I owe someone a big apology.
Several months ago I was running. I call it running, anyway. More correctly, I was attempting to give at least the appearance of forward movement, certain that between my stylish runner’s attire and a breathing pattern suggesting I had just reentered the atmosphere in an unpressurized cabin, passers-by would mistake me for a serious athlete.
Arms flailing, I was once again trying to navigate my way around the five-mile recreation path that encircles our local water treatment reservoir. In San Diego we call these "lakes." And as I attempted to achieve at least one glorious moment when neither foot was actually touching the ground while remaining fully focused on my game of "count the expansion joints," I happened upon a group of young men engaged in a construction project.
"Maybe they are building a water fountain!" I hoped, just as a group of moms pushing double strollers breezed past me. And then I realized what was happening here. Today’s work order involved benches. And they were building not one bench, but two!
"You fools!" I silently screamed. "I don’t need a bench. I need water!"
You see, there used to be not one, but two, water fountains on my route. In the blistering 70-degree San Diego heat, I came to rely on these landmarks. The promise of hydration became my inspiration, and a brief refueling stop my prize for having run a successful rope-a-dope on the trailing buzzards.
Then one day, the water fountains — poof, like magic — were gone. I suspect they were the victims of a city budget crisis. Or maybe some mean-spirited moms pushing double strollers thought they would look nice in the playroom. Whatever. I was miffed.
So for 5 miles this day, I stewed. People need water, not benches. I can innovate a place for my caboose to dock — on a rock or even on the ground. I can park it wherever I happen to be and whenever I want. I can’t, however, innovate a potable drinking source.
But here’s the funny thing. Now, each time I slog past, there are people sitting on those dang benches. It’s what you might call latent demand. And as it turns out, people have figured out that they can bring their own water.
Even I can run with the added burden of a water bottle; it’s a little more challenging to run while carrying a 100-pound park bench.
And on my way back one day, I looked more closely at the benches. Each had been inscribed with the mark of the architects. I had just spent my entire route on my last several outings mentally cursing like a drunken sailor at Boy Scout Troop 616.
I’m still sticking to my story that I don’t need a bench, but apparently others don’t need the water. And Troop 616 no doubt recognized that crafting a water fountain with scrap metal and a soldering gun — not to mention the little issue of tapping into the city main — was beyond their combined skill sets (even if it might result in a plumbing badge).
But they are pretty good at building benches. They used their unique talents to deliver to a niche market.
This, however, is not a story about niche marketing (although I could have just as easily gone that direction). No, it’s a story about need vs. want.
Both of my water fountains and those beautifully crafted benches of philanthropic origin are wants. They are the trophies for top producers, the corner office, the inspirational videos screened at the weekly office meeting, bloated middle management, insanely expensive phone systems, and back rooms brimming with shared office equipment and branded collateral materials.
I can run without those things.
Agents can run without those things.
The difference is that agents and their brokers pay dearly for their amenities that are essentially nonessential. And too many confuse these wants with needs because they have never tried to run without them.
Seth Godin once wrote, "One by one, store by store, the chains expand, earning a few more dollars a share and further insulating themselves from the communities they used to serve."
He was talking about the plight of the local retailer when challenged by the proliferation of the big-box competitors. It’s a different scenario than that faced by the real estate brokerage — we aren’t retailers in the truest sense — but I do see parallels buried within the conundrum.
"The problem is that while (the small local shop) was in a race to the top, a race to create more and better interactions, (insert chain store brand here) is in a race to the bottom," he continued. "They exist to extract the last penny from every bit of real estate they can control. That’s the deal they made with their shareholders."
The big real estate brokers — the corporations and franchises — are not unlike Godin’s chain store example in the sense that growth is the goal. More offices, more agents, and more "real estate" translate to greater profitability. And their onward march to extract every last penny comes at the expense of the agents under their logo.
Agents associated with the big, traditional brokerages know this all too well. Your split with your broker is but one indicator of your future earnings potential. The elephant in the room is a mosaic of other fees and "add-ons" designed to feed the corporate coffers, and these extras go by many names.
Resource fees, desk fees, transaction fees, franchise fees and the familiar "encouragement" to use affiliated services such as title and escrow are now the common trappings of the traditional big brokerage model.
The reason for these fees is to support a structure focused on agent recruitment and retention, of course. The problem is that over the years, the percentage of the real estate commission given to the agents has ballooned.
Agents, like customers, are concerned with the bottom line, and in order to woo more and more agents into the brokerage fold, the pot kept getting sweeter. But with the shifting market came fewer transactions and lower prices (and therefore, commissions), to the point where there was no longer enough brokerage income to support the bloated infrastructure.
Something had to give, and that something could either be more income or reduced costs.
Bigger brokerages were already too far down the road of providing "stuff." The reality is that this stuff is no longer necessary in today’s home office and mobile computing environment. Today’s agents don’t need the benches or the water fountains.
Yet too many agents still subscribe to the notion that these are needs, not wants, so the traditional brokerage clings to them as recruiting tools.
The income side of the equation presents its own challenges. Reduce the splits offered to agents and you risk losing those agents to your more generous competitors.
So, the more popular solution has been to add fee upon cost-recovery fee where any one is innocuous enough, but collectively they become burdensome to the agent.
What does this all have to do with the customer?
Revisiting the chain store vs. local independent storefront example, the difference is that in our business of real estate, scale does not translate to customer savings.
So whether it is a small or innovative (or both) brokerage racing to the top, or a McBrokerage mired in convention racing to the bottom, the customer generally pays the same for the product regardless of the storefront marquee.
And it is the customer who is left to find the one remaining distinction that matters: value of the services rendered.
Of course, there are (and have always been) brokerages that try to compete on price. The funny thing is that we repeatedly see them morphing into that which they purport to shun, with the lines of distinction over time becoming increasingly blurred. ZipRealty and Redfin come to mind.
This is not an indictment of the big-box brokerage. Rather, it is an indictment of those of any size that cling to legacy practices that no longer make sense. They don’t make sense for the agents, and they don’t make sense for the customers — the customers without whom we would have nothing to discuss here.
Mostly, this is an agent call to arms, or maybe just a wake-up call. Ask not what your broker can do for you, at least not in the traditional sense.
There are things you need:
- You need a supportive, mentoring environment in which the focus is on providing product and service excellence.
- You need an organization first and foremost committed to consistently delighting the community it serves, not to insulating itself by focusing on more bodies or more revenue streams.
You are not the customer, and if your broker says as much — when numbers alone become the goal — your broker is in a race to the bottom. You become expendable. Sadly, so does the customer.
As an agent, you are a business. Think like a CEO. Honestly assess, and reassess, what it is you need to run. Honestly consider, and reconsider, what things you are paying for and what you are getting in return.
If these things increase your effectiveness, your brand, and ultimately your bottom line, consider them a fair return on investment.
Ultimately, it’s not about size; it’s about culture. Don’t forget to take a hard, honest look at the culture of your organization. If your organization is in a race to the bottom, you will be running right along with it. You deserve better, and so does your customer.