Q: Imagine how the real estate industry will be different when we recover from the current downturn.

A: Before we can ever claim to be mapping a recovery we must first define the phrase "recover from the current downturn." As an irreducible minimum, the term "recovery" must mean and involve several business concepts that are held simultaneously. Several key ingredients come to mind, such as:

Editor’s note: Explore the future form and function of the real estate industry in the Inman News Roadmap to Recovery project. Click here for more details.

The following is the first part (read Part II here) of an Inman News Q&A with Donald S. Teel, founder, president and CEO of ePartnerUSA.com, and editor and senior analyst for REALonomics, a site focused on changes and challenges for the real estate industry:

Q: Imagine how the real estate industry will be different when we recover from the current downturn.

A: Before we can ever claim to be mapping a recovery we must first define the phrase "recover from the current downturn." As an irreducible minimum, the term "recovery" must mean and involve several business concepts that are held simultaneously. Several key ingredients come to mind, such as:

Consumer Trust. Certainly, "recovery" must mean that we have transformed our relationship with the consumer into one in which we are trusted as adequately trained financial advisers in the purchase and sale of real estate. This new relationship will be one founded upon a "standards based" brokerage with full and absolute disclosure, transparency and accountability for the contracts we prepare for our clients. Recovery means we are respected, sought out and needed by the consumer as an investment asset rather than tolerated as a last resort because we control property access and property information. Our old gatekeeper model is turning on us.

We have a public relations issue that few want to talk about or even admit. Face-lifting the real estate industry needs to start at the top, with the insistence that national leadership chart a course toward creating and instilling consumer trust in our industry.

Consumers are rejecting our control schemes, whether it’s filling out forms on a Web site, registering in order to earn the right to see more property information, or the demand that they come into our offices. If we do not emerge from the current crisis with a vote of confidence from the consumer we will see others replace us with new models that deliver power and control to the consumer. In the recovery, we are going to need the consumer far more than the consumer is going to need us.

Model Transformation. Our model is an industry entrenched in old-line retail market models, business designs, and management theories that have reduced its agility and derailed its ability to produce sustainable profit. We are in a quest for "model perfect" and it is proving much more illusive than we first imagined. Our traditional brokerage business models are not equipped to handle the tsunami-like changes that are hemming us on all sides. Change is overwhelming the industry.

The constructive and cohesive management of change is the number one problem being faced by broker-owners who are operating in a financial pressure-cooker that will explode sometime in 2009. We are simply too bloated to enable us to react to and manage change on the fly.

In the future, there will need to be fewer of us. We are going to have to adopt our models to produce profit with fewer transactions. In short, there will be less money to spread through our ranks and therefore, operating models must change — and they will.

We will see the emergence of streamlined, cost-effective and highly profitable brokerage models that have little or nothing to do with bricks and mortar. Although there will be fewer transactions, our new profitability will come through a well-defined and focused set of precise real estate investment and financial services that utilize components of the transaction as consulting paradigms. We can and will produce better return on investment with lower transaction counts.

However, this means reducing our labor force and increasing the skill levels of our practitioners. New designations need to be implemented that move us away from our "top producer" concepts toward highly skilled broker-agents who help consumers use real estate to build lasting wealth. The future will require more skill and far less hype about how great we are and how many awards and designations we have earned.

It’s not about us anymore. It’s about relationships that deliver huge value based upon superior skills.

Market Definition. For decades our industry has attempted to define a "market" in terms of a city, ZIP code and other methods of demarcation related to a physical area. This geographic definition of a market worked well in the pre-Internet eras of real estate. We are now beginning to see a redefinition of what constitutes a "market" or "market area," and it may have less to do with the old geo-definitions of the past.

The market of the future is not going to be defined geographically but rather in terms of human-profiling and product-matching combinations. Markets will be defined by who the clients are in terms of demographics and psychographics. Ours will be an industry with business models and units that focus on real estate actuaries in order to determine, define and tap into market segments. In the past, we defined our markets as "service areas" or, in some cases, franchisors defined markets purely on the basis of compass coordinates, ZIP codes and city limits.

Market will no longer be a place, but a person, a group, a demographic slice, a lifestyle clan, etc. Yes, we have always said we were interested in the person and people who become our clients. But we were mostly interested in them because they came to us in a place in time and we transplanted them into an abode we called "inventory." In the "New Real Estate Economy" as we have defined it, the consumer is the inventory: highly personal, well-informed and deserving of the highest levels of expertise we can deliver.

Our "market" is him, her, them, they — whether singular, plural, East Coast, West Coast, global, retired, boomer, Gen-X, Gen-Y or another demographic nomenclature we develop. In short, I am the market, you are the market, and we are connected in a global phenomenon we are calling the "Democratization of Real Estate" where all information is known and far less is controlled. Welcome to the "market."

Some will interpret the phrase "recover from the current downturn" to mean that we have deliberately determined that a reinvention of ourselves will put us on the right road to the right kind of recovery. It’s all about us now.

Q: How will the business model or business practices of the title, brokerage or lending industries change in the future?

A: We have entered a new real estate economy. Brokerage and core service providers are in for some huge financial and operational challenges. In each case, brokerage, mortgage and title will create informational models and deliver these models to consumers. These models will be delivered by the same people as before: the brokers, agent, lenders and title officers. Packaged information … is where the industry now struggles. How do we create real estate information as a commodity that can be marketed and delivered to consumers who continue to pursue competitive real estate services models? That’s the question.

Here is the surprise … (so-called) "non-brokers" are already tapping the consumer for attention by creating informational models, such as Zillow and Trulia, that are only beginning to combine eclectic brands in a single-source package where consumers can, if they so desire, wallow in information. But wallowing creates its own confusion.

Unhinged information, for the sake of information, slows the market, and the big surprise will be the implementation of marketable information packages where consumers can quickly drill into the transaction components, complete with property, mortgage, inspection, title and other services for the very best the industry has to offer. This model will allow the consumer to easily use information, not as an arduous search taking hours and hours, but as a bundled technology that provides a house, a mortgage, title services and other required components of the transaction in a specified market as a reliable bundled service. The current industry block to this solution is the industry itself with its fragmentation.

We are still a bulky, brick-like industry that rolls along like a tank without a driver. The future name of the game for brokerage, title and mortgage will be informational collaboration that does not contain a RESPA problem but truly empowers the consumer with quick access to bundled real estate information.

Q: Will the industry be regulated differently in the future? If so, how?

A: We are a long way from closure on the housing and mortgage front. Washington is trying to figure out what, if anything, can and should be done. All of us can expect the decisions to be made through a politically tinted lens that somehow translates into one or the other party claiming the correct solution.

If the lid comes off the mortgage "trash can" and our elected officials start poking around and discover a political burr under their saddles, we can expect hearings that will probe into the role that real estate brokers and agents played in the housing run-up, not to mention title companies. At that point, nothing will be sacred.

We can anticipate that heads will roll. It’s just a question of whose head will roll and how far it will roll after being lopped off. In the future we can anticipate more spotlighting of the National Association of Realtors, industry policies, practices, and even how we represent clients in the real estate investment process.

The industry has an opportunity to create what we have called "standards-based brokerage" and by so doing circumvent the application of a set of knee-jerk regulations that trap and paralyze the industry. We will either self-regulate, by creating prohibitive rules that will not allow us to write contracts that we know are bad for the consumer, or we will face outside regulation. NAR should be leading the charge for the former. We should show the nation that we have the will to self-regulate.

Q: What must the industry do now to prepare for this new direction?

A: We really need new vision and leadership that will convene the industry in a call for a national referendum that redefines the industry in favor of "consumer-centricity" and total transparency.

We can do this beginning in January 2009 and conclude with a new national model for the industry that is delivered by the end of the year.

What should the model contain? It should contain a definitive statement of the role of NAR in the industry; a transparency pledge similar to the Code of Ethics and Standards of Practice; and a commitment to specific set of consumer-centric technologies that further empower the client.

It should also contain a "Standards of Practice Manifesto" that upgrades the broker and agent profile in terms of financial and business skill sets as a requirement to interface with the consumer and obligates the industry to never write contracts that can harm a person or family when there is a mortgage interest-rate adjustment.

We should enter 2010 with a new direction, predicated on a top-to-bottom analysis and reinvention of our industry.

Watch Inman News for the continuation of this Q&A with Donald S. Teel, founder, president and CEO of ePartnerUSA.com, and editor and senior analyst for REALonomics.

***

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