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Surprise! REALTORS Missed the Housing Bottom

What one phrase has done more damage to the housing industry - consumer and practitioner alike - in the last two years? “I’m waiting for the bottom.” Buyers have been sitting on the sidelines, waiting for prices to hit their lows. Those REALTORS who didn’t just quit (200,000-plus of them did) similarly stuck their heads in the sand, waiting for everything to just blow over. “When the market changes,” was the favorite phrase of meetings, workshops, articles and convention speakers. A few out there - the Harneys, the Stavers, even yours truly - continued to plead for sanity. Nobody has ever called the bottom of anything on time: from Tulips to Tech, market bottoms have consistently eluded all of the experts. So it should come as no surprise that the REALTORS missed the housing bottom this time as well.

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Grow to Win

What do Hyatt, FedEx, Microsoft, and Burger King all have in common? They all started during recessions. And today they each are winning companies in their industries. Every one of them understood that recessions cause both economic uncertainty and reveal new opportunities. Their success is a result of capitalizing on the companies who went into “automatic” mode during good times, forgetting that change, and recessions, always come. One look at these companies today proves that recessions and innovation go hand-in-hand. They either invented or re-invented how their industry performs during a time when rivals tried instead to weather the storm. They took risks that helped them grow through the downturn, and win a dominant position in their industries.

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That’s (Bleeping) Awesome!

Think back to the last time you used a really great product or service. Perhaps it was your first encounter with an iPod, which buried forever the notion that you’d “click” a fast-forward button or “insert” a compact disc into something. Maybe it was the experience of sliding open a new Google G1 cell phone that caused your face to light up along with the touch screen. Recently, it was the all-wheel-drive system on my Acura RL. The day started out rainy and gray, but I was determined not to let it wear me down. Even with a light drizzle, I opened the sunroof and blasted the radio, and pushed the throttle to a fun-even-without-the-sun pace. The RL is one heck of a ride, so much fun, sometimes, that you frequently look in the side mirrors to see if it has wings. Of course, with that kind of power, it’s a good thing the navigation computer reminds you that your exit is coming up in a quarter of a mile. Usually, I wish it would tell me a half-mile in advance, especially when I’m driving at Star-Trek speeds. No matter, however, because even if you hit the exit curve at a “you’re gonna be in trouble” speed, the all-wheel drive system kicks in and takes you ’round the bend tighter than a roller coaster. It was one of those product moments that makes you yell, “That’s (Bleeping) Awesome!”

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Points of Perception

Peter Drucker noted that when the general perception of a situation switches from “the glass is half full” to the “glass is half-empty,” major innovative opportunities were possible. The change in perception usually starts with the consumer, not the industry. It rarely reflects a real change in the facts, more than what the facts have come to mean to the consumers. For example, today represents the best time in fifty years to purchase a home. The stars are perfectly aligned to purchase low, borrow low and maintain low monthly costs. Most consumers would be long-term winners with a real estate purchase today. Yet the perception of real estate in general has become “half empty” in the minds of both buyers and sellers. Consumers no longer associate real estate with happy thoughts, even if they recognize it as a sound financial investment. That perception change is profound. And it’s keeping them on the sidelines. What can the real estate industry do, then, when even if we lead the consumer to half-empty glasses of water, we cannot make them drink?
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Michael Saunders & Co Names Ferrara “Social Revolution Man of the Year!”

Listen to this radio interview by clicking the play button above.
You can also click the podcast icon to listen in your default mp3 player.

Matthew Ferrara spent the morning with Michael Saunders and Company recently, helping this market-leading firm leverage the latest sales, marketing and technology tools to reach for the future. A prominent member of Leading Real Estate Companies of the World and a four-decade market leader in Florida luxury real estate, Michael Saunders brought more than 400 agents, managers and staff together for a “Re-Invent Yourself” event that featured a special version of our Secrets of Social Networking to launch the day.

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Who Moved My Maze?

Fans of Spencer Johnson’s book will recognize the theme in today’s column: Something has definitely moved in today’s real estate industry. For decades, the industry built by Baby Boomers for Baby Boomers has essentially run the same race through the maze, finding the cheese almost every time. Periodically, the cheese was moved or a wrong turn was taken, but never very far and never a dead end. Usually, within months, the industry figured out how to navigate new turns and once fattened themselves again on the rediscovered cheese. Yet could a recession have pose a different problem to this “re-routing strategy” for managing change?

What happens to an industry when it isn’t just the cheese that has been moved but the entire maze?

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No Wonder Consumers are Confused about Real Estate

Why is it impossible for anyone - REALTORS, banks, media or economists - to accurately describe what is going on in the marketplace? If buyers are going to feel confident about moving back into the market, we should expect all of these groups to be providing clear, verifiable market facts that back up the “best time to buy” sloganism thrown at consumers. Yet most of the punditry has left consumers - especially skeptical Gen X’ers and impressionable Gen Y’ers - more confused than ever. And with a few trillion extra dollars sloshing around the economy and gas prices already moving higher nationwide, time is running out to make the clear-minded case that, by next year, real estate will be back to a “bad” investment once inflation roars back. Subtract the free-Federal-money for first-timers and add in a few million FHA loans that are about to default, and we’re actually on the verge of destroying the near-historic affordability levels once again.

Instead we’re left with “pay no attention to the man behind the curtain” proclamations from questionable analysts, partial data, a local appraiser and a journalist. We’d probably be better assessing market conditions with a Barney-Frank-roll-of-the-dice.

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An Industry of Exceptional Success

If it’s true that exceptions aren’t the norm, why is the real estate industry built around them? In almost any other endeavor, exceptions are considered undesirable: unintended effects, accidents, unexplained occurrences. Not part of the plan, and generally bad. Exceptions are usually damaging - to the business plan, the mission, the consumer experience. To the bottom line. Since the industrial revolution, most businesses have benefited not from lucky exceptions, but from planned consistency. Management itself focuses on creating consistency of outcomes to maximize resources. Profits come from maintaining predictable, repeatable, desirable outcomes. Consumers pay for an expected outcome, not a surprise ending.

No wonder, then, that real estate professionals struggle for profits, when their management strategies focus on outcomes as exceptions, rather than rule.

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Surprises in the Spring Real Estate Market

Like many other aspects of this recession, the spring real estate market is creating some surprises for the industry. On the one hand, buyers are starting to move off the sidelines, enticed by low mortgage rates and rising home affordability. This nice surprise offers real estate agents an opportunity to move some inventory and create cash flow after a seriously difficult winter market. And while the recent increase in activity is welcome weather, some not-so-nice surprises are springing up with the season. Read more

The Future has Already Started

Recently I participated on a panel where the audience could ask literally anything. After a few softball questions to get started, the pink elephant entered the room: What do you think the real estate brokerage company of the future will look like? The room was suddenly still. Everyone leaned forward in their seats. All eyes were on the panelists. And after three other great answers - about companies focused on leadership, treating customers like guests, and practicing the fine art of salesmanship - the microphone came to me. What would be my answer? What will the real estate brokerage of the future look like. No talk about virtual offices and wireless tools. Forget social networking online. Those aren’t models - but tools. Think evolution. So I gave the answer nobody wanted to hear: We already have the future brokerage model, in most companies, today. We just have to be willing to look.

The real estate brokerage model of the future will be a team.

At Matthew Ferrara & Company, we believe the real estate industry is passing through its industrial revolution. A slow, steady, and painful transformation is occurring, moving the industry from a semi-feudal organizational model into a renaissance of modern production methods. The existing business model was created by Baby Boomers, for Baby Boomers, based upon 19th century apprenticeship shops. A loophole in the tax code let Boomers create and sustain non-modern artisan workshops where salespeople remained independent and left to learn their trade from experienced elders. While costs remained low and operations required mostly manual labor, this Old World model worked.

Today, real estate requires knowledge workers, not manual labor. As a result, the future brokerage model must be organized around the knowledge team.

The old model of cheap labor was, essentially, a ponzi-scheme. Everyone had an Aunt Sally who would move someday. A large network of nieces and nephews offered brokers a baseline of social network deals every year. A high attrition rate of non-productive salespeople meant that recruiting - a cheap effort - ensured a fresh flow of nieces and nephews. It worked well, as long as overhead remained low, technology was minimal and sales were confined to the local area of relatives.

Developing the sales forces required apprenticeship, like craftsmen from days gone by. New agents learned by watching and copying experienced agents, ensuring both good and bad habits were passed on. Tradition became ingrained. Managers (often past-agents of varying success) reinforced “how it is done in our office.” Competition became a game of one-up-manship. Whichever company had the shiny-new-thing was thought to be better than others. Since most companies were in the same guild, locally and nationally, all regurgitated basics were codified as “standards.” It was traditionalist and copy-cat, with no penalty for failure. Mostly, agents were left to figure it out on their own. Most never did, which is why we have E&O insurance.

Along the way, the industry languished. Profits depended mostly upon “booms” while busts simply cleared out the tired and weary. Brokers risked fortunes on a model where “hoping” was the dominant management theory. Performance was measured by luck, timing, and the shiny-bullet-of-the-day.  Sales fell out of fashion, becoming passive-aggressive postcard canvassing done by “counselors.” Technology was resisted, even when it promised new markets and lower costs. When the most common question from brokers was how to get their agents to attend office meetings, greater dysfunctional problems surely lurked below the surface.

Consumers suffered too. Service was a hit-or-miss, based upon which agent happened to be on floor duty that day. Branches within the same company operated differently. Quality controls were sporadic. As whims and talents varied from workshop to workshop, performance was thought to be based upon superstars, not everyday agents. Yet somewhere within this hodgepodge, a small group of agents discovered how to overcome the chaos around them. They built organizations-within-organizations to do what was necessary to create consistently productive outcomes.

They created teams.

Agent teams divided up the labor amongst a group of specialists. The division of labor is the organizational breakthrough that created the modern world. Most people remember Taylorism as the thinker who studied factory assembly lines. Subdividing work into smaller parts and assigning experts to each stage lets productivity soar. The division of labor isn’t just a time-saving model for manufacturing: It’s a talent maximization model for service organizations like real estate companies.

Real estate teams are amongst the most highly productive entities in the industry today. Each team member person does only that which they have been fully trained to do. And they do it consistently well. Personal talents, now intellectual not physical, are applied systematically. A team’s division of labor positions the right person doing the right job to fulfill customer’s desires.

Output soars. So do profits. As does customer satisfaction.

That’s the model of the future. Organizing brokerages into performance teams that permit each person to focus on their best efforts every day. The proof of concept has already been completed: Most brokerages’ highest source of revenue comes from their in-house agent teams. (If they make little or no profit from team revenue is an entirely different problem.) The very existence of teams proves that the model of independent agents floating aimlessly is disliked by career-minded salespeople.

Outside of real estate, the team model is the norm. Think of high performance organizations - doctors in an operating room, attorneys at a law firm, race car pit teams. Everywhere high performance is needed, a team is involved. Motivated, integrated, seamless, able to create great outcomes over and over again. Teams make profits, turn clients into raving fans, and create careers for team members. Each team has a leader, surrounded by support experts, but only together can they reach their goals: A successful surgery for the patient, a win in the courtroom, a victory lap on the race track. Helping buyers and sellers of a home.

The future model has been right in front of us all along. Today’s teams have mastered the performance and profit formula. Teams leaders are specialists, surrounded by support experts. Team members are paid according to their individual contributions to the goal. Teams expand by adding specialists - a buyer’s agent, a relocation expert - supported by the same team of experts. One nurse supports multiple doctors; one paralegal supports multiple lawyers. The growth of the company is always at the specialist end, not the support staff end. Which is totally different than today’s model, which confuses supporters for salespeople.

The real estate industry needs to focus on its organizational theory. The self-serving mantra being repeated today - that once the market comes back, everything will be fine - is not only incorrect, but traditionalist nonsense. Companies waiting to go back will become extinct. Like steamships in the age of spaceships. The old ways  didn’t perform very well, without a false-economic boom.

The only solution is to leave behind the cottage-industry mentality and implement the division-of-labor models of the modern economy. Teams already outperform other models, by targeting the expertise of their knowledge workers, supported by technical experts, technology and management. That’s what teams can today. If brokers are smart, they’ll stop trying to return to the wheel. Just copy the team model - on a grander scale - and prepare to go where nobody has gone before.

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Real Estate Renaissance: Focus on Opportunities

There’s a paradox in today’s housing industry: The real estate marketplace is showing signs of potential, but the real estate business is still falling apart. Home affordability is the best in decades; mortgage rates the lowest in modern times. Sellers and buyers are starting to get it. Yet after hundreds of thousands of REALTORS have left the industry, the news continues to be about bankruptcies, layoffs and implosions at brokerages nationwide. Agents are demoralized; managers are shaken; brokers sweating. This, even at a time when online operational costs such as marketing have plummeted and technology-driven success stories are soaring. Why, then, is the industry stuck in the mud? Perhaps it’s because we’re focused on the problems - and not the opportunities.

Peter Drucker, the management guru whose works inspire the consulting ideas at Matthew Ferrara & Company, once said: “Unless there is a true catastrophe, problems are not discussed in management meetings until opportunities have been analyzed and properly dealt with.” In part because of their risk management orientation, [managers] are exceptionally good at detailing why a new initiative will not work. This includes both employee and customer issues.” Read more

The Other Side: How to Attract Future REALTORS

Recently we pointed out that the next generation of REALTORS will come from non-traditional sources. As brokers focus more on productivity than body-count, and the recession will ultimately teach them this business lesson. A more rational, performance-based method of building real estate companies will emerge. Traditional “Ponzi” schemes of filling the bottom with as many people with a license-and-heartbeat will fade away. It will become less frequent, not more, than inexperienced sales people will be thrown into the office mix. This positive lesson, while long awaited, will help brokers reconfigure their strategies for the future. But what about salespeople? How will they know whether it’s right for them to join a particular company? Let’s look at the other side of the recruiting question for a change.

In the future, real estate salespeople will still be independent contractors; As long as brokers and agents can milk the tax loophole, they will. Whether or not that has any impact on performance, however, is a non-argument. The best agents in the business are the best, not because of their tax status, but because they surround themselves with the right productivity environment. Entrepreneurial salespeople know that the key to their success is to make the right choice of brokerage. They want to join companies that balance teamwork structures with ample independent creativity to unleash their knowledge as workers.

Future agents will join companies who produce; not necessarily those with the most stuff. Read more

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: Recruiting the agents 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.

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Jim Calhoun Could Fix the Housing Industry

This video made me jump up out of my seat and cheer! Finally, a businessman who isn’t embarrassed by what he earns - and is willing to defend it in front of the mass purveyors of guilt, the Media. Every REALTOR should watch this clip and see what it looks like when someone stands up and says, Yes, dammit! I’m worth every penny! I may get paid a lot, but I create a LOT MORE value in return. We need a lot more of this kind of attitude in the industry these days - rather than the doom, gloom, hat-in-hand wimpishness that’s rotting our industry. From the inside out.

REALTORS face this kind of “you are overpaid” attack every day. From the media. From dis-intermediaries who think their fancy websites can kill the traditionally paid agent. As if there were something wrong with being paid, traditionally. And of course, we hear it from consumers sitting across the table from us. You want how much in commission? Wow, that’s a lot! Do you deserve it? Shouldn’t you charge less because my house is declining in value? And suddenly, the consumer has the upper hand, doling out guilt without the facts. And most REALTORS simply cave in.

They could learn a lot from Jim Calhoun.

What Mr Calhoun showed us in one minute is the result of years of pride of ownership. He owns his career. He earned his pay. And he did it by producing more for those he “serves” than they could have on their own. Jim certainly was rude - he even admitted it. But it’s the kind of rudeness we need a whole lot more of in real estate these days.

It is the rudeness of self respect that refuses to accept guilt for being great.

In previous blog entries, I have asked REALTORS why they don’t have the success they deserve. Some agents blame the market. Others the consumer. Brokers blame lame agents. Or the secretary. Or technology. Yet Jim Calhoun’s sixty-second outburst reminds us who is to blame for our failures. And for our successes.

And if we want to be paid what we’re worth, we have to believe we’re worth it, and be willing to say so when it counts.

The Calhoun Outburst makes a perfect business principle for overcoming much of our industry’s challenges. For example, when faced with a seller who insists we list their home at an overpriced amount, a Calhoun Outburst recommending they “get some facts” would certainly put things in perspective. Equally helpful, an Outburst telling sellers to just “shut up” when they insist we run a newspaper ad would nicely remind them who knows how to do the job: Go out and show me the newspaper ads YOU are using to find YOUR next home, Mr Seller, and then we’ll talk about using the newspaper to find a buyer for your home….

Maybe if our industry’s leaders had a few more Calhoun Outbursts, confidence in the housing sector would recover sooner, too. The next time the media claims house prices dropped another 20%” last quarter, without offering a baseline or a location, brokers and agents could “Go Calhoun” on them. Pick up the phone, call the radio and newspaper, and post on their blogs, “Like hell it did! Get some facts - because there are more than 25 major cities in America where prices are stable or rising!” It’s not all doom and gloom. But we have to learn to speak up for the facts, and loudly, Calhoun-style.

I’d even go so far to say that a few Calhoun Outbursts might work wonders inside many real estate offices. Brokers face the firing squad like Calhoun faced the media every day, especially from whiny agents who haven’t sold a thing in months. Has the agent done their homework, following up on every lead, before making claims and demands for more from their broker? Like the off-camera journalist in the video clip, many agents take for granted that the best of us - like Calhoun, and brokers - have to “sacrifice” for the sake of others. Calhoun should take a pay cut because times are tough; so brokers should spend more to generate more leads - even though the agents just throw them away. Calhoun-style Brokers need to just say, “meet me outside” and we’ll settle this once and for all.

Of course, none of this is really surprising to me. Jim Calhoun is a coach. His outburst was really a coaching moment: He was trying to teach the journalist an important lesson. His style was classic - something lacking in today’s “be nice, don’t offend, hug everyone” world. Maybe it’s time the for a little less tolerance for “say anything, do anything” antics from the media - and from non-producers in our offices? Calhoun wasn’t willing to accept guilt for being successful - especially from someone who didn’t do their job well (get the facts) in the first place. Could there be a new model here for dealing with agents who feel entitled to more of the broker’s money while simultaneously refusing to prospect or come to meetings? Hmmmm?

At the very least, the industry as a whole can learn from Calhoun: Sometimes, we need to stand up and demand a little respect for ourselves. And any journalists, agents or sellers who don’t agree can meet us outside to talk about it….

- M

Voodoo or YouTube Real Estate

At first, I thought it was a joke, something to lighten the mood of an otherwise dour real estate industry. Yet a few clicks of the email invitation told me it wasn’t a joke, it was actually back by “popular demand” of a lot of REALTORS.  If I hurried, I could save a seat at the “all new and updated” course that would unlock my power colors and align my compass at a very affordable price. I couldn’t help it, and just laughed out loud.

Feng Shui for real estate is back. It’s being conducted in the Temples of Real Estate Associations across America. Even more incredibly, in some states it has been approved for Continuing Education, a sanctioned topic that deals with “consumer protection.”

The high priests of Feng Shui contend it will help you be a better professionals, maximize referrals and increase sales. Their rites-of-passage into this sales Nirvana include:

• Using “success colors” in marketing pieces, like business cards and brochures
• Conducting space clearing and blessing ceremonies to chase away stagnant energy
• Written instructions on how to use “success symbols” to energize your office

Just bring your compass directions and floor plan and the Wizard will teach you how to rearrange your furniture and your career. Read more

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