It is Time to Learn How to Play the “Federales” Game

It is an age-old game played out whenever nice American citizens elect to engage their recreational, lifestyle and business fantasies in a third world space. The nice people from their “state department” and their well meaning lawyers have assured them that, yes, there are problems, but they are not being experienced by the nice Americans. The “state department” folks assure them that there is even a special United Nations treaty to protect them. They arrive in the third world fully confident that whatever is going on up on the mountain has nothing to do with them. After all they aren’t drug dealers, pirates or scoundrels, they are just nice Americans.

All is well until that fine evening when they encounter the roadblock on their way to see the magnificent sunsetScreen Shot 2014-10-14 at 4.05.15 PM that always exists just over the mountain from the last village. At first they are relieved to see these smiling folks with their M-16 rifles and khaki uniforms that sort of look like Dockers. They even feel a sense of stability and safety.

This feeling however quickly evaporates when the smiles turn to growling voices ordering them out of the vehicles and the rifles are pointed in their direction. Ever positive, the nice Americans act as if a mistake has been made. They point out that, after all, they are just nice Americans. They even explain to the now menacing Federal Police persons that they have no authority over them and that there is even a treaty that protects them. The growling faces now turn to joyous grins and enforcement process begins.

All that can be said about what happens next in these circumstances is that it is never good. It is really just a matter of how bad it could be.

A strong parallel can be drawn between the events outlined above and what is currently happening in the American residential real estate industry. A third world space is how one might describe the current residential real estate marketplace. There are nice Americans wandering about looking for the perfect sunset for their career, confident that the market they have known for the past twenty-five years is alive and well and just waiting to fund their retirements. The reality is that today’s residential real estate marketplace is filled with forces that are digitally disrupting virtually every aspect of the traditional marketplace.

Nowhere is this disruption more impactive than in industry regulation. The “Federales” here are easy to spot. They are called the Consumer Financial Protection Bureau (read CFPB). They are young (read inexperienced), they are dedicated (read don’t need no stinking knowledge about the industry), they are committed to protecting the American consumer (read peasant) and they get to keep a part of the fines (read loot). Most of all they are driven by a sincere and almost spiritual belief that American consumers are being harmed.

Screen Shot 2014-10-14 at 4.09.25 PMThe only thing the nice American real estate licensees will not find is the M-16. Such weapons pale in comparison with the power and force made available to the CFPB warriors as a result of their enabling legislation; the now famous Dodd Frank Wall Street Reform Act. It is a piece of legislation unequaled in American jurisprudence. It affords the CFPB the power to enact rules with little or no review, execute enforcement with no appellate process and effect fines seemingly established only by the level of the Bureau’s annoyance.

Since 2011 the new “Federales” have marched a triumphant course through the traditional institutions responsible for student loans, payday loans, credit cards, automobile loans and most recently the mortgage industry. Today the Bureau is focused on reforming the real estate transaction. Their passion is fueled by thousands of consumer complaints. They are focused on the real estate licensee.

Depending upon one’s political and cultural beliefs, the Bureau’s actions to date have either been outrageous and un-American or righteous and redeeming. Interestingly enough what the general public thinks about the Bureau doesn’t matter. They are not asking for permission because they are legal. They are not trying to make friends because they are legal.

The industry is divided on how it is going to respond to the Consumer Financial Protection Bureau’s (CFPB) assault on the real estate transaction. To date the following Bureau strategies and tactics have emerged.

  • The anemic enforcement policies of the Department of Housing and Urban Development relative to the Real Estate Settlement Practices Act enacted by Congress in 1974 have been terminated “for cause.”
  • The Dodd-Frank Wall Street Reform bill of 2011 replaced HUD’s efforts with the motivated and muscular enforcement powers of the CFPB.
  • The venerable HUD 1 form, having served as the administrative centerpiece of the real estate closing since 1975, will be replaced by a new process.
  • The new closing process incorporates new standards and practices for loan estimates, closing disclosures, settlement agents, signing professionals, independent escrows (CA), Uniform Closing Dataset, HMDA data set, Universal Loan identifier, Universal Property Identifier, Universal Agency, integrated disclosures, mortgage disclosures, purchase disclosures, and appraisal rules.
  • Accompanying these changes will be a new empowered and motivated enforcement program funded in part by the penalties and fines it collects.
  • The CFPB has sent out RFPs for a new electronic closing system that will combine all of these changes into a sophisticated Internet based closing system that electronically identifies process violations.

In response to these significant changes the mortgage, title, escrow and closing segments of the industry are working overtime to be prepared for the August 15, 2015 onset of most of these changes. They are already in training for a new closing process. More importantly, they are moving to protect their businesses and professions by establishing, developing and implementing standards and best practices. This is what responsible people do under these circumstances.

Screen Shot 2014-10-14 at 4.12.08 PMWhat about the real estate services sector? Well, not so much. For the most part they are ignoring and/or denying this oncoming tsunami of regulatory fury. Their favorite response is based upon the “state department’s” interpretation of Dodd Frank that says the CFPB has absolutely no jurisdiction or power over the nice American real estate licensee. The second rational is that, after all, they are not drug dealers, pirates or scoundrels.

Over the near term future the American consumer and the free enterprise system, backed by the Bureau will make a determination of status relative to the licensee. In the meantime real estate professionals might want to avoid invitations to see beautiful sunsets. This is a basic tenant of “Federales” law.

Convergence: Driving Positive Energy and Outcomes From Knowledgeable Leadership

Screen Shot 2014-10-09 at 2.06.05 PMConvergence is the term applied to what happens when two significantly powerful real estate industry forces come together in a defined space and create a new energy or reality. A coupling or convergence process might be coincidental such as the current convergence between the forces of consumer centricity and the fast growing emphasis on brokerage profitability. In the alternative, convergence can be purposeful such as the recent announcement of News Corp’s purchase of Move, Inc. Either way, moving forward, convergence will be one of the most powerful dynamics impacting our industry.

The origins of any specific convergence really won’t matter to the average reader as much as its ramifications and impact. Predicting a probable convergence event represents a specific skill set. Monitoring the industry universe for possible convergence events should be on every leader and decision maker’s “top 5” list. It is essential that visioning and anticipating how potential convergence events might affect the industry, the marketplace and the transaction occupy an ever-greater share of every industry leader’s time and energy.

Such were the circumstances in Southeast Texas last week. During the course of the week two dominant regional events, the Large Brokerage Summit and the Strategic Leadership Conference presented substantial evidence that a convergence event was about to occur. In this case it was the convergence between the activities of the Consumer Financial Protection Bureau (CFB) and the increasing need for brokers to gain control of their businesses in the face of increased regulation, consumer power and ROI issues.

Marvin Stone, Senior Vice President of Stewart Information Systems and the head of its current CFPB project was the perfect subject matter expert (SME) relative to the activities of the CFPB. Stone’s credentials are flawless. He is a career real estate industry executive and is fully engaged in the CFPB’s current activities, especially those focused on providing the American real estate consumer with an acceptable new real estate transaction experience. He is a natural teacher and was able to explain a very complicated and sophisticated emerging regulatory process in a relevant and easy to understand manner.

Another star of this series was Cindy Arioso, a senior vice president with the Long and Foster companies. With over 170 offices and over 2800 agents, the independently held Long and Foster Companies can lay claim to a number of statistical distinctions in our industry. More importantly, Long and Foster isn’t just big, they are also distinguished by the quality and leading edge attitude of their management program. Ms. Ariosa’s experience, knowledge and command ability was more than obvious during her several presentations. She has been there through growth, success, audits and lawsuits and knows how to handle each with dignity and class.

Stephan Swanepoel’s presentation, as always, provided the event participants with the industry big picture. Swanepoel, an industry icon, has over the past few years, utilized his ubiquitous trends report (found on virtually every desk of significance in the industry) coupled with his Swanepoel 200 Power Listing and his T-3 Leadership Summit event to become the official industry chronographer. Swanepoel weighed into the events with an insightful and stimulating presentation on trends that are either currently, or soon to be, impacting the industry. As always Stephan’s presentation provided the participants with a much-needed personal GPS.

Curt Beardsley, Zillow’s Vice President for Industry Relations, provided what only Curt can provide. After two days of listening to presentations that discussed lofty, overwhelming and almost always highly sophisticated current industry developments and events the participants were beginning to suffer from a form of intellectual valve float. One of Curt’s unique talents is the ability to create a human interface between the participants and the materials. On this occasion he used references drawn from the history of Greenland and the South Pacific to establish that, however challenging, the events of our world are in the natural flow of such things. They are the circumstances and opportunities that create great leaders and masterful decisions.

Finally, these comments would not be credible without calling attention to Bob Hale’s role. Of course he was the senior architect and a major contributor to these events. But Bob has long been more than the President and CEO of the Houston Association of REALTORS®. His unique contribution to everything he does is common sense and raw unmitigated passion and he has become a major vendor of these commodities throughout the North American real estate industry.

While few of us believe in such dynamics, one cannot help but wonder what influence is exherted by the fact that Bob’s offices are but 900 feet away from those occupied by a certain Joel Osteen. Perhaps nothing. Bob doesn’t advocate for political or market causes. He is the industry’s senior advocate for rational leadership engagement in both organized real estate and the corporate sector. Bob’s legal background can be seen in the fact that he speaks to sensible and reasonable behaviors based, not on individual agendas, but rather upon the overwhelming evidence. Over the past several years he has been the industry’s chief spokesperson for leadership focus, follow-up and commitment. This is what Bob brings to our industry and the difference he made to these events.

Some folks got together last week in southeast Texas. They used some experts to share what they didn’t know and to help them make sense of what they already knew. They carefully listened and interacted with a number of learned presentations. They learned about what was likely to happen to their members over the next twenty-four months. They learned about what trends, forces and directions are currently impacting the real estate industry. They debated the subjects at hand, asked some very intelligent questions and talked among themselves. They focused on how their organization could assist its members and consumers at this critical state of their life styles, careers and businesses. Most importantly, they rediscovered the fact that their organization is more important than ever and that their leadership can make a huge difference while significantly contributing to the success of all involved.


There are many in our industry today who are confused, intimidated and anxious about its current events and direction. Rumors, distractions and negative stories are all too often the rule of the day. The ultimate solution to this situation, and the salvation for all involved, is focused and knowledgeable leadership.

Screen Shot 2014-10-09 at 2.11.08 PMLeadership and knowledge is the ultimate convergence. Your organization can do this, you must do this.

2014 REALTOR AE Compensation Survey Invitation

All REALTOR® AEs are welcome and encouraged to take our 2014 REALTOR® AE Compensation Survey. The survey is currently available, and will continue to be open until Monday October 13th.

To take the survey, go to: https://www.surveygizmo.com/s3/1736068/REALTOR-Association-Executive-Compensation-Survey-2014-RECON

 

The survey is optimized for computers, tablets and smart phones.

Digital Disruption Will Soon Be Touching A Brokerage Very Near To You

Screen Shot 2014-09-25 at 3.44.31 PMEarlier this month the Inman News organization published an article about real estate industry mergers and acquisitions that was both informative and even a bit entertaining. The piece, entitled Real Estate M&A: You ain’t seen nothing yet, started out by discussing several recent mergers and/or acquisitions such as Zillow purchase of Trulia, Realogy’s purchase of ZipRealty, Trulia’s purchase of Market Leader and Move Inc’s purchase of ListHub. The piece also pointed out how most of these acquisitions were accompanied by purchases of lessor entities by the same buyers.

Following its factual review of recent mergers and acquisitions the piece went on the consider a number of fictional acquisitions that seemed to raise the theme covered by Zillow’s latest video ad; “What If?”

But what the Inman piece really left to the reader’s imagination is the functional convergence that occurred with each of the real mergers or acquisitions. From the perspective of those who spend their day-to-day lives in the internal affairs of the real estate industry the real issue behind this story is how each of these purchases will impact the current consumer real estate experience.

The most cogent issue from the Inman story, as it is for so much of what is happening in the industry today is digital disruption. In today’s rapidly transitioning North American real estate industry mergers and acquisitions are to digital disruption what troop movements are to invasions. Like the lightening bolt before the thunder each of the recent mergers and acquisitions constitutes due notice of yet another significant disruption that will occur six to eight months down the road. The growing number of acquisitions over the past few months is another wake up call relative to what the marketplace, the transaction and the industry itself will look like next spring.

Screen Shot 2014-09-25 at 3.41.18 PMDespite the formidable amount of the industry’s literature that has been given over to the subject during the past year, digital disruption remains a relatively obscure concept for most industry executives, managers and workers. While such a lack of knowledge might not normally have major consequences, in this case unawareness will be cataclysmic. Most acquisitions represent the tip of the digital disruption sword. Prior to making the purchase, the acquiring entity has spent many months envisioning, designing and preparing to implement its disruptive strategy. Taken together one must say that everyone in the North American real estate industry is on notice that the real estate business, as most have known it, is nearing the end of its long and honorable run.

Based upon an analysis of what is known today, it would appear that the lead columns of the digital disruption invasion will likely occur along the front that exists between the real estate service provider and the consumer. As Zillow has already established, this is probably the weakest point in the traditional real estate service provider’s defenses.

The customer relationship and experience has also been the operational area almost totally ignored during the past several years while the industry has focused its attentions on matters such as syndication, off-MLS marketing practices, technologies, MLS practices, referrals, leads and the ownership of data. As a result of these decisions, consumers have increasingly had to find their own way through the real estate jungle. The necessity to accomplish this feat is also what has given birth to an increasingly predominant belief among consumers that the current real estate service provider value proposition may not be supporting its commission.

Screen Shot 2014-09-25 at 3.42.59 PM

This is not to suggest that it is too late for the industry or its players to recover control and get on the right track, for it is not. It is however to suggest that given the current dearth of attention being paid to the consumer experience, it is somewhat unlikely that the focus of the industry will change in time to effect the required recovery.

The solution to this quandary is relatively simple. The following steps would go a long way to meeting the challenge:

  • The industry must double its efforts to understand how today’s consumer has changed over the past few years. It has spent considerable time and effort understanding how the events of 2005 through 2010 impacted the industry itself but insufficient effort has been made to understand how this same period impacted consumers, especially those in the younger generations.
  • A second step is to gain an understanding relative to the difference between the traditional real estate consumer and today’s digitally empowered consumer. It isn’t just a matter of technical skills; rather it is an entirely new attitude and mindset brought about by the power of information.
  • The next step might be to better understand just how different the digital consumer experience is from the traditional one. Digital disruption is not about fusion. It is not like a local eatery suddenly mixing Asian food with southern cooking and giving it a catchy name. Digital disruption is more often about convergence. Two trends or forces collide to create something that is essentially new. In most cases any similarities between the new and the old exist only in the traditionalist’s mind. Digital disruption creates new dynamics, new operating methodologies and new emotional and psychological reactions.
  • Continuing on, it is critical for the industry and its players to understand how companies that are leading the digital charge are dealing with transformation and change. These two factors represent a whole new arena of knowledge and competency. Digital strategists and digitally native executives are carving out new areas of power, influence and sustainability. These are not new tricks for old dogs but rather new tricks for new dogs. Traditional entities must respond by recruiting these new dogs and giving them the space and power to do their magic without a constant referral back to the “way we have always done it.”
  • Finally the traditional entity must recognize that much of its solution lies within its own organization. Hundreds of real estate brokerages have within their existing ranks individuals who either have the answers or are developing the answers right under the broker’s nose. The traditional caste system is no longer effective, certainly not in the midst of digital disruption. It is remarkable how few brokers and brokerage executives are looking internally for solutions.

For the longest time the real estate industry saw itself as a “people” business. The interesting thing is that when its digital disruption has been completed the industry will be more of a people business than ever before. The North American real estate industry has a long history of being really good at working with people. These skills, applied to the industry’s post digital disruption configuration, will put it in good stead to succeed beyond it wildest dreams moving forward. Please don’t miss the opportunity; it won’t be the same without you.

Are You Harvesting Your Own Digital Disrupters?

Screen Shot 2014-09-25 at 3.58.03 PMTwo events in the last month gave rise to the focus of this month’s article. The first involves a millennial generation fellow I have known for a considerable period of time, who is currently practicing law with a firm that represents large clients in the financial services industry. The second involves an X generation female executive who, by any definition, qualifies to be called a digitally native CEO and has recently assumed a new position with a major brokerage firm.

What both of these individuals and situations have in common is that (1) they are both engaged in industries that are being heavily impacted by digital disruption (law and real estate), (2) they are both, by culture and training, driven to make things better wherever they are and whatever they are doing and (3) they are both making significant career course changes based upon the failure of their civic or boomer generation employers to acknowledge their desire to be collaborative within their respective organizations.

Despite the formidable amount of business (including real estate) literature that has been given over to the subject during the last two years, digital disruption remains a relatively obscure concept for most industry executives, managers and workers. While such a lack of knowledge might not normally have major consequences, in this day and age unawareness will be cataclysmic.

Neither of the above mentioned corporations could rationally claim that they have not received notice of the existence, nature or impact of digital disruption in their specific industries. Having assisted both of the individuals mentioned above to learn about digital disruption there could be no question regarding either their knowledge or their commitment to assisting their employing entities to meet the challenges of digital disruption.

So, what happened? Both of these folks approached the principals of their respective firms and indicated their concerns and observations that the firm was not keeping pace with current developments in their industry. Both called attention to the fact that the attorney’s and agents over which they had supervisory responsibility were not confident of the firm’s ability to meet ongoing challenges. Both were told that such matters were not within their area of responsibility. Both have now moved to firms that are tackling the challenges of digital disruption head on and both of their former firms have lost individuals who would have been key to their future success.

How does this happen? One would suspect that arrogance and fear played a role. But beyond suchScreen Shot 2014-09-25 at 4.00.04 PM simplistic observations how is it that so many brokerages across the country are meeting the digital disruption challenge by sticking their heads in the sand and engaging in denial?

Digital disruption isn’t a black swan that sneaks up on an industry over night. Rather it is a magnetic force whose origins can almost always be traced back a number of years. It attaches itself to unnecessary friction between consumers and businesses caused by redundancy, broken trust, limited access, waste and unnecessary complexity.

The solution to digital disruption isn’t panic or denial. The fact is that your digitally empowered competitors are depending upon such responses in their efforts to overtake your market position. The solution to digital disruption is digital transformation. Digital transformation is the process through which the brokerage first undertakes to understand how digital disruption impacts the brokerages consumer experience and next moves to cover the disruption with a countervailing force.

Digital transformation is a result of brokerages working to adapt to the assault of disruptive technologies that affect agent and consumer behavior. As disruptive technologies become a permanent fixture in the real estate transaction, brokerages must update their legacy technology strategies and service packages to mirror how the marketplace is evolving. The need to do so is no longer optional. The following brokerage best practices represent the foundation of this process.

  • The brokerage must instigate efforts to understand how today’s consumer has changed over the past few years. The brokerage must understand and appreciate not only how the events of 2005 through 2010 impacted the industry itself but, of equal importance, how this same period impacted consumers, especially those in the younger generations.
  • A second step is for the brokerage to gain a proficient understanding relative to the difference between the traditional real estate consumer and today’s digital empowered consumer. It isn’t just a matter of technical skills; rather it is an entirely new attitude and mindset brought on the power of information.
  • The next step might be to better understand just how different the digital consumer experience is from the traditional one. Digital disruption is not about fusion. It is not like a local eatery suddenly mixing Asian food with southern cooking and giving it a catchy name. Digital disruption is more often about convergence. Two trends or forces collide to create something that is essentially new. In most cases any similarities between the new and the old exist only in the traditionalist’s mind. Digital disruption creates new dynamics, new operating methodologies and new emotional and psychological reactions.
  • Continuing on it is critical for the brokerage, its staff and agents to work in a collaborative fashion to map out a plan for digital transformation. The transformation of the brokerage will require whole new areas of knowledge and competency. Digital strategists and digitally native brokerage executives are carving out new areas of power, influence and sustainable profitability. These are not new tricks for old dogs but rather new tricks for new dogs. Traditional entities must respond by recruiting these new dogs and giving them the space and power to do their magic without a constant referral back to the “way we have always done it.”
  • Finally the traditional brokerage must recognize that much of its solution lies within its own organization. Many real estate brokerages have within their existing ranks individuals who either have the answers or are developing the answers right under the broker’s nose. The traditional caste and maître d system is no longer effective, certainly not in the face of digital disruption. It is remarkable how few brokers and brokerage executives are looking internally for solutions.

Screen Shot 2014-09-25 at 4.03.35 PMThis last issue returns the story to its point of beginning. What happened to the attorney and executive whose adventures inspired this article? The attorney is with a new firm that, as a condition of his employment, has created a strategic management committee that includes young lawyers. The highly productive, spectacularly talented, former agent has been named CEO of a new 450-agent office that is working hard to create the perfect consumer experience. We can do this, we have to do this!

Preparing For Your Managed Real Estate Team

Screen Shot 2014-09-25 at 4.17.15 PMIt was a coincidence actually. I had an opportunity to attend a very popular lunch program dedicated to the purpose and practice of the agent team. It was a class event with an upscale lunch and a cast of high performance agents all associated with the team movement. Two moments from this event contributed to this article.

The first occurred when one of the women being featured on the program panel arranged to be introduced as the “CEO of the XYZ team.” It was just one of those moments in life when reality loses focus and confusion sets in. She was looking in every way like one would expect the CEO of a real company to appear. It’s not that I hadn’t done my homework for the event by researching a number of sources on the current status of the agent team, for I had. I just wasn’t prepared for either the concept of pretending that this is a real “entrepreneurial” activity or for the program that followed. 60 minutes of finite detail and collective wisdom on how to “negotiate” various benefits, concessions, and allowances from brokers whose “brokerage” was being blessed by the presence of a team within their business sphere.

Screen Shot 2014-09-25 at 4.18.29 PMThe second moment of substance occurred at the curb as we waited for an overworked parking valet to retrieve our vehicles. Standing next to me was a local broker of considerable progressive substance. Like two alumni meeting on a strange campus I asked what he thought about the program and if it felt familiar. In response he rolled his eyes and in a firm and focused voice said “this has gone too far.”

This article is about agent teams but not about the agent team movement that is now sweeping the industry. It is about a whole new kind of agent team that will soon mark its arrival, and the industry’s return to a more common sense approach to profitability. An agent team that will be playing for the brokerage.

The past month has provided readers with more than adequate notice that what is currently a very powerful trend is about to move into the classification of an industry reality.

Of course the first event was the Zillow-Trulia transaction. The traditional industry sharply greeted this new reality with amazement on the first day and then dutifully agreed that it had no relevance to their lives on the second.

The second event, NRT’s announcement regarding its “Operation Flanker” was of equal importance.

The third event was NAR’s organizational realignment and the release and distribution of its ‘manifesto.”

The fourth event was Berkshire’s Hathaway’s continued low profile relative to how its massive holdings and powerful culture would really impact the American real estate marketplace.

These events individually and collectively provide an opportunity for the reader to inquire what gives them a common feel and collective influence on the industry. Consider the following:

  • The industry’s consciousness regarding profitability and return on investment is aggressively refocusing itself. The centerpiece of this focus will be “the bottom line.” With a record level of public ownership of brokerages and support entities currently in effect, profitability has quietly moved to the head of the priority line. With record numbers of traditional brokers reaching or passing retirement age the opportunity to sell a “profitable” brokerage is increasingly becoming the issue.
  • While some “amateur” visionaries are promoting new and inventive ways to generate profits, the fact is that lower commission splits and universal core services remain ‘odds on favorites’ in the “feasible” classification.
  • Few brokerages of substance have hit upon a formula or management format that can deliver any appreciable level of agent sensitivity or responsiveness regarding what is best for the overall brokerage moving forward.
  • Agent teams and “off MLS marketing” are but two examples of the fact that agents in general, and certainly high performance agents are not focused on either long term industry financial health or the need to work together.
  • A strong argument can be made to support the proposition that in light of these factors the more knowledgeable industry players will be expending their energies and effort in a manner that will drive business practices that generate and sustain profitability rather than consumer centricity or agent “happiness.”

Zillow has spent the past several years following this path and currently has over 60,000 agents (paying at least $360 per month), designated as premier agents. There are now shadow Zillow teams within most brokerages.

NRT’s recently announced Operation “Flanker” will be focused in the same direction. One wouldScreen Shot 2014-09-25 at 4.21.30 PM anticipate that within the next eighteen months significant numbers of “select” REALOGY agents would be working in this new format.

NAR’s recent organizational reorientation and the August manifesto, carefully read, demonstrates a realization that these and other recent events strongly suggest that the industry is nearing a new phase that will see a substantial shift in the nature of its basic relationships including those of organized real estate.

Finally, while there is nothing new about Keller Williams and its continuing triumph, the fact is that no small part of its success can be traced to the levels of organizational loyalty and systems compliance demonstrated by its agents, management and support personal. For KW agents the profitability of their market centers is a critical part of their responsibility to the organization they have elected to support in the marketplace.

There is nothing new here, but the events of the past month have probably moved a optional attitude and/or behavior to a new industry expectation. As this new force and attitude takes effect look for the following:

  • Industry incentives will be about profitability not data.
  • Moving forward broker profitability and ROI will become the primary factors in making operational and marketing decisions.
  • A key element of this new environment will be a whole new kind of agent team. It will not have its own CEO. It will have a high level of loyalty and compliance
  • The leading industry entities will begin to design, develop and implement standards sold as consumer centricity, but managed and implemented as profitability waymarks.
  • This overall process will be known as “managed real estate.”
  • Agent accountability, aka “responsibility” will become a key factor throughout this scenario. A responsible agent is not by definition an “employed” agent.
  • Transparency will be used to demonstrate the results to both Wall Street and the consumer.
  • This process will require universal transaction management, consumer reporting, a whole new manager profile and a supportive consumer experience.

Dispute the observations, argue about the details but move quickly to incorporate the principles of managed real estate. Learn how to design and implement a “managed real estate” brokerage.

Brokers Should Take Advantage of the Big Consumer Trends of 2014

Screen Shot 2014-08-12 at 5.07.31 PMLast month’s Brokerage Design article advocated that brokers manage the consumer relationship as theirs to cherish, promote and add value to. It went on to point out that all too many residential real estate service providers were unaware that they were being targeted by digital disruption and that not only were these providers (read agents) not taking the steps necessary to capture and harvest effective consumer relationships but, more importantly, that some relatively competent third parties such as portals are actively counseling consumers that there was no need to have an early on relationship with real estate service providers at all.

That piece pointed out that there are currently several digital disruptors engaging the real estate consumer. WithoutScreen Shot 2014-08-12 at 5.11.44 PM question the one creating the most impact and buzz is the third party listing portal. In every marketplace there are brokerages and agents who are expressing outrage and fear regarding what they claim are inappropriate and unethical practices being engaged in by these now not so new entities.

While only history will be able to judge whether the alleged wounds and expressions of pain being communicated by these folks are or were appropriate, some aspects of their behaviors can be evaluated even now. The industry must understand that neither the strategies or the tactics being utilized by the portals reflect their being mean spirited or unethical but rather that they are absolutely and near perfectly tuned to the demands and expectations of the contemporary real estate consumer. This understanding might also be extended to the fact that even years after learning about the importance of consumer relationships, many real estate professionals and their associations refused to change their approach and attitude regarding consumers.

This article assumes for a moment that one or more of our readers might have been convinced that consumer relationship migration was indeed being practiced within the industry and that perhaps they should begin the journey of creating consumer centricity and a consumer experience within their firm’s sphere of influence.

While the overall effort of facilitating these challenges can be complex many of their elements are, in fact, quite simple. Common sense can serve well to provide a cost effective soft start to such an initiative.

Screen Shot 2014-08-12 at 5.16.25 PMAn appropriate starting point for creating a consumer centric environment is to examine how your brokerage’s attitudes about consumers and their issues are actually communicated to the firm’s customers. The favored methodology for meeting this challenge is creating training programs that impact the attitudes of agents, managers and support staff relative to great consumer communications experiences and service.

The second step is to research, group study and create an actual consumer centricity policy with associated best practices within your firm.

The third step, and by far the easiest of these recommendations, is to assist your brokerage and its personnel and procedures to be sensitive to the needs and expectations of the current consumer. The theory here is while you may not be ready to promote what you absolutely want the consumer to think about the real estate experience your firm is offering, you certainly don’t want to sabotage the consumer relationship by simply not knowing what the real estate consumer is currently thinking themselves. If, by way of example only, you know that many consumers within your Screen Shot 2014-08-12 at 5.19.59 PMmarket and consumer profile are sensitive to issues of water scarcity and waste, you may want to be sure that your organization is demonstrating a similar sensitivity. An errant irrigation system that leaves puddles on the pavement that consumers have to walk through may say more about you than whatever greets them at the front door.

In other words you might want to be sure that, while in the presence of your firm and staff, consumers are not subjected to circumstances that demonstrate, without even trying, that your firm is completely insensitive to current consumer attitudes. Why lose the consumer relationship battle without even trying?

Some clients, when faced with this challenge, immediately throw up their arms and wonder how their firm could ever know such things about people they don’t know exist yet? The answer to that question has never been simpler. There is more consumer related information being captured, stored and analyzed in today’s business environment than ever before in history. Virtually every factor imaginable regarding the expectations and demands of today’s consumer is readily available. There are dozens of vendors who will provide this information in many formats.

Screen Shot 2014-08-12 at 5.22.36 PMOne of better of these sources is trendwatching.com. This highly rated website provides a great deal of very valuable information in formats and batches that are easily understood and relevant to the real estate industry. The following factors were taken from their current discussion.

In the current market (3rd Quarter 2014) what issues should brokerages be sensitive to relative to interacting with consumers and pursuing excellent consumer experiences? Consider the following:

  • More and more consumers, especially trailing X’ers and Generation Y folks are acquiring a sense of guilt regarding their consumption patterns. This is not to say that they are changing their consumption patterns but it is to observe that they are feeling guilty and will respond gratefully to any effort by vendors to moderate that guilt. This factor is referred to as “guilt free consumption.”
  • More than ever before consumers are conscious of how their fellow consumers are making decisions in the marketplace and want to mimic that behavior. This behavior is called “crowd shaping.”
  • Today’s consumer is increasingly aware of the fact that China is not only emerging as an economic leaders but is also demonstrating leadership tendencies in the area of environmental sensitivity and product quality. Comments inconsistent with these positions are noticed.
  • The X’ers focus on healthy bodies is being matched by the Y Generation’s interest in healthy and well functioning minds. Consumers are relating a great many architectural features to their impact on mental health.
  • It should come as no surprise that consumers are beginning to form negative attitudes about “too much data.” Delivering the right data in a minimized format is good business.
  • “Caring” in all of its iterations is become a primary consumer focus. Residential real estate offers a virtual goldmine with respect to all of the ways that caring can be demonstrated.

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Take the time to read and learn about the details regarding the above trends. Discuss these trends with your team and identify how they will apply to the consumer’s real estate experience. Ensure that the agent panel is informed regarding how they can use these trends to be more effective with consumers.

These simple activities are the foundation of what those third party portals are doing. We need to do this. We can do this.

Is Your Marketing Program Responding to Disruption?

One of the most prolific subjects in today’s business literature is that of digital disruption. It is effecting almost every profession, business and entrepreneurial pursuit in the North American economy. It is so prevalent that business journals across the entire political and economic spectrum are suggesting that business planning and marketing execution must assume its impact.

Given this situation the logical starting point for this piece is to ensure that every reader has a clear sense of what digital disruption is and how it functions. Sometimes information of this importance is best provided by outside multi-media sources and so it will be with this month’s contribution. In order to ensure that each Real Trends reader has a handle on the concept of digital disruption it is highly recommended that they take eight minutes (total) to view the following two videos on YouTube.com.

 

Digital Disruption

Smarter, Faster, Togther – A Total Disruption Trailer

With this task in hand it is next recommended that readers access the following 18 minute video -

Disruption In Banking

This video features banking expert Brett King and reflects both his amazing knowledge about digital disruption and the strong parallels between the consumer aspects of the real estate and banking industries. With the expertise provided by these three videos readers will be ready to proceed to the specific subject of this article which is what changes must be made in a real estate brokerage’s marketing program following disruption; what adjustments must be made in a brokerage marketing program following digital disruption.

For the real estate industry digital disruption can be found in the consumer and market response to the third party listing portal. Readers who have experienced the above videos will understand that this type of disruption is a natural part of any industry’s existence and history. It is not something that “someone” does to another person. It is not personal nor is it malicious rather it occurs in the ordinary course of industry events. During its history since WWII the current real estate industry has both experienced and caused disruption.

Accordingly problem one with disruption occurs when those within an industry being impacted by disruption treat it as a personal assault on their right to maintain the status quo of that industry. Instead of recognizing the inevitability of change this industry response features efforts build a wall around that status quo with companion efforts designed to accuse the disrupting entities as somehow being disloyal and/or tainted. In many sectors of the current North American real estate industry that is exactly what is happening today.

But such is not the subject of this discussion. This article assumes that disruption is currently impacting the real estate industry and attempts to provide information on how brokers should respond to this disruption through their marketing programs.

Some of the best expertise on this subject is currently being developed and distributed by Bain and Company an American global management-consulting firm headquartered in Boston, Massachusetts. Aditya Joshi and Eduardo Gimenez from the Bain organization are being featured in a number of business journals and corporate presentations. While this article may be the real estate industry’s first exposure to this team’s expertise it will certainly not be its last.

The essence of digital disruption is the speed with which it disrupts its target industry or marketplace. One of the most important characteristics of all disruptive forces is that they are primarily driven by clear and compelling consumer expectations and demands. Much of the impact caused by digital disruption is not caused by the fact that disruption changes many traditional operating and management traditions of targeted industry but rather because these changes occur so quickly. It is important to note that disruption doesn’t have to take the time and resources to change how consumers think because it is already a response to how they think. The portal movement currently impacting the real estate industry didn’t have to convince consumers that they represent an improvement in the experience. They simply had to point out to the consumer that they were the change the consumer was waiting for.

It is this speed then that causes the confusion. It is the natural response of many impacted entities to attempt to stop or blockade the change rather than either join it or, better yet, develop another even more powerful “consumer” responsive or unique change. These “holding” actions take up precious time and appear silly and non-productive in the minds of today’s empowered consumer.

Assuming for the moment that an entity being impacted by digital disruption wants to lead with it’s intellect rather than it’s emotions the first responders must immediately address both the operations and marketing side of the brokerage’s day to day operations. The operational side must first validate the disruptor’s findings visa vie consumer demands and then must set about designing, developing and implementing changes that respond to those consumer driven demands and expectations that that are giving impetus to the disruptor. At the same time the marketing side must move quickly to given notice to the marketplace and consumer that these changes are taking place. It the face of disruption there is simply no time for the delays and cumbersome coordination required to effect a traditional evolution based course correction.

For the marketing side of the brokerage such maneuvers will require immediate collaboration with the operations side even as the response implementation process is taking place. The luxury of launching a grand marketing plan and concept will be lost in this process in favor of a more metered and collaborative approach. Critical to the success of this concept will be a close and respectful interaction with those “operations people.”

This approach will require senior management to be much more active in their efforts to break down the traditional barriers that exist between the operations and marketing players. Senior management efforts must be focused on quick response planning, strategic and tactical alignment, and cultural adaptation.

The real estate industry has, over the past eighteen months, discovered another basic reality regarding digital disruption. Disruption is not a single act such as slicing bread or enclosing an automobile. Disrupters know that their tactical advantage is best exploited through launching a constant stream of innovations, each one designed to cause the targeted entity additional distress and discomfort. They recognize that while some traditional entities may recover from a single act of disruption, few can withstand the constant assault of multiple and/or phased disruption. The evidence of this phenomenon is clearly being reflected in the disproportionate energy that is currently being given to non-responsive and non-productive efforts rather than in responding to clear and compelling consumer demands and expectations.

The benefits of realigning the relationship between marketing and operations are both immediate and long lasting. Not only will the brokerage’s management, operations and marketing processes be realigned to deal with the immediate disruption but also, more importantly, the brokerage’s culture will be re-engineered to exist in a permanent state of change management, creativity and innovation. We can do this!

Are You Aligned With Your Consumer or Your Past?

Screen Shot 2014-07-24 at 4.04.59 PMToday’s North American real estate brokerage is sharing its market space with a concept and a force known as digital disruption. Native to almost every industry in the contemporary economy, digital disruption is more than specific faces and brands, it is the application of several very effective and very new business concepts that are proving to be overwhelmingly effective, especially against individuals and entities who attempt to cling to traditional approaches that no longer appeal to the contemporary consumer.

It is this recognition that digital disruption is a business doctrine practiced by brighter than average entrepreneurs, rather than a tyrannical assault engaged in by terrorists, that can go a long way in assisting real estate brokers to align their wonderful pasts with a successful future.

Virtually every industry is, in some way or another, being impacted by digital disruption. Volumes have been written about digital disruption, what it is and how it works. Even within this broad span of attention perhaps the most common observation made about this behavior is that it almost always arises out of a pre-existing condition, most predictably consumer demands and expectations.

There are several digital disruptors currently engaging the real estate industry. Without question the one creating the most buzz is the third party listing portal. In almost every marketplace there are both brokerages and practitioners who are expressing both outrage and fear regarding what they claim are inappropriate and unethical practices being engaged in by these now not so new entities.

While only history will be able to judge whether the alleged wounds and expressions of pain being communicated by these folks are or were appropriate some aspects of their behaviors can be evaluated even now. The first thing that has become obvious is that both the strategies and the tactics utilized by the real estate portals are not reflective of their being mean spirited or unethical but rather that they are absolutely tuned to the demands and expectations of the contemporary real estate consumer. A second observation would be that, even years after learning about the importance of relationships, many real estate professionals refused to change their approach.

The practitioners of the traditional real estate service practice are not victims of some new weapon of mass destruction. They may, however, be victims of a weapon of mass disruption. This new “WMD” is not chemical or fusion based but rather is built around one of the oldest chemical formulas know to mankind; “give your customer what they want.”

The vulnerability that has been exploited by the listing portal is not some technical, chemical, biological or communications advantage but rather consists of components gained by simply listening to the consumer and converting what one hears into simple steps that align the consumer real estate experience being offered with the demands and expectations being articulated.

All of which brings us to the simple conclusion that the traditional practitioner, by taking steps to be more sensitive and responsive to the increasingly powerful and influential consumer, could avoid much of the disruption currently being created by the portals. For the purposes of this article the more obvious complications created by agent centricity will be ignored.

What specific things should brokerages do to begin the process of understanding their customers? The first step is a classic example of that “one giant step for mankind” thing. The current situation would be greatly improved if brokers would acknowledge that the consumer is in whole or in fact “their customer.” The very idea that expressing interest, gaining knowledge of or creating a relationship with brokerage customers violates some secret code or sacred relationship with the agent is both unacceptable and, in the face of the current marketplace, inappropriate.

Much has been made about the billion dollar cap values being amassed by the portals. Yet the fact remains that what they are actually doing on a day-to-day basis is one of the easiest and cheapest remedies known to any industry; “listen to your customer.”

The probable place to begin this quest is to understand the issue from a consumer perspective. Most consumers today expect and, in many cases, demand a relationship out of every transaction no matter how minor. Consumers not only expect this relationship but also demand that the companies they deal with hold up their end of the relationship bargain. Brokerages that have not adopted some relationship “standard” for their customers aren’t just falling behind, they are violating what today’s consumer believe is a righteous expectation.

Most brokerages today are further handicapped because they fail to develop what the Harvard Business Journal calls “relational intelligence. They don’t understand all of the different relationships their consumers have with other vendors and brands nor how these relationships impact the consumer’s demands and expectations. Accordingly they tend to operate in the dark regarding this critical factor in most cases assuming, probably incorrectly, that agents are taking care of this requirement.

Obviously this situation must be remedied if brokerages are to appropriately and effectively respond to digital disruption. Brokerages must design, develop and implement programs that will give them the very knowledge about their consumers that will allow meeting this new challenge. Only with this information will they be able to gain control over a relationship strategy that will allow them to begin to set their rules and expectations rather than to be dragged down the road ruled by a one sided consumer generated relation expectation.

In this new environment the brokerage’s marketing program can now be adjusted around the brokerage/customer relationship, an essential step forward.

Yes, in many cases these steps and tactics are going to upset agents especially those who choose to cling to the claim that they own the relationship and have the right to abuse that responsibility by failing to either service or respect the consumer relationship. It is time for the real estate services community to recognize that the separation of brokerage and agent in this critical function is no longer acceptable or productive. The forces of digital disruption are widening the relationship gap every day and even now experts are looking forward to a “tipping point.”

Envisioning the Consumer Centric Agent

The spring industry meetings of 2014 provided a rich insight into the industry’s thinking on a number of critical issues. The subjects of off MLS marketing practices, mergers and acquisitions, the vibrating MLS, the specter of increased regulation, the oscillating portals, visions of profitability, the continuing emergence of the empowered consumer, changes in the brokerage business model and the ultimate impact of the Wall Street invasion, just to name a few, provided an invaluable opportunity to observe and measure the industry attitude and perspective moving forward.

Of all of these issues I found the most valuable to be those regarding what steps brokerages would be taking to better align themselves with whatever market changes their CEOs found compelling. If one were to boil all of the information down to basics the result would be standards, accountability and transparency. It would appear that the brokerage community is now anticipating that some combination of consumer demand, profitability, and regulatory issues will converge to require that the residential real estate process be governed by standards. Given this development its stands to reason that someone other than the brokerage will have to be responsible for compliance with those standards and lastly that the process by which standards and accountability come together will be subject to transparency.

Frequently the consideration of these issues lead to conversations about the evolving role of agents and, more specifically, the current and future legal and supervisory status of agents. It would appear that industry thought leaders are increasingly of the opinion that the long standing independent contractor status of agents is losing relevant and may no longer be either useful or appropriate.

Screen Shot 2014-07-08 at 1.49.29 PMFollowing up on these matters I subsequently spent three days working with clients in Omaha, Nebraska. For those who are not familiar with Omaha in the current age it has replaced Peoria, Illinois as the place were modern day American can be discovered, touched and experienced. My specific objective was to undertake research regarding a number of changing employment environments. What is happening in other work settings will have a direct impact upon the real estate industry environment. The results of this type of research have a high level of relevancy to the efforts of our industry to prepare for the rapidly approaching standards, accountability and transparency era.

Screen Shot 2014-07-08 at 1.46.46 PMMy first Omaha stop was at an ATT retail outlet. There I connected with Michael a 24-year-old college graduate who had just started his second year of employment selling cell phones and related gear. Michael was willing to convert our commercial transaction into a personal interview and matters proceeded from there. He is now into his second year working in this position and, at his current rate of production, should generate an income of $58,000 in 2014. His compensation is based upon a 40/60 salary/commission schedule. His knowledge of both his industry and his product was most impressive. He shared that his employer had come to the conclusion that since there was little difference between the technologies it offered and that of its competitors thus the only real differential was its customer experience. He talked positively about the initial and ongoing training he received. He scored a 9 out of 10 on the company loyalty test. At the conclusion of the interview he pointed to a very well dressed young women near the entrance to the store and pointed out that she, without a degree, was in her first year and was on course to make $65,000.

Screen Shot 2014-07-08 at 1.48.30 PMThe next stop was at a Target Super Center. The contact there was made while trying to determine whether to buy a national brand of cottage cheese or take a gamble with the house brand. A young man named Tom approached to see if he could be of any assistance. I explained my challenge and he responded by suggesting that I buy both and conduct a taste test. I pointed out that I was traveling and he responded by suggesting that if I bought the house brand he would provide both a spoon and the national brand. We thereupon conducted the test with positive results for the house brand. Of course at that point the interview was on and the information began to flow. Tom is a 28-year-old college graduate who is in his third year with the Company. When I suggested that his approach wasn’t consistent with my previous experiences he gently pointed out that the Company had recently had a problem with its credit card program.

With an impressive level of detail and respect he explained that senior executives had decided use the credit card crisis as the basis for a whole new approach to customer services. He spend the next fifteen minutes explaining, with an amazingly high level of pride, all of the positive changes Target had made in both their credit card and customer service systems. He then disclosed that he was second in command at the store, made something north of $85,000 annually and was really proud to be part of the Target team.

Screen Shot 2014-07-08 at 1.52.49 PMThe final Omaha stop was at the emergency room of a large local hospital. Depending upon the time of day the ER environment can be a gold mine of information. Sure enough I lucked out and was able to beg my way up to an interview Dixie the 63-year-old nurse executive in charge of this and three other ER facilities within the chain. Dixie explained that she had been with the hospital for 30 years. She further explained that over the past eighteen months her employer had gone through a total cultural reorganization that evolved it from being provider (physician) centric to consumer (patient) satisfaction centric. She talked about how difficult it had been at first trying to balance the issues of a critical care environment with the requirements of a patient satisfaction environment. She pointed out that the process had not been without its casualties, in this case in the form of four ER physicians who were unwilling to participate in the employer’s new priority. With a very high level of pride she pointed out that the choice was a simple one. Existing in a world of patients armed with social media simply didn’t allow for anyone walking away unsatisfied. She additionally pointed out that her department tracked the customer experience reporting in every ER in town and they were clearly the best of breed.

The forces of profitability, consumer satisfaction and regulation will soon force the real estate industry to take a whole new approach to its relationships with both consumers and agents. This in turn will require a number of new skill sets and competencies. The relative stress this process will cause will be in direct proportion to the level of preparation brokerages expend. It’s time to start considering the alternatives before they become mandates. We can do this.

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