A Bright Future
for an Evolving Industry
Anne Randolph
Murray Consulting, Inc
NAR Mid-Year Conference 2007
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Bright Future You Say?
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Commissions are declining
There are competitors coming from all angles
The economics of the brokerage company are dismal
The total number of transactions has declined
The home prices are declining
There is too much inventory
Etc, etc, etc
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Bright Future – We think so
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We
We
We
We
have some perspectives to rethink
have some actions we need to take
have to live through this “adjustment period”
need to learn some lessons from this period
• But…demographics, immigration and the increasing
desire for homeownership and investment (not
speculation) in real estate will support a bright future
for residential real estate.
3
One of the most important things
to deal with is uninformed
perspective
• Rumors, anecdotes, hearsay and other bad sources
of information
 The Real Estate Agent is unnecessary
 Everyone is moving to alternative models
 Brand is unimportant to attracting buyers and
sellers – it’s all about referrals
 The economics of the brokerage business are
abysmal and getting worse
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Rethink 1: The Real Estate
Agent Is Unnecessary
• The majority of Buyers and sellers continue to use
professionals in their purchase or sale of a home and
think it is important to have representation
 70% of people who sold a home and 60% of
people who bought a home used an agent
 In 2002, our research showed that 76% of sellers
and 59% of buyers used an agent
 66% of seller’s thought it was important having an
agent represent their interests, while only 12%
thought it was very unimportant
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Rethink 1:
• Nearly ¾ of sellers felt they got a fair price for their
home and got the services they needed to close the
deal
 77% felt home was priced appropriately
 74% had all service needed to sell
 73% received a fair price for their home
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Rethink 1:
• …and in some cases, this was an improvement from
2002
 74% had all the services they needed in 2006
versus only 56% in 2002
• Greater use of one stop shopping
• Greater availability of on-line sources of
information
• Informed consumer allows them to ask the
right questions many times to assure that
everything is done
• Web-based transaction systems taking hold
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Rethink 2: The discounters and
other forms of new competition are
killing us
• Consumers ARE Educating themselves about options
for buying or selling a home…
 27% of buyers used the Internet to identify
alternative ways to purchase a home
 31% of sellers evaluated which service model and
company or agent to use in the last 3 months
prior to begin the sale process
• …but this is all part of a new process of educating
oneself in order to feel more in control
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While consumers investigate and
may initially try alternative models
many return to a full service model
during the process
Selling Models Considered and Finally Used
(2005 Hot Market)
100%
90%
80%
70%
Other
60%
FSBO
50%
40%
Alternative
Full Service
30%
20%
10%
0%
Considered
Finally Used
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When the market turned to a Buyers
Market, fewer people used alternative
models because it was simply harder to
sell a home
Use of Models for Selling Homes 2005 versus 2006 (Sellers
Market Vs. Buyers)
Not Sure/Other
Fee for Service
Limited Service
MLS Listing Only
2006
Flat Fee
2005
For Sale By Owner
Traditional with Discount
Traditional
0
10
20
30
40
50
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To consumers, selling a home is a
tough process and they count on
their agent for professionalism
• 73% of sellers think selling a home is a stressful
process (this is an INCREASE since 2002)
• 69% think of their agent as a trusted advisor
• 67% prefer to use an agent because they are
professional
• Interestingly, 62% of sellers who used non-traditional
models still felt that having an agent represent their
interests was important – not a very low number
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And, at the end, alternative models
do not compete well with traditional
approaches for trust and
professionalism – key criteria for
sellers
• 81% of sellers who used a traditional (full service)
model thought their agent was a trusted advisor
versus only 60% who used an alternative model
• 81% of traditional sellers preferred to use a real
estate agent because they were professionals versus
59% who used an alternative
• 77% of sellers who used a traditional model thought
their agent was paid fair compensation versus only
58% of alternative sellers
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The biggest change during the
selling process was away from
For Sale By Owner…
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FSBO and alternative model
use
• For sale by owner was most prevalent among people
with homes valued at less than $200,000
• 44% of FSBO sellers used this approach to save
money
• Only 15% said they had sold a home before and felt
able to do so again
• Both FSBO and Traditional approach sellers want to
realize the best “net amount” for their home
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Rethink 3: Brand is unimportant
• Partially true…most sellers and buyer do not
interview multiple agents
• Few agents respond immediately to email inquiries;
however, for those who do, the customer is now
theirs to lose.
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However, they view the use of a
well-known agent or brand as
very important in selling the
home
Importance of being represented by a well-known brand in
their area when they sell a home (2006)
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30
24
25
20
21
15
12
15
10
5
0
Extremley
Important
Very
Important
Important
Somewhat
Important
Not At All
Important
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Important Means of Marketing a Home
As is having
a well-known agent in
the community
Listing in MLS
Well-known agent in community
Yard Signs
Internet Sites (Many)
Open Houses
Newspaper Advertising
Brochures
Home Boooks
Direct Mail
Other
0
10
20
30
40
50
60
70
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The economics of the brokerage
business is abysmal and getting
worse
• The “who runs the business” has changed over the
course of the Industry development based on who
had the most information, and who had the customer
 Brokers, before there was an MLS
 Agents, with the advent of the MLS book
 Some agents, with the advent of the 100%
concept
• The key issue is that the compensation isn’t based on
listing information anymore; its in who is the most
competent “expert”.
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Those rumors, anecdotes and
hearsay are hard at work in the
brokerage business
• Agents think that brokers make tons of money –
because they have no understanding of the business
• Brokers are reluctant to allow their agents a “peak
under the business kimono”
 Although Steve Murray’s recent book “People Still
Matter” points out that those brokers who have
educated their agents on the economics of the
business consistently do better than those who
don’t.
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Compounded by a lack of technology
that can improve efficiency, and
serious business decision making
• Only 54% of brokers offer mortgage services
• 62% of brokers who offer mortgage services have no
idea whether they use automated underwriting
• 92% of brokers don’t use an automated system that
can keep track of the transaction for their customer –
even while 54% think it would help to keep their
customers informed
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Again ….
• 81% of brokers think their company web site is the
most effective place they can invest, but only 38%
say they invest strongly in this area. Listings on
national web sites like Google are seen as effective
by 36%, but only 19% invest there
• Newspaper advertising continues to receive
investment; even though only 7% think it is really
effective
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Rethink #4: Consumers are ready,
willing and able to use one-stop
shopping
Mortgages (for example)
• Primary reason for consumer’s selection: price and terms (35%)
• Primary reason for agents recommending mortgage supplier:
 Lender will get it done on time (84%),
 Pre approvals can be accomplished quickly (56%),
 Customers require creative financing (40%)
 Lowest interest rates and terms (37%)
• Title? Consumers have little understanding of title so they take
the recommendation of their lender or their agent/broker (74%)
 Only 5% searched on the Internet or other means to get a
title company
 11% used a firm they had used before
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In fact, consumers want to
eliminate risk with Predictable
outcomes.
• 72% would like a Good Faith Estimate that doesn’t
change at closing
 Because only 55% said the GFE didn’t change at
closing
 And where this has been delivered, the broker and
the agent are heroes and get great
recommendations
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SO WHAT DO YOU WE NEED TO DO?
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Get back to being skilled
experts
• People pay for expertise; other industries have specialties
 Legal
 Surgical/Doctors
 Financial
• Real Estate moved away from expertise on real estate
 Neighborhoods
 Investing
 Time on the market, history of appreciation, critical changes
to improve marketability
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Get back to being skilled
experts
• Having a specialty
 Luxury (currently a large and growing niche)
 First time buyers
 Single women (20% of first time homebuyers)
 Ethnic buyers
 Investment buyers
 Certain neighborhoods to types of properties
 Retirement/Boomer/Active adult buyers/sellers
 Alternatives to single family homes
• Deeded fractionals
• Vacation clubs versus second homes
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You can’t successfully be all things to all
people – generality quickly becomes
commodity and competition on price.
Neurosurgeons don’t compete on price.
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It also implies having higher
standards for people in our
industry
• Starts with licensing organizations, but moves to the
responsibility of brokers and other agents
 Requirements
 Testing continuing education
 Mentoring programs
 Evaluations
 Reporting violations
 Eliminating people who aren’t committed to being
experts
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Focus on the real issue – it’s
not alternative models
• Some consumers will always want to select their
service model. We believe it is between 20 and 27%.
• However, our research shows that the greatest force
for declining commissions is from full service agents
who don’t have a value story to tell – so they
compete on price
 The greatest pressure to discount commissions
comes from full service agents (90%)
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And the skills and approaches of
the agent need to change
• Biggest Change: LISTENING NOT TELLING
• Advocacy and expertise versus listings
• Really representing the interests of your client versus
“getting a deal done”
• Communication in the manner and frequency
preferred by the customer (it does differ)
• Learning to have an “investment” conversation in
addition to the “family shelter” conversation
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Old Way: The
REALTOR® is the
focus
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New Way: The client is the focus
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Get ready to have the
“investment conversation”
• Gen y is buying first property for investment not
shelter (primarily)
• Residential real estate training does not cover helping
clients invest in real estate
• Requires agent focus and expertise in a specific area
• Requires a different “team” that may include real
estate attorneys, really strong inspectors, private
investors or lenders who specialize in investors
• However….success almost guarantees repeat
business – and not after waiting 7 years
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Embrace the Internet as an
important, but not the only lead
generation tool
• Leads are leads from wherever
• Consumers want to go to the fewest sites where they can get
the most comprehensive information
 Local real estate company sites are just slightly behind
realtor.com® in the consumer’s perspective (39% consider
them valuable versus 42% who view realtor.com® as
valuable)
• So, the more quickly you can get all that they need onto your
site, the quicker they will go to your site and stay there
(mapping, comparatives, listings, mortgage automated pre
approvals, etc)
• You must invest in lead management: the leads must be
handled immediately to become your customer
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Get involved in your
Association and MLS
• What is the future role of the MLS?
• How should associations be preparing agents and
brokers for a future including investors?
• Understand their role in supporting your business
versus being a separate entity with different
objectives
 Do they compete with you for consumer eyeballs?
 Do they “level the playing field”, and is that their
role?
 How large should an MLS be to be effective?
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Start really planning,
measuring and adapting
• Excellent software tools to help measure and
benchmark results
• Planning tools
• Software and systems to track response to ads
versus costs for those ads: increase ROI plus learning
about who to target, when and how
• Plans need to be “living documents” not “file fillers”
• Be transparent with sales associates: it builds trust,
and a sense of shared mission (which is required to
be successful)
• Differentiate yourself on competence/skill at every
level – get rid of the rest
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There are exciting times coming, late
2008, early 2009. Be ready
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