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Can Brokerage Companies Reengineer Themselves?
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No Void Remains Empty for Long

Ever since Charles Darwin’s circa 1859 book The Origin of the Species was unleashed upon an unsuspecting and unprepared world, that thorny premise persists: only the strong survive.  But in today’s real estate market, brute strength might be replaced by a question of the sheer speed at which a brokerage can reinvent itself to retain its momentum and remain agent-attractive, relevant, and financially sound.

“Change is one of the few constants in life,” or so the saying goes, but when it comes to the speed and dexterity required to effectively adapt to new market conditions and adopt new methods of conducting business that foresee those conditions and adequately account for them – that kind of change is a different beast altogether.  To the degree that today’s largest – and therefore often slowest – companies can achieve such innovation, they stand a good chance of continued success.

Stefan Swanepoel, author of the Swanepoel TRENDS Report and CEO of the RealtyU® Group, superimposed infamous scientist Charles Darwin’s primary postulation on the subject of the survival of today’s real estate brokerages in an effort to get minds thinking critically about how they should prepare for the real estate industry’s future – a paradigm brimming with changes more imminent than most might believe.  According to Swanepoel, “No void remains empty forever, and the question at hand is ‘Can today’s existing real estate brokerages reengineer themselves into the right kind of new company to fill the void being created in the industry today?’”

Baggage, or a Blank Slate?

Swanepoel continues, “When paradigms change it’s usually easier to build something from scratch than try to modify existing structures – there’s no baggage, protocol or politics, all of which tend to limit transformation and creativity.”  As a result, explains the author of 13 books on change and trends, the sluggish response of today’s brokerages to adapt and adopt has allowed outsiders to enter the industry by identifying key niches and filling them faster than the incumbents.

Examples abound of new players who have entered the real estate industry and changed the rules.  In the 1970’s, for instance, Century 21 used the then novel concept of franchising to create the first truly national real estate company in the U.S., while in the 1980’s RE/MAX changed the rules forever with their new agent compensation structure, and has today became a global giant.  In the 1990’s NRT redefined changed mergers and acquisitions and created the largest real estate company of all time.  Numerous ventures exist today that might be identified as companies who changed the paradigm a decade from now – companies like Realtor.com, EXIT Realty, RealEstate.com, HouseValues.com or even Zillow.

A Viable “Outsider” Threat?

In fact, never before has the “threat” of non real estate companies, often referred to as “Outsiders,” entering the real estate brokerage industry prevailed as strongly as it does today. Read just about any current news or blog, and names like Google, Yahoo, Zillow, eBay, InterActive Corp., Craigslist, Home Depot, H&R Block and now even Wal-Mart are listed as potential players in the real estate and mortgage space.

Many interesting Outsiders could, if they so decided, enter the industry and easily become real estate paradigm changers.  Their size, existing brand and huge clientele, market capitalization and large internet traffic could drastically change the landscape.  Swanepoel’s Top 10 companies to watch include: Bank of America, Wells Fargo, Citi Bank, Home Depot, eBay, Google, Yahoo, Priceline.com, H&R Block and Wal-Mart.

This is not a new phenomenon, and the real estate industry has experienced Outsider penetrations before. Back in the 1980’s and 1990’s companies such as Sears, TWA, Merrill Lynch, Metropolitan, Prudential, Meredith, GMAC and Cendant each brought their own unique set of fears and concerns to the industry when they entered it.  Although these large companies experienced growth and success, few made a truly meaningful impact on the industry – particularly on a national level, compared to the initial perceived fear. Most of the growth they enjoyed was the result of the normal organic results associated with mergers and acquisitions.

Hatching Plans to Undue Incumbents

As a result of the National Association of REALTORS® (NAR’s) bank and financial focus during the last few years, many Outsiders have basically been flying under the radar and hatching creative plans to initiate and secure their involvement. Although the bank controversy has by no means disappeared, NAR remains fiercely antagonistic toward any initiative to permit banks to engage in commerce, fighting to keep such companies firmly blocked from any kind of meaningful entrance. They have been successful since 2001 in persuading Congress to obstruct the Federal Reserve Board and the U.S. Department of Treasury from finalizing a rule that would permit financial holding companies and financial subsidiaries of national banks to engage in real estate management and brokerage.

This time, however, there may be legal loophole in federal banking law that will allow an “industrial loan company” to bypass the distinction between banking and commerce in federal law. Furthermore, this is not new, and dozens upon dozens of large companies (such as Nordstrom, General Electric, General Motors, American Express and Target) are already operating under this regulation. In a rather ironic twist of fate, the difficulty only becomes more complex in the situation with Wal-Mart, where some 138 million consumers shop every week.  Many financial institutions have rapidly become bed-fellows with NAR in opposing Wal-Mart’s plans to open its own bank.

It would seem the time has come for the industry not only to accept that Outsiders are here to stay, but that many more will be arriving in the not-too-distant future. Some may change the home buying and selling process in their own right, but collectively they will almost certainly revolutionize the industry over the next decade on an order of magnitude, never before anticipated or experienced.

The Ideal RE Experience

Author Geoffrey Moore, in his newest book, Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution, focuses on the “frameworks that reinterpret the changing landscape of business to highlight new forces that have come to the fore.”  Moore’s refers to the different stages a company must work through to Cross the Chasm and what happens when you are Inside the Tornado.  At the heart of every plausible company reinvention the following potent question must be asked, Swanepoel explains, “What does the real estate customer of tomorrow really want in a real estate sales experience, and how can we best give it to them?”  The degree of an established company’s future success depends on how well its leaders answer that simple compound question.  Study after study echoes the same results.  Customers want a real estate sales experience that is: 1) one-stop, 2) lower-cost, 3) high-tech, 4) high-touch, 5) high-performance, and 6) offers rapid results.  If the next decade of real estate customers want this kind of service, how and who will be giving it to them?

Competition and change is not intrinsically bad. The real estate industry, like any other, can benefit from new approaches and initiatives. What makes the current situation so interesting is that many of these companies will introduce completely new strategies that, when combined with their size and reach, will carry both the potential and the capacity to re-engineer the entire real estate paradigm.

The Central Question Remains

So the central question remains: can today’s existing real estate brokerages reengineer themselves into the right kind of new company?  Swanepoel believes they can, provided they accurately understand and react to both the opportunities and threats waiting ahead.  In order for these companies to successfully innovate during their own unique evolution, they must know how to adapt to change and adopt new strategies that will propel them far into a bright future.  The future is not the enemy, only the lack of knowledge about it and proper preparation for it.  For more information about change and trends impacting the real estate industry, brokers and agents are encouraged to read the Swanepoel TRENDS Report.





References


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