Real Estate Coaching

Real Estate Brokerage Profitability In prehistoric times, prior to the 80’s, real estate brokerage was a very profitable business. Brokers bought and sold without disclosure, real estate commissions were believed to be a so-called standard of x. The public only knew what it knew and that was what the brokerage firm wanted them to believe.Then came the 100% commission companies: Realty Executives, RE/MAX, and many other franchise companies promising Real Estate Brokers a better identity.It worked for many years. Then came the Pres. Carter years of high inflation and extremely high interest rates. The time was known as Stag-flation.  FHA rates were 18 ½ percent and the prime interest rate peeked at 21 ½ percent. Brokers had to really improvise to survive. What came next was the Buyer Brokerage concept whereby a broker could represent a buyer and be paid by the buyer a flat fee for assisting the buyer in negotiations with the seller and co-op real estate agent.  That worked well until 1983 when President Reagan turned things around and saved the country, not just monetarily but from the Soviet Union by getting the Russians to tear down the wall and convert to Capitalism. (I’m not a historian, but a 64-year-old former Realtor who lived this experience.  As the market turned and rates lowered and lowered everything in the real estate business was fantastic.  New franchises cropped up every other day. The 100 % commission concept companies grew like hotcakes and agents found out they could earn more money by joining those Franchise companies. Wouldn’t you know it 1980 would rear it’s ugly head into the commercial office building loan crash of 1990.  Yes I went through that also.  Bankers attempting to call loans.  Smart investors looking to steal commercial buildings and brokers looking to merge or be bought out. Very interesting times!  The Feds were looking to investigate those who would make a living by having ancillary services such as title companies or mortgage companies. They thought the public was being taken so they attacked.  Today the government accepts free enterprise as long as the Government RESPA guide lines are adhered to. IE: total discloser of business interest.  As a former Board Member of RESPRO I would sit in meetings with attorney after attorney listening to legalize that did not make a lot of sense.  In the end all the lawyers realized they had to speak Realtoreeze, meaning keep it simple. Once that was adopted everyone went on to doing business and growing their respective companies.

On the horizon were the up and comers the so-called discount Real Estate companies. Cheaper fees to the person listing their homes. Commission Rates started to decline but not as fast as the discount stock brokerage companies like E-trade or Charles Schwab.  For 10 years they continued to grow. Then came the Internet and more and more companies attempted to set up business on the Net. What has driven it to the Net is the public’s ability to access data with high-speed broadband capability. Is it a good thing? You bet! Let’s face it the public is the customer. If you want to create and keep the customers you give the customer what they want. What does the customer want? They want inexpensive, they want easy, they want fast, and they want honesty.  So where does it leave us?

The company who can deliver these attributes will obtain the business.  So where is the rub?  The public knows what it wants. That is a given. The brokerage firm knows what it wants and it is profitability. That is a given , if there is a fly in the ointment it is the Franchisor that may be too greedy.  If there is a legal word named Greedyness then it can exist in some Franchisors.  One example everyone can understand are the telephone companies when they introduced the 2-year log in on their cell phone contracts. The real estate franchise companies jumped on the game early on and locked in many Franchisees.

The challenge for Real Estate companies today is cost of doing business.  Rent for buildings goes up as well as employee salaries and franchise affiliation fees. What Merrill Lynch learned when they entered the Real Estate business back in the 80’s is that if someone else is paying an agent 100 % commission to work with them why would anyone go to work with ML when their commission split was far less. When that happened ML sold to Prudential who were far more savvy to the real world.  Today Pru is a great company working hard to be the Rock it always was.  So when Greedyness occurs Franchisee’s sell their companies or merge or drop the greedy franchisor. This is why you see big Real Estate Teams leave a Franchise company.  They were the reason for the company’s success, not a blazer or a number on a sign.

Real Estate marketing is all about relationships. Yes TV can help but in the end it’s all about what a local person can do for your family.

As commissions decline the income stream for the Real Estate Brokerage business will come from disclosed ancillary services. Very similar to the HP computer company who sells printers very inexpensively but makes a huge percentage of bottom line profits from Toner Cartridges. In the end real estate commissions will continue to decline and the business will be morphed into the distained financial services industry.

Big franchisors will continue to sell and or merge. The smart Franchise company is the one that will see the future and know that all real estate Franchise creativity starts in the field. It listens to it’s customer, The Real Estate Agent, the true customer of a real estate Franchise Company.

If you are thinking about forming a new real estate franchise or purchasing one feel free to contact me.