U.S. military (and its allies) are fighting.  I happen to love his work, and believe it points to the future of journalism, but that’s a different story.

He recently posted a report on Facebook about two soldiers who were killed by Taliban attacks.  That in and of itself is not unusual. He does this all the time, doing the job that the national media rarely does.

What is unusual is that in the comments to this report on Facebook, a Mike Garcia attacked Yon for releasing the names of the soldiers before the DoD got around to it.  Scroll down in Michael’s fan page to find this thread, as I couldn’t find a way to link directly to his post and to the comments.

Turns out that Yon had followed all guidelines, directives, and had cleared the release with Army commanders on the ground in Afghanistan.  What followed is where things get interesting for us.

We see that Mike Garcia says that the FB comment is is personal opinion, that he is not representing the US Army or speak in any official capacity, even though he is a Public Affairs Officer.

Michael Yon is having none of it.  He believes that the fact that Mike Garcia is a Public Affairs Officer of the US Army means that he represents the Army even on a Facebook comment.  Which means that Yon believes he can now sue the Army for defamation and libel.

Now while it’s highly unlikely that Yon would actually sue the Army for defamation, I sorta hope he would so we’d get a case directly on point as to when the employer is and is not responsible for the social media actions of an employee, and what the relevant factors might be.  In this case, Major Garcia is a Public Affairs Officer — something close to a PR person — and posting on Facebook is likely in the sphere of his employment.  Respondeat superior ought to follow.

But at a minimum, we might see the Army promulgate specific directives clarifying when a soldier (an employee of the Army) is and is not speaking for the Army when engaging in social media.  That would be helpful for additional clarity.

-rsh

Image via Lovely Petal (Flickr: Samiksha)

On Twitter tonight, Sue Adler (@sueadler) says nonchalantly:

Shocking to find MY town pgs & photos copied exactly on another’s site. Hoping this agent, who I know well, hired someone & wasnt aware. hmm

That ain’t a “hmm” Sue — that should be a, “I’ve been robbed!”  That’s outright copyright violation — a theft of your intellectual property.

I know it happens.  Copyright violation on the Internet is not a matter of “IF” it happens, but “WHEN” it happens to you.  A lot of the violations are these automated spam blogs (“splogs”) that go out, scrape content, put it on a page to drive Google rankings and make a few bucks off of advertising.  In less common cases, it’s someone who just really liked your post or your content or something and thought it’s no big deal to copy the whole thing and put it on their site, as long as they link back to you and give you credit.

Except that it’s not okay, since Google punishes duplicate content.  To be sure, there is some dispute as to whether the original copyright holder gets hit with the penalty or not… but since anyone who claims to know exactly how the Google algorithms work who doesn’t have a valid Google Employee ID is probably talking out of his ass, why take the chance?  It isn’t as if the plagiarist is doing something legitimate to begin with.

As it happens, there are others who are far more expert than I in this area of what to do and how to protect yourself.  So here are a few links you might want to browse if you think someone (or multiple someones) is copying your content wholesale:

• What To Do When Someone Steals Your Content by Lorelle.  This is a fantastic, detailed post, with helpful tips, even a form email to send to the offending party, useful links, and just a wealth of information.  Start here.
• Copyscape.  This is a website that can simplify the effort of tracking who out on the Web is stealing your content.  I’ve managed to find quite a few of my blogposts on random splogs through this tool.  It also has helpful links right into WHOIS and other tools to simplify gathering information you’ll want and need to pursue the matter further.
• Chilling Effects.  This is for those who want to get a bit deeper into some of the legal issues in copyright infringement and piracy.  They also provide a great FAQ on copyright on piracy.
• Splogs: Spam Blogs and Stolen Content.  More of a call to arms, but there’s a lot of great information on this post, as well as links to other useful sites and tools.

I’m certain there are other great resources on the Web and elsewhere.  I’d appreciate any comments sharing ones you’ve found.

Fight Back; Content Theft is NOT Sharing

I know the spirit of sharing on the Web generally and in the RE.net more specifically are very strong.  Many of us are constantly sharing ideas, giving away “intellectual property”, and go to REBarCamps where we give stuff away for free all the time without any expectation of (immediate) gain.

But stealing content outright is not sharing.  I’m not talking about excerpting a paragraph or two to make a point here.  I’m talking about copying entire blogposts, pictures and all.  I’m talking about taking another agent’s local market information lock, stock and barrel and passing it off as your own.  Even if you include a token link to my original post, or put up some little piece of crap like “originally posted on XYZ blog”, you’re stealing my traffic, stealing my ability to interact with readers, and should anyone actually comment on your copy of my post, preventing the community from sharing ideas with each other.

As in all things, you can go overboard with trying to fight content theft.  You can’t live with paranoia all the time.  You have to use your judgment as to whether the offender was trying to steal your intellectual property, or made an honest mistake.

But fight back.  For all of us.  I for one plan on starting.  Have sent one letter so far tonight to a splog operator.  We’ll see if he takes it down.

-rsh