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Site Has Moved

April 30, 2009
This blog has moved!

This blog has moved!

I finally bit the bullet and migrated Notorious R.O.B. to a self-hosted WordPress blog.  This blog, hosted on WordPress.com, will no longer be updated.

Please visit www.notorious-rob.com and modify your bookmarks, permalinks, and blogrolls.

Thanks!

-rsh

Migrating the Blog

April 29, 2009

Just a heads-up admin note: I’m in the process of migrating this blog over to a self-hosted platform.

Blogging will be light until that is completed.

So now is a good time to go get caught up on some of those 2,500 word monstrosities 🙂

-rsh

The Real Estate Story Awaits the Next Chapter

April 24, 2009

Brian Boero of 1000watt recounts a dinner conversation and throws down some challenging questions and assertions:

This particular debate centered on the following question:

“Have we reached the end of the real estate story now that FSBOs and discounting have lost their menace?”

As Brian puts it, there were two camps, comprised of him in one camp and everyone else in the other camp:

Methods have changed. Markets have changed. The balance of power between brokers and agents has shifted. Consumers have access to enough data to choke a horse.

But the basic structure of this business remains remarkably intact.

There are two possible conclusions to be taken from this:

A. Real estate is exceptional. The complexities and emotions that characterize the real estate transaction will forever shield it from structural change. Bill Gates, Barry Diller and about a billion dollars in VC have been thrown against the barricade with no transformative impact. The story is over.

B. We’re due for a cataclysm. The forces of change, of technological innovation, of inchoate consumer frustration, are stacked high against the dam of Real Estate As We Know It. It will not – it cannot – hold. The story is far from over.

My dinner pals were in the “A” camp. I argued for “B.”

Given that the whole thrust here is theoretical and futuristic, I can’t help but charge in foolishly where wiser men fear to trod. Read more…

The Green Premium in NYC Rental Market Heads Towards Zero

April 22, 2009

A really fun discussion on Twitter with Robin Greenbaum (@cobrokenation) led me to just do a very quick, very back-of-napkin, and likely very inaccurate comparison between two rental units.  As Robin pointed out, since comparisons are very difficult, depends on many factors, and the like, no matter what I come up with, this is likely to be wrong.

Nonetheless, I’m curious to see if we might see any interesting bits of data.

One unit is a 1BR at 22 River Terrace, a luxury rental building constructed in 2001:

22 River Terrace

22 River Terrace

Detailed info can be found here, but the vitals of the unit are:

Floorplan, 22 River Terrace

Floorplan, 22 River Terrace

725 sq. ft., monthly rent of $2,880, 23rd floor but facing east (aka, no river views).  I know the floorplan is hard as heck to see, but it’s pretty standard fare for NYC apartments.

The second unit is located at The Verdesian, a LEED Platinum certified building located right by 22 River Place.  See the map here.

LEED Platinum certified, The Verdisian

LEED Platinum certified, The Verdesian

The Verdesian is a newer building, built in 2006, and LEED Platinum is not given to just about anybody with a solar panel or two.  There was quite a lot of thought and technology devoted to the building.

The unit here is a 1BR as well:

Floorplan of 1BR at Verdisian

Floorplan of 1BR at Verdesian

The vitals here are:

750 sq. ft, $3,065 per month, and east-facing on the 13th floor.  Clearly, the little alcovey “Den” area means a smaller living room, but the floorplan might be better for some, worse for others.  Who can say?

On a straight $$/sq.ft. basis, however, the difference is only $0.12 between the newer, eco-friendly unit and the older, non-green unit: $3.97/sq. ft. for 22 River Terrace vs. $4.09/sq. ft. for The Verdesian.  If we hold the square footage equal at 725, that means a monthly rental difference of $87.00.

To my untrained, unpracticed, and non-realtor eyes, this seems rather insignificant and would tilt the decision towards the Verdesian.  According to GreenbuildingsNYC.com, the Verdesian’s advanced systems, EnergyStar appliances, and various other design & architectural choices, means a 40% savings on electric bills for residents.

According to ConEdison, the average NYC resident can expect to pay $104.97 per month in electric bills.  A 40% savings on electricity alone is $41.99 per month.  Nearly half of the “green premium” (if that’s what it is) is taken care of simply from savings in electric bills.

Now add in the fact that The Verdesian is five years newer, and offers “Fresh filtered air, continuously humidified or dehumidified, depending on climate conditions” to every unit, and it isn’t clear to me that the green premium starts to head towards zero.

Again, comparing different units, different buildings, with slightly different amenities and the like is hazarding error.  But it does seem significant to me that the actual cost difference may be as low as $45 or so per month — less than the cost of a cup of Starbucks latte per day.

If this is true, then the green premium at least in the NYC rental market is heading towards zero, and renters really have to ask why they would go to a non-green building vs. a green building.

I for one would love to see some real comparisons by real professionals — realtors, appraisers, I summon thee!

-rsh

PS: Note that I am a heretic when it comes to anthropogenic global warming hype, so this has nothing to do with religious views on carbon footprints and such nonsense.

Real Estate Marketing in a Post-Middle Era: Property

April 20, 2009

This is NOT for a Thrift play...

This is NOT for a Thrift play...

In part 1, I started to talk about marketing in a consumer environment when the middle is disappearing.  My basic hyopthesis is that the American consumer today operates in one of two modes: Thrift and Aspiration.  Thrift mode means a focus on price above all; Aspiration means a focus on luxury, lifestyle, or something more than “mere product”.

To apply these thoughts to the marketing of real estate, I asked a few questions, of which the first one is the topic for this post:

  • If the Middle is disappearing, and the two dominant modes of consumers are Thrift and Aspirational… have you considered how you are positioning properties not only to demographics, but also to psychographic profiles?

Let me attempt to tackle this question and explore what real estate marketing of a property in a post-middle era might look like.

Read more…

Marketing In a Post-Middle Era

April 17, 2009
Image: David Armano

Image: David Armano, Logic + Emotion

Thanks to Brandie Young‘s wonderful post, I found David Amano’s thought-provoking post on “Marketing in a Post-Consumer Era”.  It’s worth reading in full.  Actually, they’re both worth reading in full.

I couldn’t help immediately reacting, however, with skepticism.

Perhaps it’s because the last time we were in a recession, we heard the same thing: conspicuous consumption is out, and frugality is in!  Since then, we have seen an absolute explosion of conspicuous consumerism, celebrity worship taking over as the official culture of the United States, and a continual denigration of the average middle American lifestyle in our cultural institutions.  (I for one do not recall “Walmart” being a dirty word back in the recession of the early 90’s.) Read more…

The Price of Artifice

April 15, 2009

Last night’s Lucky Strike Social Media Club (LSSMC) dinner featured a presentation by Phil Thomas DiGiulio (@holaphil) of Wellcomemat on “Video and Social Media”.  I thought it was an interesting topic in and of itself, and am grateful to Phil for coming by to have the conversation with us.

During the dinner — as is normal for LSSMC — a topic came up that I thought needed more elaboration and discussion.  One of the sub-themes of social media and its impact on marketing is how professional it ought to be.  Should companies, for example, have an “official” corporate Twitter handle, like @onboard?  What topics are appropriate for a corporate blog?  And so on.

Video, as it turns out, is directly implicated in this sub-theme.

Professional vs. Confessional

One of the biggest barriers to implementing video as a marketing strategy is cost.  I have priced out what it would cost to have a professional video made for my employer, and the ease with which one can spend $15K on a 3 minute video is staggering.

Video is inherently a more difficult medium for an amateur.  Video editing — even as it is made easier with technology — remains a more technical, a more difficult, and a more expensive proposition than editing text.  Simply consider the fact that you may need to buy a piece of software to edit video.  And that’s assuming that you have the visual aesthetic sense, a talent for crafting narrative using motion pictures, and skill with blending sound and image and motion — all of which are somewhat specialized skills.

Phil usually recommends that you hire a professional to do a well-crafted video, and for good reasons.

On the flipside, however, there has been a growing trend in the world of video towards a more intimate, more amateur, and more “raw” approach.  Perhaps the explosive popularity of reality TV is reprogramming our cultural expectations.  Perhaps the wide availability of cheap equipment and editing software is bringing “moviemaking” to the masses.  The popularization of sites like YouTube certainly helps to spread video works that wouldn’t have seen the light of day in earlier times.

For example, Nigahiga is one of the top subscribed channels on YouTube.  This is a typical video:

While Nigahiga videos are hilarious, with decent editing, a story, and some really funny actors, part of the appeal is its extremely amateurish production values.  The exact same script, exact same actors, exact same everything, but done professionally by a TV production crew would be horrible.  Audiences would be making fun of the terrible script, the bad acting, and the not-so-funny jokes.

Why is that?

Audience Expectations: Artifice

I think the reason is that the modern audience grew up in the era of mass media.  Few of us remember a time before movies, a time before television.  The Millenials don’t remember a time before the Internet.  Few Gen-Xers remember a time before VCR’s.

Movies and TV are a part and parcel of our culture, our memories, and even our identities to some extent.  As we grew up surrounded by filmed entertainment, our knowledge of and expectations of motion pictures have also grown.  We are no longer fascinated, as the first viewers of movies were, by grainy black and white footage of a train pulling into the station, over and over and over again.

As filmmakers advance their art, as TV producers get savvier, as actors and directors and lightning and sound engineers and editors and the rest of the production industry continue to improve their art and technology, our expectations of professionals continue to rise as well.

Just last decade, CGI was a big deal special effects wise.  We audience members oooh’ed and aahh’ed at movies like Terminator 2 and Jurassic Park.  Today, we take CGI for granted, and harshly criticize crappy CGI work.

The result of all this improvement and sophistication on the part of the audience — as a direct response to the continual improvement by industry-leaders in film and television — is that we hold professionals to a far higher standard.  We are so jaded by movies, by TV, by big explosions, by car chases, and special effects that to break through our awareness and make an impact requires something extraordinary.

For example, this Sprint ad:

From a marketer’s perspective, having worked at an ad agency, the level of execution on that video/ad is incredibly high.  The amount of thought that went into it, the CGI-work, the models, the video shoots, the ad copy, the script, the voiceover work… all of it likely required thousands upon thousands of manhours of work by some of the best and brightest in the advertising industry — namely, Goodby, Silverstein & Partners, the winner of the 2008 Ad Agency of the Year by AdWeek.

That is the level of skill, of art, needed to break through with professional video.

In contrast, when the audience is confronted by video that is clearly not professional, and is intended not to be professional, then the expectation changes.

Audience Expectations: Humanity

The Nigahiga video on YouTube embedded above is a perfect example of changed expectations.  The martial arts fighting sequence in the Nigahiga video is hilarious precisely because it is so amateurish, and intentionally so.  What the viewer is responding to isn’t the technical perfection of the fight scene, but the humor and the personality of the actors (and the filmmaker) as evidenced by their staged “fight scene”.

What the audience expects in an amateur production is humanity, not artifice.  They want authenticity and personality, rather than perfect execution.

In that situation, I believe that the bad lighting, the bad acting, and low production values are a bonus rather than a detriment.  They help to create authenticity.

The Nigahiga videos would not be improved by professional lighting, or a soundstage.  They would be hurt by it.  Getting professional actors to act out the skits would not make the videos more interesting or more entertaining; I rather think professional acting would make the videos less entertaining.

This is, frankly, the connection to “social media”.  Video, I think, has a unique ability to help viewers assess the honesty and authenticity of the person on camera.  Visual cues, speech patterns, the facial expression, gestures — all of these things help a viewer decide whether the person they are viewing is “keepin’ it real” or faking it.

If you understand social media properly — that is, as an expression of the Cluetrain concept of authentic human connection, rather than as a collection of technology tools — then you will implicitly grasp that video is just another tool for that expression.  Based on that, you can make decisions on whether and how to use video to maximum effect.

Danger, Will Robinson, Danger!

There is, however, real danger with video, and one that I don’t think is well enough understood.

The danger is not the unprofessional video with shaky cameras and bad lighting.  No, the real danger is the mediocre professional video.

Because the audience expectation is so high when it comes to professional work, in order to avoid looking like an idiot, your execution must be extraordinary.  This is both prohibitively expensive and incredibly difficult.  The difficulty is easily illustrated with this video from Cyberhomes (which is a good company of good, smart people):

The cheesy stock photography, the horrible music, the “professional” voiceover, all combine to make what is a deadly boring corporate video.  This is not to say that the team at Cyberhomes didn’t do a good job — it did.  But the video is not extraordinary, and it couldn’t possibly be — it isn’t a Goodby Silverstein campaign costing millions of dollars.

Once the decision was made to go the “professional” route, Cyberhomes could not help but fall into the “crappy corporate video” hellhole, not because of anything its team or videographer or editor did, but because what they could not possibly do given the likely budget for something like this.

There is a price for artifice.  A rather significant one in the current media environment.

If you are unwilling or unable to pay that price, then your video project is doomed from the start.  It may be a better strategy to go the other way and go for an amateurish, human connection driven video play instead.

I think Jim Duncan‘s “hey, I’m talking on camera while I’m driving somewhere in my car” videos are absolutely fascinating.  Unfortunately, I can’t embed them on a WP.com blog, so go view a sample here.  An embeddable sample is from Robin Greenbaum, of Prudential Douglas Elliman, in New York:

The parts where Robin’s real voice comes through, when she’s giving her opinions and views rather than when she’s reading off some description of the Windermere, are fantastic.  She sounds like a human being, like an interesting person with strong views, with whom one might be able to have a conversation.

And that, my friends, is social media.

-rsh

Interesting Factoids from RISMedia’s 2008 Power Broker Results

April 13, 2009

One of the most valuable pieces of data in our industry, I think, is the annual Power Broker Report and Survey conducted by RISMedia.  The 2008 edition is no exception, and is available here.  I highly recommend it if you’re interested in our industry as a whole.

I like to play with the numbers as soon as I can get my hands on them.  I’ll probably be writing about one or more aspects of this over the next few weeks, but thought I would share some interesting tidbits.

I only looked at the top 750 brokerage companies in the survey report because the numbers started getting wacky.  For example, the #961 company did 13 transactions totalling $70,000 in volume in 2008.  That just doesn’t sound right — either there’s a data entry error, or that company ain’t in business no mo’.

Plus, I excluded the top three companies: NRT, HomeServices of America, and Long & Foster, simply because they are such outliers that they really skewed the results.  For example, #3 Long and Foster more than doubled the sales volume of the #4 company, Prudential Douglas Elliman.

In any case, here are some numbers to chew on:

  • The average number of transactions in 2008 was 1,894; the median, however, was 931.
  • The average sales volume in 2008 was $498.2m; the median was $208.6m.
  • Assuming a 2.5% GCI rate, the average GCI for the Top 750 was $12.5m, with the median coming in at $5.2m.
  • Assuming a 26.7% company dollar retained (taken from the 2007 REALTrends Brokerage Performance Report), the average Company Dollar was $3.33m, with the median at $1.39m.
  • The companies in the Top 750 employ an average of 271 agents; the median number comes in at 128 agents.
  • The average GCI per agent is $53,444, while the median GCI per agent is $38,031.
  • The average Company Dollar per agent is $14,269; the median is $10,154.
  • In total, the top 750 companies added 43,906 agents in 2008, while 51,753 agents “left” — a net loss of 7,847 agents.  (Note that there’s a pretty good likelihood that many of the 51K agents who “left” went to another company, and forms a portion of the 43.9K number.)
  • Similarly, 293 offices were opened in 2008, while 355 offices were shuttered, a net loss of 62 offices among the Top 750 companies (less the top 3 outliers).
  • Regardless of the above disclaimer about outliers, among the Top 15 companies ranked by sales volume, the #1 company (NRT) did more than #2 – #14 combined: $132B vs. $131.8B.
  • If you take the Top 15 companies by Sales Volume and re-rank them by GCI Per Agent, the only company to appear on both lists is Keller Williams Realty, Oklahoma City, who is #7 on Sales Volume and #6 on GCI/Agent with $403K in GCI produced per agent.  This would make them the most efficient large brokerage in the country.  (At least, based on calculation assumptions.)
  • The second most efficient company in the Top 15 by Sales volume is Alain Pinel Realtors, who is #9 in sales volume and #28 on GCI/Agent with $115K in GCI produced per agent.  Incidentally, the #1 company, NRT, is 158th in GCI/Agent with $65K GCI per agent according to this report.
  • Without question, Keller Williams dominates the Top 750 list in terms of brokerages represented under its brand.  337 of the top 750 are Keller Williams franchises.  Coming in second is RE/MAX with 141 of the top 750.  Coldwell Banker comes in third with 50 franchises.

There are more interesting tidbits, and there are conclusions to be drawn from the information.  But for now, I thought some of the above was pretty interesting.

More to come.

-rsh

Dear World Class Architect: Please Blog

April 10, 2009

I had a roommate in college who was an architecture major as an undergrad.  He was such an insufferable snob — for example, in the entire year we lived together, he never watched any movie that wasn’t by Fellini — that my view of architecture and architects may have been unfairly colored.

Thankfully, I recently learned just how fascinating architects are, especially in the post-Green era.  So I started to dig around just a bit.

And I must ask… why aren’t architects blogging more?

I asked this question on Twitter and LinkedIn and got some interesting responses, but thought to expand on them here.

Seriously Compelling Content

Blogs are, of course, for those who work with the written word.  At the same time, there’s no denying that pictures and graphics liven up what would otherwise be a wall of text.  Architecture is inherently a visual medium, but one that requires quite a bit of explanation (via words) to appreciate it fully.

For example, look at The Visionaire, a new building by the Albanese Organization, designed by Rafael Pelli.

The Visionaire, by Rafael Pelli

The Visionaire, by Rafael Pelli

That’s a beautiful building.  And a beautiful image.  There are more stunning images of gorgeous buildings in the world of architects.  Look at this image from Centerbrook:

Discovery Research Center, Dekalb Plant Genetics Corp.

Discovery Research Center, Dekalb Plant Genetics Corp.

Unlike artists, however, architects have to create buildings that people work in, shop in, play in, and live in.  There are layers upon layers of things going on that I had no idea even existed.

For example, solar path.  It makes perfect sense once it’s explained, but until it is, it’s one of those things that a normal person rarely (if ever) thinks about.

Solar path diagram

Solar path diagram

Architects routinely think about stuff like this, as well as all of the engineering that goes into a project.  I heard Stephan Kieran of KieranTimberlake spend a good 5 minutes talking about a wall.  With cross-section diagrams, showing heatmaps.  I rather think he could have gone on for a good half-hour just about a wall.  Maybe more.

And all of it is fascinating, because so much of it is simply a brilliant exercise of human ingenuity.  Intelligence, applied.

Plus, architects write.  Centerbrook has published a freakin’ book.  And here’s the whole list of their publications.

And last, but not least, non-architects are genuinely interested in architecture.  It is an art form, after all, and one that impacts the average person’s life in subtle and not-so-subtle ways.  Every New Yorker knows that a part of his identity is tied up with the skyline, the buidings, the iconic ones like Empire State, and the forgettable brownstones lining 11th street.  Every homeowner lives every day with the result of decisions made by some architect or three.  People are interested in architecture.

The whole heady mixture says to me, “Blog!”

Thankfully, some architects are starting to get into the blogosphere.

KieranTimberlake has a blog.  Unfortunately, KT seems to use it mostly as a repository for press releases, which makes it basically useless.  I learned through LinkedIn that Modative has a blog, and it’s quite good.  (I’ve linked to it in a new blogroll category.)  Most of the other architecture blogs appear to be written by critics, academics, journalists, and so on, rather than by practicing architects.  If you know of blogs by architects, please send along the link, or post it in the comments.

Effective Marketing?

Turning to the topic as a marketer, rather than a new kid-in-candy-store enthusiast, I confess that I am puzzled why more architects wouldn’t blog.  It strikes me as almost the ideal marketing vehicle for the profession.

Perhaps the bigtime developers who hire architects for the most part grow up in the industry and know all the architects they’ll ever want to know.  Maybe the plethora of design and architecture magazines makes it unnecessary for architects to market themselves.

If you’re Skidmore, Owings & Merrill, maybe blogging just isn’t something you need to do.

But what about all those who aren’t already world-famous architects?  How would a potential client know to hire you?  What does he judge you on?

I ask because I genuinely do not know, never having hired an architect, nor having been one.  But since architecture is still a services-based profession, where one’s intelligence, wisdom, judgement, aesthetics, philosophy, and temperament all come into play, it seems to me that letting people know who you are, how you think, what interests you, and what your design philosophies are would be an excellent way to let like-minded clients find you.

Sharing knowledge, sharing insight, and being a genuine, authentic person are proving to be the most important method of marketing in the post-Cluetrain world.  Architects have knowledge, have insight, and are human beings — get on the cluetrain!  Let the world know your views on things.  Talk about projects as an insider.  Let us see that you’ve put in hours of thought into just how sunlight should strike the window at a precise angle at 3PM on a Friday in April.

Let us behind the curtain.  We may have no idea what you’re talking about, but we will recognize that you do.

So architects of the world, unite in blogging and social media!  You have nothing to lose but your aura of mystery.

-rsh

Virtual vs. Office: Cost vs. Cost

April 9, 2009
If you could go ahead and try to go virtual, thatd be great, okay?

If you could go ahead and try to go virtual, that'd be great, okay?

Let us talk about land.  About buildings.  The pure physicality of bricks, wood, steel beams, stairways, elevators, walls and roofs.  You know, real estate.

Normally, the conversation would be all about homes, condos, and the like — the stuff of the daily business of realtors and consumers.  But I have in mind a slightly different take.

Let’s discuss brokerage offices.

This topic has been swirling around the industry for quite some time now, but a few recent events brought it into focus for me.

First, the LeadingRE Conference in Scottsdale.  I got to speak with Matt Dollinger quite a bit while out there, and thanks to Pam O’Connor’s graciousness, I had the opportunity to hear some of the top broker-owners in the country talk about some of their top issues. The cost of leasing office space and how to minimize it was a frequent topic of discussion.

Second, a brief conversation on Twitter with Derek Massey (@derekmassey) about the desirability of virtual setups vs. physical offices.

Third, conversations off and on with people like Joe Ferrara (@jfsellsius), Eric Stegemann (@ericstegemann), and others who are either trying to start or thinking heavily about “virtual brokerages” with no overhead for office space.

Fourth, this report the existence of which just crossed my RSS feed: Beyond Brick and Mortar, Rethinking the Real Estate Office.  I haven’t read it, and at $299 for a copy, I’m not likely to read it anytime soon.  But if you have, or plan to, please let us know what the findings are. 🙂

Direct Cost…

The direct cost of brokerage office is actual, measurable, and large.  According to the RealTrends 2007 Brokerage Performance Report (yes, I need to get the 2008 report), all respondents had Rent & Related Occupancy costs that came in at 4.94% of GCI.  This figure, however, is a bit misleading in my opinion, because rent and occupancy costs are paid entirely by the brokerage.

Since average company dollar is 26.7% among respondents, the actual direct cost is about 3.7 times the GCI figure in terms of impact on the bottomline.  For example, a company with $10m in GCI would end up with $2.6m in company dollar.  Occupancy costs, at 4.94% of GCI is $494,000 or 18.5% of company dollar.

Add in the 0.83% of GCI for Supplies (pens, paper, etc.) that having a physical office necessitates, and we’re looking at 21.6% of company dollar going to expenses associated with having physical space.

In contrast, the combined expenses for Communications (e.g., telephone, high-speed internet, etc.) and Technology (e.g., website) for respondents were 5.1% of company dollar.  Even if you assume that going to a virtual brokerage setup would double the cost of Communications and Technology, we’re looking at 10% of company dollar expenses vs. 21%.

A 50% reduction in cost is something anyone is going to look at, especially now.

vs. Indirect Cost

There is, however, another side to the equation.  Actually, two other sides.  That makes no sense at all, so I suppose it’s more like two factors on the other side.

First, agent productivity.

Some of the brokers at the LeadingRE show expressed the view that agents are unquestionably more productive when they are sitting together in a physical office.  Unfortunately, I don’t know that there is any study or data available on the relationship between office and productivity.  Are we talking a 100% improvement or a 1% improvement?

The impact of productivity is far-ranging, however.  Let’s take that hypothetical brokerage from above and extend the analysis.  Based on my bad math, it goes something like this:

To do $10m in GCI, at an assumed rate of 2.5% per side, and a avg. Home Price of $250,000, that brokerage had to do 1,600 transaction sides totalling $400m in volume.

If we further assume that every agent did 20 transactions, that translates to 80 agents.  (Now, I know the reality is 80/20 rule, where 20% of the agents do 80% of the transactions, but for simplicity’s sake, let’s pretend they’re all robots.)

A 10% decrease in agent productivity by going virtual means a loss of $1m in GCI, resulting in a $267K in lost company dollar.  The net savings from shutting down the office then is only $227K.  If the productivity loss is 20%, then Hypo Realty ends up losing $40K from the ‘cost-saving’ move as the $534K loss in company dollar more than offsets the $494K in savings.

Second factor, however, is agent splits.  One of the justifications for a brokerage charging a split is to pay for overhead, such as office space.  Get rid of that, and it seems unlikely that the brokerage can maintain the same splits.

Moving from a 26.7% company dollar scenario to a 5% decrease — 21.7% company dollar — means that even if the productivity loss is only 10%, Hyop Realty is now losing $140K from its ‘cost-saving’ measure: decline of $717K in company dollar vs. saving $494K in rent.

All of a sudden, going all virtual doesn’t seem quite so attractive.

And neither of these factors take into account possible ‘soft’ costs, such as loss of brand value due to not having any storefront space in a highly visible street, or possibly a more difficult time in recruiting, or any of the other hard-to-measure impacts.

So What’s the Answer?

Because the financial ‘model’ above is so quick and dirty, it may be that there’s a balance point, especially given the 80/20 rule of productivity where you provide office space to your most productive 20% and gain the benefits of that, while saving on occupancy costs for the 80% who aren’t producing much anyhow.

Without analyzing a particular company’s financials and its market conditions — e.g., prevailing rents for store-front office space — it’s impossible to say whether Virtual is better or Physical is better.

But I figure folks more knowledgeable than I will step forth and provide further insight.  In particular, I think some sort of metrics of agent productivity would be enormously helpful.  Perhaps the Inman report has that answer.

Looking forward to your thoughts.

-rsh