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What Business Are Realtors Really In?

July 29, 2008

An exchange with Mike Farmer in the comments section of this post over on Homegain triggered some thinking on my part.  The Reader’s Digest version of what went on before:

  • Louis thought there was too much hype about marketing, and not enough attention on the craft of being a realtor.
  • I responded that one reason was that there isn’t much of a craft to being a real estate broker, and that the ones I respect were more of a consultant than a realtor.
  • Mike thought it presumptuous of someone who has never brokered real estate to reduce the job of a realtor down into only brokering deals, adding:

The advent of the information age doesn’t make agents and brokers less useful, but more useful in a more sophisticated market where information needs to be filtered through specialized knowledge to create a competitive edge for consumers. Not only as consultants do we earn our money, but through all the actions taken to create profitable and hassle-free transactions. However, I wouldn’t mind sitting in a cozy office and giving advice all day.

  • Whereupon, I responded that filtering information through specialized knowledge is the essence of consulting, and clarified that pure brokerage — matching buyers to properties — is not valuable in the Internet era.

But that raises a related set of questions.

  1. If “brokerage” (herein defined as “matching buyers to properties”) is the business that realtors are in, then what are their future prospects, if any?
  2. On the other hand, if “brokerage” (herein defined as “matching buyers to properties”) is no longer the business that realtors are in, then what is?

As to the first question, in my mind there is no doubt that the purely transactional brokerage is going the way of Republicans in academia: rare, despised and getting hounded out of existence.  The one thing that the computer is insanely good at doing is matching things up by a whole matrix of qualitative and quantitative metrics.  Really, when you think about it, a realtor even in the pre-Internet era derived much of her value from being the human operator of a computer network — the MLS. (Well, at least starting in the Computer Era — I know some folks still remember the Book.)

The analogy I drew was to the travel industry.  There is little doubt that the traditional travel agency business of booking tickets for consumers was decimated by the Internet.  This little study (PDF) by the Small Business Administration was written back in 2001, but remains illustrative, since that industry was getting hammered right from the start of the Internet era.  (A funny stat: the SBA study in 2001 estimated that only 30% of travel will be booked online through 2005; according to this article, quoting Forrester Research, 68% of travel was booked online in 2005.)

I think Mike agrees with that big picture statement: if you are in real estate, but all you’re doing is putting listings into websites, and putting up yard signs… your future looks dim indeed.

But I don’t believe the future looks dim for real estate, and for realtors.  If anything, I think the future looks bright.  It requires a fundamental shift in thinking about what service a realtor actually provides, but that shift has been ongoing for at least a few years.

Go pick any random agent website and read about their self-description.  It usually says something like, “I’m an expert on the market.  I can help you understand what to do, what not to do, avoid mistakes, and maximize your sale price.  Or, if you’re a buyer, I can help you get the best deal possible with the minimum of hassle.”  (That the last two statements are in conflict is another matter for another day.)

So let’s agree that pure transactional brokerage is probably not the business that most realtors are in today, shall we?  (There is an exception for ultra high end real estate, by the way, as there is in any brokerage type of industry — see, for example, private placements.)

Because that still leaves the more interesting question.  If brokerage is not the actual business, then what is?

Is it Sales & Marketing?

A good argument can be made that it is — but what do you do about buyer representation then?

Is it Project Management?

Many agents I’ve personally spoken to over the years thought this was one of their biggest jobs — making sure the transaction goes through smoothly.  That requires coordinating a whole bunch of people, most of whom don’t work for the realtor, like attorneys, appraisers, inspectors, mortgage brokers, etc. etc. to get the transaction done.  That sounds an awful lot like project management.

Is it Psychological Counseling?

A few agents talk about how their value is in making clients feel better about the process.  Assuaging their fears, having tough talks with them to bring them back down to earth, instilling sanity, etc.  Buying a home is a pretty stressful process — selling one, even more so.

Is it Financial Planner?

The purchase of a home is usually the largest investment any family makes — a strong argument could be made that the realtor’s actual business is financial planning.

Is it Consulting?

While the term “consulting” is often too-broad, in this case, I mean specifically that the realtor has specialized knowledge and training unavailable to otherwise intelligent and highly accomplished laymen.  For example, a heart surgeon is probably pretty darn smart and knows a lot of things.  But he doesn’t know squat about land use regulations, mortgage financing, and the effect of termites.  Nor does he know much about what’s going on with the market, what is and is not a fair price, and so forth.  The realtor does (or should).

Never having been a real estate broker myself, I really don’t know the answer.  I can prognosticate and opine, but that isn’t the same thing as an answer.  If you are a realtor, I would love to get your take on this, and perhaps I can formulate an answer at the end of the learning process.

-rsh

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20 Comments leave one →
  1. July 30, 2008 8:45 pm

    Man, this is a great dialog. Thanks to Christian Sterner for pointing me to your site. Then, Andy Kaufman did so in the same day! Sorry I didn’t meet you in SF.

    1st, I’d like to point out that I was a great C student and thus, plan to “make all the money”

    I think that deep local market knowledge is the very best key to future success for Realtors. The “true local market leader” will always have knowledge and insight that is highly sought-after.

    But here’s the trick: you have to maximize the number of potential customers that know about your “true market leadership” — that’s a marketing job.

    So, my suggested gameplan for success is this:

    #1. find a hyper-local niche
    #2. REALLY know more than anyone else about that niche
    #3. Do great marketing to let people know (online focus)
    #4. Serve customers very well once you find them

    The technical brilliance is helpful, but only if people know you have it

    Matt Fagioli

  2. July 30, 2008 8:50 pm

    Rob: Would it be a cop out to say “What Daniel said” followed by “What Jay said” ?

    The job of the REALTOR as a buyer’s agent is to assit the buy in obtaining the best property for them at the lowest price with the best terms and conditions possible. (That does include mathcing houses to their needs)

    The job of the REALTOR as a seller’sagent is to assist the buy in selling their property for them at the highest price with the best terms and conditions possible. (That does include marketing their property and ecxposing it tothe largest market possible)

    They are not contradictory (unless you try to do both of them in the same instance as a dual agent – and then you need to disclose to your clients that you will not be able to be the most agressive advocate for them as a result of the obligations you have to the other party) – but are based upon the best advocacy possible.

    As far as the “I don’t like to think of myself as a salesperson” I guess that depends upon your definition of selling. To me it is “Helping someone to do something in their best interest that they might not have done if the salesperson had not been present” – it is not coercing or cajoling someone to do something they don’t want to do, and is by definition a consultative process.

    Great discussion – for a lawyer 😉

    (Really enjoyed talking to you at Connect in SF)

  3. July 31, 2008 12:25 am

    Thanks Matt & Bill – was great meeting both of you at RE Bar Camp.

    (Matt, I was the jerk in the back who was asking you about whether you are really a franchise model, and what you’d do if Realogy started doing agent/office blogs on their corporate sites.) 🙂

    BTW, Matt… three letters for you that I think would make all the difference in the world to what you’re up to:

    C. R. M.

    🙂

    -rsh

  4. July 31, 2008 2:53 pm

    All I can add to the conversation from here is that I’m grateful to know Daniel, Jay and Bill as they’re helping to set the standard for what a Realtor should be.

    A quality Realtor is one who doesn’t sell anything. He represents his clients best interests and places said client’s interests as the paramount concern. Sometimes this is listening, counseling, guiding, interpreting, advising – on price, terms, etc – and sometimes this is negotiating – with the client as well as other Realtors.

    Part of being a great Realtor is knowing who the other “good” professionals are who the “bad” ones are. How does one quantify this knowledge?

    Using all of the above, we have to set expectations appropriately for all involved. Personally, I consult and I adapt to my clients’ needs.

    The profession has tried to protect “what we do” for so long (when often it was just putting a property in the MLS) that we have neglected to clarify exactly what we do – even when the list is extraordinarily long.

  5. July 31, 2008 3:43 pm

    Oh, Rob.
    So you were that jerk! (just kidding)

    I actually appreciated all your questions and comments.
    and, yes, we ARE a franchise.
    Can’t remember exactly what I said about it there in SF.
    We have not filed our FDD in California so I was being pretty vague about stuff.

    And, yes, we’re adding a pretty kickin’ CRM to our backend also.

    Love to talk more to you about it.

    ps. it would be awesome if you added a comment tracker (or whatever you call it) to your blog so I can get notified when others comment on the same post, etc.

  6. August 1, 2008 4:57 pm

    Wow. I hit the jackpot here.. assume a few comments will kindly be tolerated. First, it is too easy to get licensed. Second, I agree that hyper-local is GREAT. However, just knowing about an area because you have lived there a long time is not going to be enough anymore. There are many realtors who can say they are hyper-local, but the depth of their expertise outside those boundaries is going to be key to setting them apart as I just don’t picture the younger generation being able to relate to, or want to do business with, someone selling real estate because they’ve never done anything else and the kids are gone…. unless of course they are tech savvy, smart, and want to be a PROFESSIONAL realtor.

  7. Sean Purcell permalink
    August 4, 2008 11:38 am

    Terrific comment string on a well written post. When I speak to groups of agents (which I do from time to time) I always ask them what they do for a living. I rarely get the correct answer. Agents respond with many of the same thoughtful answers seen above. But representing clients, neighborhood knowledge, technical mastery and the like are how you get paid. What you do for a living is: marketing. We are in the marketing business. We market our business first and foremost (otherwise there is no business) and we market listings and we market buyers.

    I have an entire class based on the pyramid of teaching that agents go through and how upside down it is. The primary teaching that goes on in a brokerage regards contracts and escrow process. This is the least important aspect of what you do for a living. (It is very important to how you get paid and even more important to how you keep what you got paid – but it is at the bottom of the scale in measuring what agents do for a living.) Contracts are “fill-in-the-blank” boiler plate. For $300/transaction you can have someone do it for you. If there comes a time when a contract is unclear… an agent is not allowed to advise anyway! It goes backward from there: how to close a listing, how to show a home, how to run an open house until finally, just maybe, if there is anytime left, the broker might talk about marketing.

    This is beginning to feel like a whole post that needs to be written so I will leave off the rant. Suffice to say that if you look around at the listings in your neighborhood you will see the antithesis of good marketing. If you look around at the “marketing” pieces that our fellow agents use they are the antithesis of good marketing – especially in a 2.0 world.

    Learn marketing. Combine that marketing with true and passionate caring for your client – make it comfortable for them to put their trust in you. Almost every other aspect of what an agent does can be outsourced.

Trackbacks

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