by Jim the Realtor | Nov 3, 2012 | Commission War, Realtors Talking Shop
Berkshire Hathaway HomeServices – or any other “premium franchise brand” – could change the game of real estate….but they won’t. Why? Because the existing model is very profitable, and there is no threat from outside.
An example of how the existing model works:
A review of the sales history of one of the local “premium franchise brand” offices for the summer selling season, June 1st to September 30th, 2012:
MLS dues-paying members: 310
Transaction sides: 223 (109 sellers, 114 buyers).
“Round-trips”, where both buyer and seller was represented by an agent in this office: 18
Number of properties sold: 205
We know that almost a third of the agents (223/310 = 28%) in the office didn’t make a sale during the four-month selling season when mortgages rates were in the 3s – and that’s only if every other agent only sold one. But the common rule-of-thumb is that the vast majority of the sales are done by the top 10% of the agents….so it’s probably more likely that two-thirds of the agents didn’t sell a lick this summer.
Bottom line strategy: Hire every licensee you can and give them lousy commission splits, conduct a ‘mentor-training program’ (trained by fellow agents), and hope that the brand name helps them to sell at least a couple of properties before they drop out of the business. Meanwhile, have a manager conduct an office meeting every Tuesday morning to promote the new office listings, which is a very common practice, and every office does it. This promotes selling the listings “in-house” before they hit the MLS – in hopes that giving the agents an insider-preview might help them get a sale.
This program is run by every real estate franchise in America, and it works great, if you can get thousands of agents on board. Yes, there are expenses with having the brick-and-mortar offices, but agents rent space in them, which minimizes the cost to just a manager and receptionist. The unproductive two-thirds just work out of their house, to save money.
What Could Berky, or Any Other Franchise Do?
1. Promote video tours of houses.
Why don’t they? It’s because of the audio – it would expose how little the agents have to offer.
2. Implore the MLS to better serve the sellers, and minimize fraud.
There are simple solutions – for starters: A) allow video tours to be seen by the public, B) insist on high-quality photos only, C) require every data point on the listing must be completed before it can go active, D) showings must begin the day of listing input, E) once a listing is inputted, it has to stay active for a minimum of four days.
3. Promote consumer education.
In the era of transparency, consumers are craving education. Yet none of the big franchise companies have capitalized on the opportunity to provide a constant stream of consumer-education videos or articles. When you check their websites and blogs, all you see is the usual self-promotion.
4. Provide effective sales training for agents.
Instead of allowing the old has-beens to mentor, send the new licensees to Dale Carnegie to teach them how to be salespeople, not realtors. Then send the old realtors there too!
5. Develop new innovations, or at least promote the best ones available.
They will tell you that it is up to their agents to utilize the best internet gadgets for their own individual business. But anybody could develop a hot-shot public-MLS and take over the industry – and the field is wide-open. Redfin doesn’t have the killer instinct to dominate, so they will just slowly nibble away at the edges. Or if you don’t have the ambition or thirst for a public-MLS project, at least help coordinate and promote the other more minor innovations. There are new real estate apps and ideas being developed every day by people outside of the industry – and one day they will find the right mix, and then the old guard will be toast.
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I said in the beginning that there is no outside threat, which keeps the old-style franchise fat and happy. But there will come a day when real estate as we know it will become obsolete – which will be a shame because the old-fashioned personal touch is by far the best method for agents to assist people with buying and selling houses.
The internet has caused consumers to be as educated, or more educated than the agents. The franchises could re-vamp their packages and give agents a better set of tools in order to excel, but it seems they are destined to repeat the same tired old ways, and gobble up more agents instead.
These big companies could throw their weight around, and cause real disruption if they wanted to – but they don’t. Why? The current system is working great for them, so they don’t see any reason to change. But change is coming, and either you adapt and hopefully lead, or get run over.
Links of interest:
http://www.prudentialcalblog.com/blog/
http://www.inman.com/news/2012/10/30/prudential-real-living-brands-be-berkshire-hathaway-homeservices
http://www.vendoralley.com/2012/10/30/warren-buffet-bets-big-on-real-estate/
http://www.inman.com/buyers-sellers/columnists/roberthahn/buyer-agency-in-information-age
by Jim the Realtor | Nov 2, 2012 | Commission War, Market Buzz, Realtors Talking Shop
Berkshire Hathaway has partnered with Brookfield to create Berkshire Hathaway HomeServices, a “new premium franchise brand”, according to their blog’s announcement.
They and others are claiming that it will be a real game-changer, with Prudential California Realty’s COO Leeann Iacino saying, “Berkshire Hathaway HomeServices passion for our industry will redefine the future of real estate and the American Dream”.
My thoughts:
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Prudential Real Estate had agreed to quit using the Prudential name in a previous agreement, so they had to come up with something. Berkshire had invested in PCR years ago, so they were already committed, and apparently the name ‘Berkshire Hathaway HomeServices’ was the best they could do.
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The management team for Berkshire Hathaway HomeServices is the same group of guys from Prudential – all long-timers who are used to the status quo. You can’t say that Prudential Real Estate has brought any new ground-breakers to the industry since their inception, and check their website
here – it looks like every other real estate website. In the ‘about’ section they are still touting “the Rock”, with no mention of Berkshire. They, like other big franchises, enjoy the current system, and won’t rock the boat.
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The partner Brookfield is in it for the relocation business, and while that sounds promising, all it means for agents is paying out a 30% referral fee to a faceless corporate behemoth in exchange for leads – and great agents don’t need the business bad enough to pay that much vig.
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Warren Buffett is 82, and Charlie Munger is 88 – what happens when they are gone? BH will still be a successful enterprise, but with significantly less star power. Bershire Hathaway hasn’t brought a single innovation to the real estate business, so name recognition is their sole contribution…at least so far.
This isn’t a game-changer – it is a commitment to keeping the game the same.
In the end, the big loser is the consumer, whose only want and need is transparency and a fair balance of cost-for-services. Instead, the franchise companies – all of them – will be peddling their name-brand recognition and hype to sucker in more consumers (and agents too) into believing that their company image helps to sell homes.
But selling real estate is an individual sport, and the quality of your agent is all that matters.
Haven’t you seen great agents that don’t work for a franchise, and lousy agents who do? There is no guarantee or promise that you will get a great agent just because you called a big-name company.
The big franchises don’t make much money, if any, from their great agents – but they make a killing on the agents who only sell a handful of homes (or less) per year. Why do you think they employ 53,000 agents?
Why do you think Buffett got into this racket? It’s not to change it, it is to exploit it further.
http://lansner.ocregister.com/2012/10/30/irvine-to-be-buffetts-new-real-estate-hq/167446/?utm_source=rss&utm_medium=rss&utm_campaign=irvine-to-be-buffetts-new-real-estate-hq
by Jim the Realtor | Oct 12, 2012 | Commission War, Market Conditions
When the commission war starts, how will these guys survive? They are heavily in debt, and now that they are slaves to the shareholders they won’t be able to adjust. Why do you think they IPO’d?
Hat tip to daytrip for sending this in:
Realogy (NYSE: RLGY ) dared to challenge the choppy IPO waters by going public today.
It’s winning.
Realogy may not ring a bell, but you may be familiar with many of its real estate services. This is the company behind Coldwell Banker, ERA, Century 21, Sotheby’s International Realty, and several other providers of real estate franchising, brokerage, relocation, and title services.
It’s been a well-received debut. Realogy was expecting to sell a whopping 40 million shares between $23 and $27 apiece. Underwriters were able to price the deal at the high end of that range last night, and that’s good news for Apollo Global Management, which took the company private in a leveraged buyout five years ago.
However, even $27 for Realogy wasn’t enough. The stock opened 22% higher at $32.85 this morning, moving even higher later in the day.
Realogy’s financials aren’t befitting of a hot IPO. Revenue clocked in flat last year at $4.1 billion and adjusted EBITDA declined by 11%.
For a company that generated 72% of its revenue last year from gross commission income, one would think that home prices inching higher this year and an inviting mortgage market given dirt cheap borrowing rates would be major growth catalysts.
Well, that is starting to play out this year, but perhaps not as vividly as housing bulls would expect. Revenue climbed 9% through the first six months of 2012, and adjusted EBITDA climbed 14%. However, Realogy is still posting losses, weighed down by the heavy interest expenses incurred given its highly leveraged ways. Today’s IPO will help Realogy pay down some of that burdensome debt, but this is still an offering that can quickly sour if interest rates start heading higher and the real estate resale market cools down.
Naturally, the market doesn’t see it that way. It has seen shares of leading homebuilders soar. It also only helps that dot-com real estate debutantes have also been scorching hot. Last month’s IPO of Trulia and last year’s public debut of Zillow have been winning deals at a time when many prolific Internet companies in areas outside of real estate have suffered. As a bonus, one of this year’s hottest stocks has been Ellie Mae. The mortgage industry software provider has seen its stock pop nearly fivefold this year on a boost in mortgage originations.
Realogy will bear watching, especially if the resale market stays hot. However, the market’s euphoric reaction to a company that has so much to prove — and so much red ink to shake — seems to suggest that the exuberance for fresh real estate plays may be problematically misplaced.
http://msn.fool.com/investing/general/2012/10/11/1-sign-that-real-estate-is-getting-frothy.aspx?logvisit=y&source=eedmsnlnk0010001&published=2012-10-11
