Matthew Ferrara, Philosopher
 

Where the Next REALTORS will be Found

A recent quote from Walter Percy Chrysler has been stuck in my head lately: Most people never get ahead in life because when opportunity knocks, they are out back looking for four leaf clovers. These days, it seems like Chrysler’s perspective is particularly appropriate to the real estate industry crisis. In addition to merely waiting around for Uncle Sam, Freddie, Fannie and even China to revive the housing industry, most brokers are busy scurrying around looking for lucky charms to help them survive the downturn. In fact, it’s even worse than usual – beyond burying statues and rearranging furniture – when we see brokers doing the absolute worst possible thing they should be doing right now: the from failing firms. Did anyone every wonder to ask just why that firm was failing in the first place?

History has shown us that good companies gain market share during downturns. Usually, that means they sell more of their goods or expand into new territories. Of course, the real estate industry has never used traditional business concepts to measure success, so for them, having more agents than the competition is supposedly a sign of success. Never mind that majorities of their current agents haven’t sold a single property in the last twelve months; the non sequitur logic of brokers is to go out an get more of those very under-performers, from companies who are going bankrupt because of the very under-performance.

Yes, it’s nuts.

This is the danger of the “recruiting solves everything” mentality of a broken industry. While “normal” companies worldwide are shedding employees, usually the least productive ones, real estate brokers are collecting more of them. The argument is that, since they are independent contractors, they don’t ‘cost anything’ to acquire. If you believe that, then contact me for Bernie Madoff’s cell phone number, because it’s perfect proof that today’s real estate strategies are just big a “Ponzi” schemes. Not targeted production schemes.

Brokers turn to recruiting as an excuse to avoid having to deal with the real problems dragging down their firms. Keeping non-productive agents because “someday, one of their cousins may want to sell his  home,” isn’t a formula for success. Letting non-productive agents sit around the office, take incoming calls from consumers and answer internet leads – then just throw them away because they don’t know how to qualify, follow up and convert leads into deals – is not only counterproductive but downright mean to the agents who are actually productive.

The growing frenzy to merge, acquire and roll-in competitors in the business today is very, very dangerous. There’s a reason why some companies fail: they didn’t produce. So merging with their operations or acquiring their agents doesn’t make sense: in most cases, the acquiring broker simply ends up taking on troubles, like diva-top-producers, un-skilled bottom producers and angry-to-be-acquired managers. Everything about this strategy makes less sense than a candle party in a dynamite factory.

The solution is for brokers who wish to use the recession to grow to stop recruiting from within a broken industry. Of course, this assumes brokers are willing to accept that not all of the market troubles are the “consumer’s fault” or anyone else’s responsibility. If there are overpriced homes that aren’t selling, represented by REALTORS, at a time when tax credits and historically low interest rates are available – then whose fault is it – and why would you want to add more of those kinds of agents to your firm?

Instead, try something radical: Recruit people who actually can sell. For starters, you may look around at the kinds of companies successfully selling today – local retail, insurance, telecoms or other companies – who have people with actual experience and records of making . But if that seems too hard, then try something even more obvious – almost like a four-leaf clover right under your nose:

Recruit some For Sale By Owners.

Did you spit out your coffee? Good, because you should. If you look at the research, this idea is so radical – but so correct – that it should cause you to question everything you thought you knew about real estate. Look at the facts. In 2008, 13% of sellers successfully sold their home on their own. That number is up from the year before, and one can expect it to be even higher this year, as consumers seek to forgo paying any commissions out of their rapidly diminishing equity. The average seller was around 47-49 years old. This means they are old-enough Boomers to fit right in with the rest of the Boomer industry, on one hand, but still young enough to own the smartphones and use social networking that the current agent population just won’t do. And nearly 17% of sellers were single women – a mirror-image demographic of REALTORS today.

Yet performance is the only reason to recruit anyone. So we should examine if FSBOs can actually perform real estate better than the left-overs from failing companies we’re recruiting today. The research is very encouraging (see NAR Buyers and Sellers Report, pages 100-110).  In 2008, FSBOs who sold their own homes retained 97% of the listing (asking) price; REALTORS retained only 96% of the price. The typical REALTOR Days on Market for 2008 was 8 weeks; but for FSBO sellers, it was only 6. In fact, it was only one week, if the self-seller personally knew the person they sold their homes to – which bodes well for their ability to work their personal sphere of influence effectively.

With respect to selling methodology, FSBOs did very well, given their lack of “industry” tools and systems. For example, 53% of them used the internet to promote their homes. This means that one in two everyday consumers could place information, photos and videos of their homes on the web just as easily – and sometimes better – than their local REALTORS. Certainly, when it comes to including photos, they out-performed the majority of REALTORS in many cases. For example:

A FSBO Listing online with 14 Photos

Likewise, FSBOs seem to have built up some fairly advanced knowledge of marketing effectiveness, using direct mail only 3% of the time, compared to REALTORS who use it a majority of the time. Note that both FSBOs and REALTORS have similar ability to enter the street addresses of their local neighborhoods, print labels and postcards and distribute them; however FSBOs do not (probably because they don’t have the ability to spend someone else’s money to do it – ie., the broker’s). Yet their performance in Days on Market and List-to-Sell ratios outperform REALTORS results.

In the final analysis, consider this: Even if the FSBO seller only sells ONE house this year, it will represent 100% better performance than many of the agents hanging around some brokerage offices.

Brokers should think carefully before simply casting a net to capture the flopping-fish of their failing competitors. Many alternatives to gaining market share exist – from focusing on per-person-productivity to releasing lead-destroying under-performers or simply turning them into assistants for your top performing agents to help them perform on more business. But if brokers are still intent on growing their ranks instead of growing their sales, then at the very least they should target people who have actually sold homes, using the most cost-effective and money-saving technologies, and have proven records of positive results.

Brokers should look a the FSBOs and stop asking them for their listing – and start asking them for help!

– M

  • Matthew,

    Once again, a thought provoking hypothesis! Too bad most of the successful FSBOs in new Jersey are moving out of state. Perhaps I could get a few referrals?

  • Matthew,

    Once again, a thought provoking hypothesis! Too bad most of the successful FSBOs in new Jersey are moving out of state. Perhaps I could get a few referrals?

  • Matthew Ferrara

    Thanks, Jim; When I saw the stats on FSBO sales, it just occurred to me that – compared to some of the agents sitting around some offices – we had some ready-made replacements….

    Thanks for stopping by the blog!

  • Matthew Ferrara

    Thanks, Jim; When I saw the stats on FSBO sales, it just occurred to me that – compared to some of the agents sitting around some offices – we had some ready-made replacements….

    Thanks for stopping by the blog!

  • Excerpt: “If there are overpriced homes that aren

  • Excerpt: “If there are overpriced homes that aren

  • Matt,

    Great post. Your thought hit on the never ending belief that “recruiting cures all ills.” Managers get pounded by Senior Leadership to recruit, recruit, recruit and they do. They end up lowering their standards and sign up part time agents who have grand illusions of going full time once they have earned enough to replace their current salary. Ah, but there’s the rub – Iif an agent figures out a way to earn enough GCI to equal what they are making at a salaried positions, this person would, in effect, have doubled their income and kept the same benefits they started with. Why would they leave either job?

    So by hiring someone…anyone…the manager will displace the constant pressure” from above for at least a few more weeks/months until it’s time for another recruiting push.

    The “circle” comes into play when the recruits flounder and do not find ANY success but if the manager sends their license back to the state, then the office numbers will drop and all of a sudden, they will be on the radar for a recruiting initiative. So instead, they just keep the rosters full, figuring that the 80/20 will separate the 1st quartile from the 4th quartile.

  • Matt,

    Great post. Your thought hit on the never ending belief that “recruiting cures all ills.” Managers get pounded by Senior Leadership to recruit, recruit, recruit and they do. They end up lowering their standards and sign up part time agents who have grand illusions of going full time once they have earned enough to replace their current salary. Ah, but there’s the rub – Iif an agent figures out a way to earn enough GCI to equal what they are making at a salaried positions, this person would, in effect, have doubled their income and kept the same benefits they started with. Why would they leave either job?

    So by hiring someone…anyone…the manager will displace the constant pressure” from above for at least a few more weeks/months until it’s time for another recruiting push.

    The “circle” comes into play when the recruits flounder and do not find ANY success but if the manager sends their license back to the state, then the office numbers will drop and all of a sudden, they will be on the radar for a recruiting initiative. So instead, they just keep the rosters full, figuring that the 80/20 will separate the 1st quartile from the 4th quartile.

  • Matthew Ferrara

    John:

    An award for least-amount-of-expireds is a very clever idea! Very interesting.

    We could also just try what NORMAL companies do: They purchase their inventory UP FRONT, then mark it up appropriately, then resell it. Walmart purchases toothpaste at a “seller” price, then reprices it to the “buyer price” and resells it.

    Imagine if brokers had to BUY their listings first, sans the commission fee, then add their commission when offering it to buyers. (And let’s be honest: The buyer pays the fee, right?)

    Talk about accountable pricing then…. it would change everything.

    Thanks for your comments and stopping by!

  • Matthew Ferrara

    John:

    An award for least-amount-of-expireds is a very clever idea! Very interesting.

    We could also just try what NORMAL companies do: They purchase their inventory UP FRONT, then mark it up appropriately, then resell it. Walmart purchases toothpaste at a “seller” price, then reprices it to the “buyer price” and resells it.

    Imagine if brokers had to BUY their listings first, sans the commission fee, then add their commission when offering it to buyers. (And let’s be honest: The buyer pays the fee, right?)

    Talk about accountable pricing then…. it would change everything.

    Thanks for your comments and stopping by!

  • Matthew Ferrara

    Sean:

    You hit the nail on the head: ALL performance problems in a company are ultimately the responsibility of “management” – so if “managers” are performing poorly, then it’s THEIR management (Senior Leadership) that needs to re-evaluate their plans, directives, goals, etc.

    No other industry turns people over as much as we do in real estate. If that’s not the single most glowing indicator that the “so-called” system of real estate is broken today, then let’s at least stop blaming the consumer for all of our ills.

    Thanks for your comments; I really appreciate them!
    Matthew

  • Matthew Ferrara

    Sean:

    You hit the nail on the head: ALL performance problems in a company are ultimately the responsibility of “management” – so if “managers” are performing poorly, then it’s THEIR management (Senior Leadership) that needs to re-evaluate their plans, directives, goals, etc.

    No other industry turns people over as much as we do in real estate. If that’s not the single most glowing indicator that the “so-called” system of real estate is broken today, then let’s at least stop blaming the consumer for all of our ills.

    Thanks for your comments; I really appreciate them!
    Matthew

  • Hey Matt, this reminds me of your earlier blog relative to unassisted showings. With the increasing success rate of FSBO’s and their ability to avail themselves of all the tools necessary to get their property marketed across the country it seems that the role of agents as we know it could eventually be eliminated. I never understood what a listing agent that doesn’t show their listing actually does to earn the level of commission asked for. An even higher level of service is going to be required in order to make us viable and necessary to home sellers in the future.

  • Hey Matt, this reminds me of your earlier blog relative to unassisted showings. With the increasing success rate of FSBO’s and their ability to avail themselves of all the tools necessary to get their property marketed across the country it seems that the role of agents as we know it could eventually be eliminated. I never understood what a listing agent that doesn’t show their listing actually does to earn the level of commission asked for. An even higher level of service is going to be required in order to make us viable and necessary to home sellers in the future.

  • Matthew Ferrara

    Roy:
    I think you’re on to something. While I’d like to say “higher level” of service, maybe we should just start saying “TOTALLY DIFFERENT SERVICE” will be needed. Real estate is learning that “what” the consumer wants to pay for is DIFFERENT.

    Remember that today’s industry was made BY Baby Boomers FOR Baby Boomers. Once Gen X and Y dominate sales/purchases, WHAT we sell will have to be totally different.

    Thanks for the comments!

  • Matthew Ferrara

    Roy:
    I think you’re on to something. While I’d like to say “higher level” of service, maybe we should just start saying “TOTALLY DIFFERENT SERVICE” will be needed. Real estate is learning that “what” the consumer wants to pay for is DIFFERENT.

    Remember that today’s industry was made BY Baby Boomers FOR Baby Boomers. Once Gen X and Y dominate sales/purchases, WHAT we sell will have to be totally different.

    Thanks for the comments!

  • Great thread Matt. A few things occurred to me in reading. Who priced the fsbo house? Would the price received be equal or better than if the home had been exposed to the larger buyer pool? How many buyers were left out because the house couldn’t be shown during hours when the husband was working? (I say husband because most men wouldn’t allow a stranger to visit their home when only their wife was home). Would more and different types of marketing produce more ready, willing, and able buyers thereby creating competition for the home? Your bolded DOM and List to Sell Ratios are based upon the perception of the homeowner that they made a good deal. It’s doubtful whether they’d say they didn’t make a good deal. Just some extra thinking aloud.

  • Great thread Matt. A few things occurred to me in reading. Who priced the fsbo house? Would the price received be equal or better than if the home had been exposed to the larger buyer pool? How many buyers were left out because the house couldn’t be shown during hours when the husband was working? (I say husband because most men wouldn’t allow a stranger to visit their home when only their wife was home). Would more and different types of marketing produce more ready, willing, and able buyers thereby creating competition for the home? Your bolded DOM and List to Sell Ratios are based upon the perception of the homeowner that they made a good deal. It’s doubtful whether they’d say they didn’t make a good deal. Just some extra thinking aloud.

  • This isn’t our parents’ real estate industry any more. The next generation isn’t going to tolerate being treated like they are stupid, and neither are they going to want to come see their realtor-in-a-box. Realtors are going to have to work hard and stay up with technology to be successful, and companies will need to look for quality agents rather than quantity. Interesting concept of hiring FSBO’s — most of the ones I have spoken to don’t want to ever sell a house again!

  • This isn’t our parents’ real estate industry any more. The next generation isn’t going to tolerate being treated like they are stupid, and neither are they going to want to come see their realtor-in-a-box. Realtors are going to have to work hard and stay up with technology to be successful, and companies will need to look for quality agents rather than quantity. Interesting concept of hiring FSBO’s — most of the ones I have spoken to don’t want to ever sell a house again!

  • Michael, reverse this to “where will a Realtor find companies embracing
    technology and systems” to consider as an employer?

  • Michael, reverse this to “where will a Realtor find companies embracing
    technology and systems” to consider as an employer?