There is no doubt about it: As real estate professionals we are experiencing a perfect storm. A collision of a credit crisis, falling housing prices, financial bailouts, and a housing market with no foundational support. America is literally reinventing itself. Unfortunately, given the magnitude of these events and the policies that must be instituted to reshape them, we are reinventing ourselves reactively rather than proactively. Future generations will reference the events that have shaped the real estate community during these recent years as the worst in decades. As a result, the business model that is still adopted by today’s real estate brokerage will have to be reinvented as well.

Editor’s note: Inman News readers have embarked on a Roadmap to Recovery editorial project to find the best path forward for the real estate industry. Click here for more details. The following is a contribution by Michael Volkin, president of Area Pro Realty.

There is no doubt about it: As real estate professionals we are experiencing a perfect storm. A collision of a credit crisis, falling housing prices, financial bailouts, and a housing market with no foundational support. America is literally reinventing itself. Unfortunately, given the magnitude of these events and the policies that must be instituted to reshape them, we are reinventing ourselves reactively rather than proactively. Future generations will reference the events that have shaped the real estate community during these recent years as the worst in decades. As a result, the business model that is still adopted by today’s real estate brokerage will have to be reinvented as well.

The old real estate brokerage model is still dominant in today’s society:

  • Open an office;
  • Design a company brand (logo, slogan, etc.);
  • Hire as many agents as possible;
  • Have those agents close as many transactions as possible;
  • Take a percentage of the commissions;
  • Reinvest a portion of profits into promoting the company brand.

A 2007 NAR Technology Survey named referrals, repeat business and the Internet as the top three lead generators. Among the least important were open houses and floor time — two pillars of the "old way." Traditional brokerages are laboring under increasing expenses that include keeping up with technological advances, maintaining an office, and brand-recognition advertising.

In spite of brokers’ attempts to keep up with technology, well over half of the agents and associate brokers responding to the NAR Survey indicated they wanted their broker to expand the amount of technology offered. And for all of the dollars spent on promoting a brokerage brand, it is usually individual agents who are sought out — not the broker’s brand.

I invite all brokers across the country to break free from this common business model and reinvent yourselves. Brokers need to address the following items to update their business model:

  • Recognize that clients follow agents, not brands;
  • Become an Internet presence;
  • Embrace technology;
  • A virtual office is not a benefit, it’s a requirement;
  • Understand the following logic: The more benefits and training you give agents, the more professional they become, the better their image is to the general public.

The brokerage model of the future must dispose of the mentality that a broker is only there to take commissions. The real estate agent of today needs to feel value for the commission taken from a hard-earned check. Brokers should exist to harbor and foster the development of a real estate agent. The image of the real estate agent needs to improve in the eyes of the general public, and that starts with the broker.

Given these needed advancements, it is my opinion that many of the independent brokers will conglomerate to franchisers who have the capital and technology in place to foster the development of today’s agents. Brokers will enjoy the same or greater profit margins and be able to provide much more support and technology at a fraction of the cost if they pursue these benefits independently.

Michael Volkin is president of Area Pro Realty, a real estate franchise company.

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