Real Estate Brokerage Is Changing to a Virtual Brokerage Model
Real estate offices are closing all over the country. Real estate agents are hanging up their licenses in every state. The traditional bricks-and-mortar real estate brokerage is hemorrhaging, and all that keeps this archaic business model alive is consolidations. As offices close, some agents quit, but the survivors move their licenses to another sinking ship, a ship that looks just like the last one and often with the exact same name on the bow.
A large franchise office closes it’s doors, no longer able to keep the lights on after more than a year of operating in the red. The agents are worried sick, not knowing what they will do, until their savior walks in the door.
A broker from a large bricks-and-mortar across town with the same franchise offers to take all the agents in with the exact same contract terms: each agent pays $600 per month and keeps 100% of their commissions. The agents sigh in relief and quickly sign the new contracts like sheep to the slaughter mortgages.
Since the broker can’t generate enough leads for the agents, and since the agents aren’t selling enough to make the broker enough money on commission splits, any kind of split wouldn’t make sense for the broker today. A sharp broker will charge each agent a monthly fee. He laughs all the way to the bank, because with 60 agents paying $600 per month, he’s making $36,000 a month just for living.
Three years ago I sat across the desk from a franchise broker who looked at me and said, “Well, we’re feeding the business every month. You have to do that when times are tough. But we’ve been through tough times before, and we always come out okay.” I remember thinking to myself that was a silly thing to say coming from a man who told me he had no business plan, no budget for marketing, and no written vision for the future of his business. Unfortunately, that same broker just issued a press release that he is permanently closing the doors of his bricks-and-mortar and will be hanging his license with another bricks-and-mortar. Another consolidation.
This broker is merely jumping from one sinking ship to one that hasn’t sunk yet. The new ship has plenty of leaks, and it may take a while for folks on the Titanic to wake up. Bricks-and-mortar real estate brokerages that stubbornly refuse to bridge the gap to an entirely new business model will die a slow and painful death. It’s one thing for brokers to ride their own ship down, but it is quite another thing altogether for those brokers to sell tickets to real estate agents with promises they can’t keep.
The most unfortunate thing about all of this is that the agents who think they are doing what it takes to survive are only re-arranging the deck chairs on the Titanic. Many of them truly do not know or comprehend how precarious their fate is. Many of them do have an uncomfortable feeling, and they know something is wrong with their business model. Just like so many of the passengers on the Titanic near the end who smiled and kept saying, “Don’t worry, everything always works out alright,” traditional agents continue to greet people with a smile and wait for the phone to ring. But the ship is tilting, and they are at risk. They just don’t know what to do.
This is the great dilemma of being stuck. It is the classic inability to think outside of oneself. Traditional brokers and agents who have operated within a traditional brokerage model for many years struggle to think in entirely new ways. What makes this especially difficult for so many is their discomfort with technology and the Internet. Some simply refuse to learn the technologies. I know of a top producer who refuses to adapt, and he sincerely believes he can delegate many of the responsibilities to his assistant. Few assistants are going to spend night and day learning and adapting for a boss, and if they do and leave someday, where does that leave the agent? Even successfully delegating leaves serious challenges in bridging the gap, which I will share later.
There’s been a huge change, but not all agents and brokers recognize what is happening. Most do not comprehend that they are in the middle of a major earthquake. Therefore, they continue to do what they always have done. Underlying all these changes is something very big that traditional brokers are missing. Just as it is powerful forces that move tectonic plates deep below the earth’s surface, we are experiencing powerful forces causing an earthquake in the real estate world. As with so much in life, what we see on the surface is merely a symptom of a deeper and much more significant movement that is actually the driving force. It is this driving force that many brokers and agents have not recognized.
Here is the first tectonic force that is at the root of all these changes effecting the real estate industry: a change in consumer behavior. Granted, it’s a huge change in consumer behavior. It’s so big with so many implications, most people don’t comprehend it.
The full description of these changes in consumer behavior would be quite long, but here is a brief summary in the context of the real estate business. Consumers are no longer willing to be sold with obnoxious advertising and told what to buy and when to buy it. Consumers are sick and tired of interruption advertising, of billboards, of high pressure salesmen, of telemarketing, and of misrepresentations and boldfaced lies. Consumers have had it with professional conflicts of interest. They’re fed up with only getting partial information upon which to base their most important decisions. Consumers want and demand freedom to control their own destiny. They don’t like being controlled. They don’t like being manipulated.