Recessions force us to change. When times are good, we get lazy. Why ruin a good thing? But economies and industries aren’t static. People, capital and most of all – customers desires – change every day. Peter Drucker noted that our very success today eliminates the conditions that allowed us to become successful. Recessions remind us that today’s strategies cannot be based upon yesterday’s markets.

Recessions are report cards. They check our assumptions and grade our practices. Who creates recessions? We do. When the outcome of something we always did profitably become different – a recession – we’re being told to discover and learn how things have changed, and that we may not have been keeping up with them.

As Groucho Marx once said, “It’s not so much that hard times are coming; the change observed is that soft times are going.”

The past two years haven’t been easy for the real estate industry. Falling prices and longer sales cycle have driven profits to historically low levels. Expenses, while drastically reduced, remain higher than at any time in twenty years, with new costs like technology, marketing, training and regulatory compliance. Our customers are struggling, too: unemployment, credit availability and overall uncertainty have changed the conditions in which both customers and brokers could be mutually successfully buying and selling homes in the past.

Which brings us back to Groucho: Just three years ago real estate brokers were creating historically high profits. Cheap and plentiful credit, rising prices and customers frenzy-purchasing supported the way we did things. While we hoped the good times would last forever, the music eventually stopped. When the economy moved on, the real estate industry was still practicing its old ways. But even with a few technology and social media band-aids, we can’t get back to the good-old days. The recession is tell us that we’ll have to do something different to create different outcomes for the future.

The recession’s lessons are that a healthy, vibrant real estate industry won’t be possible on the soft practices of the past, even if everyone gets a Twitter account and dumps classified ads. Cautious customers chasing scarce credit require entirely new practices to create new growth. That’s both the judgement of the recession, and the opportunity it presents to us.

Yes, there are opportunities in recessions. And the formula for success is right there, below the surface message (declining profits) of the recession. Smart brokers and agents can read this formula, but must be willing to accept the conclusions of the message. If we want to create the next generation real estate industry, we must be willing to listen to what the recession is telling us to do. A few of the elements are clearly visible today.

1. Performance requires performers. In the past, marginal agents – those who did only a few deals a year – were tolerable because each few deals they did still yielded such a good margin that it was worth it. Today’s margins are razor thin and will remain so for some time. The hard costs (technology, training, industry memberships, marketing dollar) of keeping minimal performers has become too high. The independent contractor model has been revealed as a financial myth: there are costs to every agent in the office, if only just in coffee. The recession’s lesson is the future requires every producer to be a substantial producers. And the recession offers us a solution: high unemployment provides choices to replace marginal performers with quality talent.
2. Reorganize the model. The industrial revolution was the product of a recession. When cottage industry could no longer produce the quantity, quality and low-cost goods people desired, Henry Ford changed the production model. Today’s recession teaches the same lesson. The cottage-model of “each person does it all” is unsustainable. Less than 10% of today’s agents can be the perfect prospector, seller, negotiator, closer, relationship manager, etc., anyway. The division of labor in real estate has remained mostly undivided – and that must change. The recession’s solution: modern technology permits specialized workers to create high performing teams. Gen X and Y future agents are being taught this in school and in online video games. They are ready to use technology to maximize their individual talent to participate in a collaborative outcome. It’s just a modern Ford assembly model, just faster. Brokers must reorganize operational conditions to maximize how future recruits are being trained to work, not ask them to use unfamiliar (historic) models.
3. Management matters. The recession challenges our concept of managing a real estate office.  If we make the two changes already mentioned, current management models are incapable of releasing the productive energies of high performing teams integrated through technology and a new division of labor. Managers who are recruiting cannot be guiding performance teams. Same if nobody shows up at the office for meetings when they could be held online. Managing future multi-generational workforces of highly-independent Boomer agents and newly recruited specialized Gen X/Y workers is new management territory. The recession offers potential solutions (Zappos comes to mind, but there are others). Yet a core lesson from the recession is that management will matter even more in the future generation of real estate brokerage.
4. Use technology differently. Some recession lessons come from successes despite the downturn. Many thriving organizations – some not even for-profit – teach us to think of doing something different with technology. The past/existing model of technology as an “advertising” tool – for listings, services, tax credits – is challenged by unmoving recession customers. So declaring via technology may be shifting to another approach: listening. The value of social media or instant messaging or even YouTube might be not what we can say through them to our customers, but what we can learn about our customers from them. Recessions remind us that the best companies listen and learn from customers, not incessantly promote to them. The solution might be to check our pre-recessionary egos at the door, and use technology to ask customers what they want, so we can re-tool to deliver it.

Unlocking the opportunities of the recession won’t be easy. We’ll first have to accept the market’s judgement that it’s not as happy with how we do things today as it was in the past. Of course, we do this ourselves with products and services we purchase: who would be happy with a computer from 1980 or paying 21-cents a minute for long-distance calls? The computer and telecom industries changed as a result of their recessions. As hard as it was for them to hear that customers who had bought their services “a certain way” for years suddenly wanted something different, their success nowadays comes from industry leaders who shook up their production processes, created new operational models, focused management on outcomes and used technology in whole new ways. They learned some valuable lessons from their recession. The real estate industry can learn some too from its own recession. The good news is that, if we listen to the recession, we might be able to create future thriving industries – like the computer and telecom industries did – in our future as well.

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Originally published 5/6/2008, this blog entry comes to mind as one of the key decisions still left taken by the real estate industry in 2010. After meeting a few companies that are testing out such approaches, we thought it would be constructive to refloat this idea into the minds of our clients. Let’s see if the current market makes them a little more receptive to the concept that performance, not process, matters most….

Ok, stop shrieking. Take a breath. Think this out with me…

There is only one form of competitive performance that matters in business. Did the consumer actually buy from you? That’s it. Whether it’s measured by listing their home with you or buying a home with your help, if consumers are paying you, that means your company is generating value for them. And that’s the only rational and measurable metric of “success” in business.

It’s also one of the best indicators of your future performance. Actual success is the best indicator of future success.

Now consider how this applies to new leads – potential new clients – and how they are handled at your real estate firm. In other industries, if  you sell a product – like a computer or a stock – your personal qualifications to receive the “best leads” from the company is directly determined by the number of consumers who actually bought from you in the immediate past. In most sales industries sales, the only measurement of performance is, well, performance!

Now, back to real estate leads. Today, most companies generate the vast majority of new leads for their agents. They do this through various forms of advertising. These leads arrive as consumers who walk into the office, call by phone or inquire by email. Each lead – which we ought to really call potential customer – costs a lot of money to generate. Yet the vast majority of these prospects fail to actually buy our products and services, even though the same majority eventually buy those services from another company in the next 12 months.

So the consumer isn’t broken. Even in this market, the trouble isn’t that the consumer isn’t buying real estate services; It is that most companies are failing to convert the consumers into deals a greater proportion of the time. So their marketing is working. The problem is their sales intake process.

It’s the case offline and online. Offline, telephone calls, property showings and open house have a huge failure rate to create paying buyers or sellers. Open houses are the premier example. Virtually no sales activity is conducted at an open house. It should be called “house sitting” in most cases. The vast majority of visitors to an open house do not purchase the house they visited or any other house from the agent whom they just met there. In other words, the agent failed to convert the consumer into a customer of that house or any house.

Online, it’s worse. Even scary. In recent studies of brokerages, the average number of leads that are simply abandoned by agents within the first 72 hours is 88%. This means that nine out of ten potential customers never become actual customers of the company. The marketing worked to catch their attention and encourage them to inquire. Yet for some reason, they aren’t actually buying. We could blame the “product” for not turning them into customers – but we all know who chooses the houses and sets the prices they are offered at, so that would be dishonest. In truth, the failure to turn most prospects into customers isn’t because of the commodity we offer; it’s because of something else.

That something else is our new business sales process. Today we call that “leads management” but for most of the industry’s history, we called it “turning leads into deals.” No matter what we call it, the process is gravely dysfunctional at most brokerages today.

Traditionally, most brokerages assign  company-generated leads to an agent according to arcane rules of “fair play.” Essentially, they assign leads to agents based upon non-performance standards. For example, if a consumer sends an email to a broker requesting help purchasing a home in “Andover” the broker usually finds an agent who claims that market area. Simply put, their “territory” on a piece of paper includes Andover. So agents can “claim” leads based upon arbitrary personal preferences.

The broker rarely asks himself, Who has sold the most homes for us in Andover in last month or year?

The same is true for most other criteria like house type or price. If a consumer is interested in a luxury property, the broker matches them up with someone who has taken a “luxury property course” not necessarily the agent who has sold the most number of luxury homes recently. Some agent says they “work with renters” and we direct renter leads to them. Another agent says they are “qualified” to work with land, and we zip land-requests to them. Everyone scrambles to claim their qualifications so they can get more leads. The result is that everyone is qualified for everything, so we’re back to legacy “round robin” lead distribution. And if the numbers are be believed most of everyone isn’t converting any of the leads into actual sales.

If brokers wanted to convert more leads, they need to radically rethink their lead assignment system. Performance is what matters. The only measure of an agent’s qualification to be considered with the high-value opportunity of a potential new consumer is their actual past performance turning leads into deals. Period.

Look at it another way: when you go to the hospital for an appendectomy, do you want the surgeon who is “qualified” to do the surgery because it’s on their general resume, even though they haven’t done one in years? Or, do you want the doctor who does ten appendectomies a week and every patient goes home fine? Do you want the mechanic who can make a flyer saying he works on Mercedes cars, or the mechanic who repairs ten S-class models a week reliably and consistently?

Do new consumers want to work with “qualified” agents or “performing” ones?

Leads are too expensive and too important to simply hand out to the next agent in line. Brokers are converting a paltry percentage of their potential business: Averages are 2% or 3% of online leads, and only slightly more of walk-ins and calls. Agents throw away most leads handed to them: our research indicates that they simply give up after a few contact attempts. The most common reason leads are abandoned is that  ”the consumer didn’t call them back.”

Each lead thrown away is company dollars down the drain. Perhaps companies had this money to burn in days gone buy, but today it’s unlikely they can sustain such a leads management approach. For many reasons – mostly due to lack of manager oversight – most agents treat incoming leads very poorly. They either don’t have the skill or the stamina to work with consumers who are taking their time approaching a volatile market. And they have been empowered to discard – cherry pick, we say – the vast majority of new business that somebody paid to generate. No wonder marketing budgets are going bust.

To turn this situation around, here are three radical leads management ideas whose time has come:

1. Assign new leads to agents who actually convert them. Pick a start date and set everyone’s record at “zero.” Then look back at the last six months of performance. Rank agents according to their actual results, not the towns, property types or price ranges they prefer to work in. Now match incoming leads to those people whose performance record warrants it. Send more leads to the top performers.
2. For everyone else whose performance record is yet to warrant the opportunity of expensive new company generated leads, create an opportunity window. Assign each agent three new leads. Then monitor and measure what they do to them. It’s possible those customers won’t become deals for perfectly legitimate reasons: they are working with another agent, they lost their jobs, whatever. But at the very least, measure the tenacity, stamina and process the agent applied making the absolute best effort to turn that lead into business. Based upon the test leads, qualify or disqualify them for future leads. Then send them back to training.
3. After six months, start incorporating new consumer feedback into the criteria for qualification. While we certainly want to give leads to agents who can close deals, if they can’t create customer service experiences that generate future referrals and repeat business, then they are good but not great. Considering the vast majority of new business in real estate is referral generated, the customer satisfaction element is a critical metric of leads management performance. Survey every consumer from every closed deal. Rank important feedback related to their experience. Collect that information and incorporate it into a new filter for agent performance. Many other companies do this (see Guru.com, where service providers can sell their services online but their customers can “rank” them online which helps new customers evaluate them for new projects).

If you do even one of these three steps, here’s what you’ll get. More paying customers. Happier customers. And natural attrition of non-performing agents. Plus more profit. You’ll be converting more leads because you’ll be assigning them to people with track records of converting leads.

It’s possible that after time, you’ll end up with a few of agents with high conversion rankings and good consumer feedback. So you might have to return to a “round robin” distribution of leads amongst these top performers. All of your non-performing agents will have left (or been fired) so you’ll have the unfortunate problem of evenly distributing business to a few agents who will be converting a high percentage of it.

What a nice problem to have!

Ford is the best historical example of the Failure Mindset: Where it once dominated the automobile industry, its “you can have any color you want, as long as it’s black,” mentality led it within a few short years to a second- and then third-tier spot in the business. Other companies followed the same path. Motorola once held the largest share of the cell phone market with its popular Razr phone; then slipped into obscurity after its “we’ll stick to this model” formula left it out of touch with increasingly savvy younger customers. And IBM’s story is legend: From global pacesetter to near-bankruptcy in one generation, the stories of how “the IBM way” tried to rewrite its customers’ businesses rather than support them are basic reading for how not to run a corporation in the modern economy.

One might think that with such clear examples over the last century that modern businesses would clearly understand and avoid the Failure Mindset. Wouldn’t a constant policy of  innovation and customer responsiveness be the standard, not the exception, in the 21st century? Obviously not, especially in legacy industries like booksellers and real estate brokers.

Barnes and Noble is a case in point for the Failure Mindset. A simple anecdote explains it all. Yesterday I ventured into the bricks-and-mortar of the local B&N for the last time. Not just because I am a proficient consumer who does more than 50% of his shopping online already. But because the experience of the Failure Mindset was so pervasive that B&N might not even earn my online business in the future, either.

Browsing the bookstore on a chilly winter Sunday afternoon isn’t shopping; it’s a pass-time that used to involve sipping coffee while getting started on your new book. Except that I couldn’t find the book I wanted, because I had forgotten the author’s name. It was then that I encountered the Failure Mindset.

I expected to find no employees on the floor – razor-thin margins limiting staff these days. What I didn’t expect was a complete obliviousness to the modern consumer: There wasn’t a single computer anywhere I could use to search for the book I wished to purchase.

There were two computers on each floor, but both were unattended by staff. As a Gen X’er, I attempted to access them anyway, but they were blocked by passwords. After looking around in frustration for another machine, I got into the checkout line. When my turn came, I asked if there was a computer somewhere I could use to search whether my desired book was in stock and where it might be located.

That’s where I experienced the Failure Mindset full force. I was told that there were no computers for customers to use. I had to tell the staff what I was looking for and they could look it up for me. When I replied that there were no staff to ask on the floor, I was smugly told that I was talking to one now. When I noted that it seemed silly in this day and age not to have a computer for customers to use on their own, I was informed that it wasn’t “how we do it” at Barnes and Noble. So either tell the clerk what to search for me, or move out of the way for the next customer.

What made the Failure Mindset even more amazing was that – as I walked away, having refused to comply with the smugly unfriendly process – there was a Nook kiosk off to the left of the registers. The Nook is an e-book reader that lets consumers search and purchase electronic books and magazines anywhere using wireless technology. It’s so advanced that it’s better than the convenience of purchasing online. Instead of visiting the physical store or logging onto the internet from your home computer, consumers can search and purchase from anywhere with unlimited 3G cellular internet access. It’s the next generation of book consumption, powered by a friendly interface.

The Nook is not smug. And it’s not mired in “the way we have always done it.” The Nook is an example of the Success Mindset. And it was right there in the middle of the Barnes and Noble store.

Now I’ll admit that I didn’t purchase a Nook at that moment; I was too frustrated to think about giving Barnes and Noble any of my money. Yet I left the store wondering how it’s possible for a company to be so smart and dumb at the same time? There wasn’t a computer for customers to use – in this day and age? I had to tell a staff person what to search for me – like I was incapable of doing it myself? I had to wait in the checkout line – without anything to checkout – in order to talk to a cashier whose mindset was do it our way or move out of line?

Of course, this made me think of my own industry. Failure Mindset still occurs when consumers try to navigate the brokerage business – online or offline. We still have real estate websites that make customers register before letting they can search for homes. Agents smugly throw away online leads from customers who are “just looking for information.” Either make an appointment or contact me later when you’re ready. It’s still common practice to hold a bricks-and-mortar open houses on Sunday afternoons, a time totally inconvenient to busy Gen X and Gen Y consumers. Because we’ve always done it that way.

And then I heard a beep, as my smartphone alerted me to a new message on my Facebook page. It struck me that I could ask my friends for the name of the author of my book – and they’d readily, quickly and pleasantly reply – plus refer me to other books I might enjoy. I could have searched for my book’s author using the smartphone’s browser. I could even have ordered it – from Barnes & Noble’s online competitor who didn’t even have bricks-and-mortar stores or an eye-rolling staff member. It was encouraging to think that some companies had learned the lessons of the Failure Mindset, and were actively pursuing the opposite.

It seemed paradoxical that Barnes and Noble would have such a poorly engineered in person experience for customers, within sight of it’s modern, wireless, customer-driven always-ready-to-search-and-serve product. If I do order an e-book reader in the future, I’ll probably order it from online. After checking with my friends in my social network for feedback. And probably from a website with friend chat-based customer service if I have any questions.

E-readers could finally close the doors of every remaining brick-and-mortar bookstore forever. They are products built from a strategy that listens to customer feedback and designs an innovative experience geared to the way the customer wants it to happen, not the other way around. They are even better than internet ordering, because you don’t have to wait for delivery. Some people lament that e-readers will eliminate an entire industry of traditional book sales – including the experience of browsing the aisles and touching the books.

From what I experienced of the Barnes and Noble Failure Mindset, perhaps they should.

Thank goodness, then, for Hagerty’s Quarterly Housing Report.

Real estate professionals love to say that “all real estate is local.” Yet most real estate analysis contains very little local data. The traditional real estate “comparative market analysis” (CMA) is economically useless: Not only does it rely upon incredibly inaccurate and unverified data entered by agents barely conversant with their MLS software, such reports suffer from the biggest defect possible:

Lack of context.

Real estate agents can tell you how many homes are on the market. They can tell you the trends in new listing volume, sales units and homes that failed to sell on a given day. They can tell you how much a property sold for – even as a percentage of its asking price. And then they can’t tell you almost anything else that would be useful to purchasing and owning a commodity like a home.

Which is why they start talking about nonsense like school systems, parks, subways and other mundania.

Never have you seen a broker’s market report that contains a trend-line for local tax rates – a very important piece of information for owning a commodity that carries an annual “fee” attached to it. Nor do such reports show current rates and trends for other supporting costs, like local cable television, electricity, trash removal or any other “ownership load” related to the future requirements to service (ie., pay for) the home. In fact, it’s amazing that any decisions whatsoever can be drawn from the local real estate agent’s report, when so much contextual decision-making data is left unaccounted for.

Almost any other commodity purchase with an “ownership duration” requires contexts. Take the simplest of such purchases: a new car. Consumers don’t simply evaluate features or prices when comparing models. They examine “ownership” costs – like fuel efficiency, average repair costs, and even projected resales value. Their decision to purchase a model is based upon data points within a broader context.

Try to ask your REALTOR for your home’s projected resale value the next time you meet with her. Yeah, right.

Such lack of context and content is no longer acceptable to today’s housing consumer. Generation X is used to seeing the “full story” when it comes to purchasing anything of lasting value – whether it’s a laptop, automobile or home. They want to see the behind-the-scenes costs to construct, acquire, service, maintain and own the commodity. They understand that large purchase decisions don’t exist in a vacuum but a constellation of conditions.

They know how much it costs to run the television, not just purchase it.

Yet when it comes to buying or selling houses, so much contextual data is left unverified, or simply unmentioned, by the advisors to the consumer. That’s why new reports – such as Hagerty’s Quarterly Housing Report by James Hagerty at the Wall Street Journal is such a refreshing improvement. Certainly, it’s just a start. There are many factors left out – such as tax rates, energy costs and local tax impact. But the mere fact that it presents home prices and inventory in the context of unemployment and foreclosure rates – in one simple table – is a step forward in consumer education.

And makes Case-Schiller seem downright silly.

Ironically, real estate agents generally operate from the premise that people buy homes for “other reasons” than price. Countless stories (and industry cliches) claim that buyers choose homes for emotional reasons, like location or how it “feels.” Yet the modern consumer isn’t so fickle, or vacuous, as to simply fall in love with a home, regardless of price. Most certainly not during a recession. Consumers have been schooled to ask for “operating costs” – energy, taxes, water, repairs – and they understand the concept of “trade in” value for the future. They have lots of experience buying expensive items based upon the monthly fee – whether it’s data  plans for expensive smartphones or fuel economy for expensive hybrid automobiles. It is senseless to think such issues do not matter when it comes to purchasing a home, a commodity of far longer lasting value and higher cost.

Hagerty’s Quarterly Housing Report makes a start of positioning homes within contexts – beyond emotional data such as greenery or convenience to shopping. Even after the housing recession, local data on unemployment, tax trends, energy costs and other operating factors will be required reading for Gen X and Gen Y consumers. In a future of windmills and solar panels, maybe even weather patterns may become valuable context for the housing market.

It’s time for better reports for home consumers on what makes for a good decision in housing purchases. Case-Shiller’s focus on volume and price is outdated: It treats homes as if they were pork bellies or cell phone minutes without any other influencing factors. And traditional real estate market analyses must evolve as well. Buyers of the future won’t let their emotions carry them away – at least not so far, any more – especially when the market requires them to put real money down.

But that’s a report for another day.

In the few days since we started the clock, the housing market hasn’t exactly shown signs of improvement. On January 27th, the Federal Reserve reconfirmed its intention to discontinue buying distressed mortgage-backed securities at the end of the first quarter. It had been buying about $21 billion worth weekly, and has already cut back to purchasing half that amount now. What interest rates will do once they stop completely isn’t hard to guess – history tells us to expect rates to rise fast and far. Consider what a single point increase to 30 year mortgages would to to a market that – at the same time – no longer has $8,000 worth of free money to make down payments.

But wait. There’s more.

Leading research and indicators tell us there’s a perfect storm brewing:

• John K. McIlwain, senior resident fellow at the Urban Land Institute, expects home prices to fall another additional 10% this year. That could push foreclosures and underwater mortgages over 21 million by December 2010.
• Home sales inventories are falling. Contrary to popular belief, this isn’t good news for sellers, because higher prices (and even bidding wars) increase costs for buyers, who are too smart (and too worried about unemployment) to be burned by bidding wars again this time. Sales will fall as they return to the sidelines.
• Of course any sales depend upon employment, which stands at 10% nationally, and is higher in 16 states, including disastrous real estate markets (DC, FL, CA) and states where the real estate market was considered “balanced.” Job losses mean more foreclosures and less purchases.

Suffice it to say, on the Day After, it won’t just be bad because the free money will expire, or FHA standards will rise or the Fed won’t be able to hold down interest rates. It will be bad because we’ll finally be feeling the real sting of a recession. So it’s simply going to be bad.

But not impossible.

That’s what real estate professionals have to decide for themselves, however. Even after moving up one (maybe two) quarters of sales into the first quarter of the year, it’s possible to have a very successful spring and summer. It won’t be easy because many of the mid-year sales will already have been consumed. Yet recessions are still opportunities if managed properly. Most of all, however, creating success will depend upon taking some very uncomfortable actions today, if REALTORS want to stay in business for the rest of the year. And the most uncomfortable of things that REALTORS must do are things they don’t want to do:

Exactly the opposite of everything they are doing now.

Since there isn’t any time left to waste, let’s list those opposite things now. Remember, they won’t be pretty. But neither is the prospect of meltdown on the Day After.

1. Stop recruiting. Every additional agent in the office dilutes the sustaining income of the current sales force. Traditional thinking says more bodies equals more sales. Nothing is further from the truth. More bodies only guarantee more expenses in technology, association fees, marketing, training and management effort. But more sales? In a downturn? Ridiculous. At best, “lucky” new agents who have never sold a thing in their lives will bring in a distressed listing and be stuck with it for months – consuming marketing dollars. At worst, a new agent will pick up the potential deal that would have gone to an existing agent who is struggling to keep their career going in the downturn. The commission will be misdirected and wasted. The new agent is 65% likely not to last their first year anyway. By mis-allocating the sale away from the experienced agent, you’ve increased the chance of losing both.
2. Stop over-listing. The average brokerage has too many listings of the same shape, size, features and price. They are working against themselves trying to sell similar commodities, which drives up expenses and down prices. Companies are competing against themselves. Conventional wisdom says that another listing brokerage would simply pick up the listing anyway, so why not control it in-house? Contrarian logic remembers things like expenses, marketing advantages and even fiduciary responsibility to existing sellers not to dilute their potential sales price – at least not in-house. You can’t control what the rest of the market does, but you can at least do the right thing for your current clients.
3. Stop over-listing (2): On the same issue of managing inventory, housing experts could help their local marketplace by properly advising potential sellers to simply keep their property off a saturated market. Companies could create better returns for current and future sellers by advising unnecessary sellers to keep off the market for a few months or years. Imagine how non-listing as a strategy could rescue the market! Stabilizing inventory will not only stabilize prices but revenues in the commission-based business. Likewise, stable inventory – not gluts and shortages – creates buyer activity. Gluts cause buyers to wait on the sidelines for bottoms; Shortages drive them away with bidding wars. Only sensible control over inventory flow will create market stability and consumer confidence. And confidence is vital when other economic indicators are wildly fluctuating.
4. Find better sellers. Three strikes and sellers are out of this market. That should be the listing attitude of smart brokers this year. If you didn’t put any money down last time, if you haven’t paid anything but interest since then, then strike three is trying to over-price it in the recession. Brokers need to start targeting owners with equity. Look at property sales records for pre-2005 purchases to target sellers with equity and real-scale appreciation. Remember that 50% of all home owners in America have no mortgage. Many of them are potential up-sizers looking for a bargain in the recession, or down-sizers who planned to move anyway and can get a great deal by pulling out their equity.
5. Make up with lenders. After a decade bad-mouthing and politically hampering banks from actively playing in the business, real estate professionals find themselves in desperate need of banking friends. Some companies smartly created their own lending sources, but most real estate agents don’t have that luxury. But they cannot leave the buyer on their own to navigate the process of more complex and demanding lending process. REALTORS will need strong relationships with bankers big and small. And that’s going to take a big “mea culpa” from agents and their Associations to rebuild bridges they spent a decade burning.
6. Find buyers with cash. When rates soar and lending tightens, cash will be king. After spending a year putting ten-times as many people in homes with only 3% down than normal, real estate agents have only laid a new foundation for Q2 foreclosures. FHA numbers prove it, with 15% of all FHA backed loans delinquent after only 1 payment. This has to stop, if the real estate industry wants to plant the seeds of long-term growth. Better buyer qualification will help, but improved marketing practices must find and target the “smart money” hiding out there. Generating new business has to shift from “anybody who can qualify” to “those who can create equity” and form the foundation of a long-term viable marketplace.
7. Stop throwing away business. Last year, studies continued to show that 9 out of 10 leads generated by brokers and handed to agents were thrown away in less than a week. More than 77% of those were abandoned without the agent actually having a conversation with the potential customer: Voice mail and emailed responses aren’t sales activities. There is simply too much business being flushed down the drain of neglect. Why bother marketing – there’s another expense to cut this year – if that’s how your company is going to treat new business opportunities?
8. Stop thinking locally. Many markets – especially distressed ones like California, Nevada and Florida – are attracting foreign dollars. It’s a global market, and even in a recession, America’s private property laws are the best in the world. With prices on clearance, it’s a prime opportunity to find out-of-town buyers half-a-world away. Even for small towns.
9. Stop wasting money. If the recession hasn’t caused agents and brokers to stop their insane wasting of money by now, then the Day After will. This means finally being done with postcards, newspaper ads, newsletter mailings and refrigerator magnets. And while we’re at it, agent websites. With the exception of agents in the 100% clubs, and the absolute top 5% of the business, every other agent in the business is never going to be found in a search engine. Save the money and work the leads generated by the major listing portals, your company and (where applicable) your national brand. Even the top agents need to wise up: Nobody is building shrines to you with magnets and postcards featuring your face. Get a Facebook page instead (65% of REALTORS still don’t have a social networking presence). It will save costs and generate referrals and repeat business –  the two largest sources of new business today.
10. Show up and do the work. There’s a huge difference between going to the office and going to work. Did you make 25 prospecting attempts today? Did you catch up with five people in your sphere of influence? Did you ask for three referrals from your family and friends? Then just what are you doing in the office? When asked what activities they are doing every day that are not generating business, too many agents name them and blame them: floor duty (where they wait to receive calls); open houses (where they get upset that the nosy neighbor shows up); door knocking (as if they are really doing it). But they’ll sit in class after class on short sales or Feng Shui. Come on – do the work! That goes for managers, too. Make meetings count: Teach something helpful and useful. Don’t waste the time announcing new listings that could be done in a memo. Sit down with every agent and make them write two clear goals and the names of 100 prospects. Go with them to listings and showings and then coach them on ways to improve.

Most of these ideas will probably make REALTORS uncomfortable. Many of them will be counter-intuitive and contrary to the traditional wisdom. Yet it’s fairly clear that such wisdom isn’t turning around the market either. It’s time for REALTORS to think smarter, work smarter, and try doing something other than what they have always done.

Because on the Day After, Uncle Sam is going to stop doing it for you.

…from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A….Market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system in late 2006 and early 2007. Of the 26 million subprime and Alt-A loans outstanding in 2008, 10 million were held or guaranteed by Fannie and Freddie, 5.2 million by other government agencies, and 1.4 million were on the books of the four largest U.S. banks….

To be clear, the subprime lending crash was not due a failure of private banks. Whistleblower Pinto tells us that systematic “mislabeling” of subprime loans by Fannie Mae – a government entity – was rampant. Call it what you want, but the Fannie fraudsters withheld critical information from the market. Private banks, encouraged (at regulatory gunpoint?) by HUD and Fannie to offer loans to marginal borrowers didn’t have the facts necessary to properly model the mortgage backed securities necessary to do it. It wasn’t greed but mismanagement by the largest public and regulated entity in the market that laid the seeds of the crash.

It was a ponzi scheme worthy of Bernie Madoff.

Pinto suggests reasons why Fannie Madoff cooked their books: Perhaps they wanted to keep the patronage of Congressman Barney Frank, who hoped to “roll the dice” with the housing agency for social engineering purposes. Perhaps the GSE’s could not otherwise comply with the law mandating at least 55% of their lending be in pursuit of “affordable housing.”

Either way, the real estate industry is paying the price of this lie. For years, much industry operational and growth strategy was based upon their public patron’s policy of risky lending. When the financial scheme crashed, it took with it a decade of “home selling” strategies that brokers had built up – around a lie.

The real estate industry and homeowners lost a decade of growth and equity because its strategy was underwritten by government fraudsters at Fannie Madoff.

But why bother revisiting history? Because the industry was more than happy to go along for the ride – and it’s doing it again today. Real estate professionals based their entire sales strategy upon “affordable housing” – and developed training classes, certifications and seminars that led both agents and the public down that path. They never questioned the causes of the price inflation they were enjoying – even though it was historically unjustified – because they had a vested financial interest to not ask questions. Just cash the checks and go on. It was an age where rookie agents earned more in their first year in the business than veteran counterparts.

And it’s happening again. Fannie Madoff received another blank check from its Rich Uncle. And her sister, FHA Madoff has exploded her exposure to risky loans in the last twelve months.

Once again, REALTORS are going along, straight to the slaughter.

Just as once the REALTORS were the biggest voice (or most silent supporter, you choose) for affordable housing, and the exotic loans that made it possible, agents continue to pursue the go-along-with-someone-else’s-plan-to-pay strategy. FHA, tax credits, cramdowns are simply new chapters in outsourcing sales strategy to the whim-of-the-day by anyone: the media, the government, the Madoffs.

Either real estate is a commodities industry with market mechanisms for establishing, trading and financing market goods, or it’s just a flea market, where agents help consumers haggle over price and pay with someone else’s credit card. When that credit card runs out – as it will again shortly – there’s going to be another market crash.

Funny how the Fannie fraud story has disappeared from the news. Maybe it’s been overshadowed by the recent report of 80,000 more jobs lost in December. That’s the trouble with economic reality: fraud is easy to hide, but people without jobs still cannot pay the bills.

Real estate agents need to develop a better strategy – one based upon selling and financing real estate like any other commodity. That means people paying for the goods with real money backed by real credit and supported by real likelihood of repayment (ie., jobs).  Otherwise the industry cannot control its own destiny. The industry remains “sad” about foreclosures – right on political cue – when any other commodity trader would rationally price it down, clear it out, wipe out the excess and move on.

Meanwhile, everyone’s gaga about the extended tax credits – Madoff Scheme 2.0. is just as risky as the last version. How else can they sell homes, it is argued, if there isn’t some money on the table to “induce” people to do it now?  How soon we forget when plenty of homes were sold without subsidies or exotic finance – for decades. Does nobody in America have any credit, cash or equity any more? Makes you wonder.

Entering 2010, it’s high time for REALTORS to have a real strategy for future success. One that does not even consider listing overpriced properties. One that does not expound the virtues of preventing foreclosures. One that does not hail as profitable an agent who shows buyers 200 homes.  It’s time for a strategy that means business – and does not need handouts or gimmicks to do it. One that requires agents to find buyers who have real equity and ability to buy a home.

Because one of these days, Fannie Madoff may actually go to jail. And the free miracle money will dry up. Then what will REALTORS do?

The other lie to be discovered is called FHA default rates; count on it – someone is about to notice. In conjunction with unsustainable debt and public outcry over spending, plus many more months of unemployment, the market is set to fall further – this time from from a historic low point. Once the free lunch line is closed (think, May 1) it will be REALTORS who again suffer the consequences of letting everyone and anyone else set their strategy on how to be a real estate industry.

REALTORS need to get in front of this problem. Consumers don’t read the full reports but they do see the headlines. That’s bad news for real estate agents. Case-Shiller gets regular headline news, drowning agents’ voices.

Consumers implicitly trust Case-Shilller because it appears “scientific.” That’s unlike their usual experiences with house value “estimates” from agents or websites. REALTOR data is perceived to be self-serving, and MLS systems are based upon terribly incomplete information. Even sales prices are worrisome since some systems use tricky days-on-market reporting.

And then there’s Case-Schiller.

Great damage has been done to the housing market’s ability to recover by the Case-Shiller report. Every time this hobgoblin of an analysis is published, buyers and sellers are further misled about the market. Even real estate brokers can’t match up the reports conclusions with the realities of the marketplace.

Case-Schiller data is not inaccurate. It’s the conclusions drawn from it that are erroneous.

Sellers and buyers are led to believe that the market is turning, up or down, every time the report is released, because media headlines are tailored and spun for news value, not consumer decision making. And Case-Shiller does very little to correct this themselves, for unknown reasons. Perhaps they just like the press spotlight.

Every few months, Case-Shiller tells sellers the market is back up, or falling again. That’s a conclusion anyone could make – with 50/50 accuracy and no need for all the data and studying. But it’s confusing sellers. Likewise, buyers await a bottom that has either already passed them by, or is yet to come. Again, a 50/50 shot that requires little more than a flip of the coin.

That’s why REALTORS must vigorously address the erroneous conclusions every time Case-Schiller is published.

Don’t expect the media to do it. It’s not in their interest. Micro-blips up and down grab attention and sell ads.

Real estate professionals should be the ones analyzing the data and communicating with consumers about what it means. Every time the Case-Shiller-Erroneous-Conclusion Report is published, agents should apply the data to their local market conditions. They need incorporate their experience and knowledge of the local market – and cast the Case-Shiller data within the pricing and buying conditions their actual customers might experience.

Not simply parrot its conclusions on their blogs.

How should REALTORS address the Case-Shiller conclusions? Here’s the short list:

1. The Case-Shiller report – especially the headlines derived from it – is all about averages. Statistics can be made to say anything. Averaging a national market is troublesome for local sellers. Case-Shiller define the “housing market” as the top 20 cities in the country. Yet any conclusion about the “market” is like averaging the temperature of the country. On any given day, the national average might be 40 degrees Fahrenheit, but that doesn’t mean it’s not minus-2 in Bozeman and 80 in Miami. Certainly, some cities are affected by national trends, such as retirement destinations and vacation markets, but Case-Shiller doesn’t account for those trends. Its headline conclusions are just a mashup of averages. So sellers in a declining market hear that the market is turning,  even though two feet of snow can still fall in Yellowstone in June.

2.  The report is backward facing. Case-Shiller reports on what happened not what is happening today. This is incredibly misleading to sellers who have to price  their homes for sale today and tomorrow. The December report saying prices went higher – in October. That’s virtually meaningless to a consumer today, especially if mortgage rates have risen in the meantime (as they have). Try selling a lower-priced stock today at last month’s higher value. Yet buyers and sellers see Case-Shiller conclusions as “news” that leads them to  believe such trends are relevant today.

3. Falling or rising trends depend upon perspective. The report covers more than a decade of data. It fixes values at 100 points as of 2000. From that point, you can look at data as higher or lower depending upon what time frame you select. But consumers think of value as a function of when they purchased last. If you bought a home three years ago, the market is down. If you bought in 2002, the market is then you’re up – in every market, including Nevada, Californa and Florida.

4. The report does not account for one-time or market distorting events. One of these was the collapse of the mortgage market. Prices declined rapidly because exotic financing and Federal interest rate intervention suddenly stopped. Case-Shiller conclusions today about falls from that period are exaggerated because real value didn’t rise: it was merely inflation. Likewise, more recent conclusions about stabilizing prices are also erroneous. The December report uses October figures to claim the market is flat or rising. But that data was skewed by the (expected) expiration of another the Home Buyer’s Tax Credit. Short-term units and prices rose only because buyers thought the credit would expire. Still, the extension of the credit didn’t prevent the top 20 cities from reporting real year-over-year declines.

These points might seem like economic arcana that statisticians would  fight over. Yet there’s real danger that such theoretical errors harm actual consumers. Every new Case-Shiller report has become a media sensation and a public event. Its conclusions become news that consumers talk about around their dinner table. Decisions about pricing and purchasing are influenced by the so-called conclusions of the Case-Shiller report.

Possibly, bad decisions, because of bad conclusions.

REALTORS need to be more vocal interpreters of such pronouncements about “the market.” It’s dangerous to consumers and brokers to simply parrot Case-Shiller headlines, and have the industry itself come to false conclusions about what’s really happening in housing market.

At Matthew Ferrara & Company, we don’t believe in the “overcoming weaknesses” method of business planning. Rather, we think everyone should focus on their strengths and find ways to maximize the use of them every day. If your resolutions involve working on things you don’t like to do, don’t have a propensity for, and mostly do poorly, you’re heading for underachievement, frustration and disaster. On the other hand, if there are some things you’re already doing that leverages your natural talents, you enjoy doing already and would be more inclined to do more of or better, those should be the focus of your strategy for the next twelve months of business.

Focusing on your strengths lets each of us create business resolutions that best suit us – and therefore have the greatest chance of success. Rather than adopt someone else’s “must do” lists that we’ll never even try, we’ll be more successful if we take our “already doing” list and fine-tune it. Here are ten ways to do just that.

1. Know your strengths: The first thing you need to do is identify what you already have some talent for doing. Very few of us have talent for everything in business. So we need to figure out where our talents lie and organize our strategy around them. So sit down and make a list of what you are already doing that you do fairly well every time. Every other resolution you’ll make must focus on taking those talents and turning up the “volume” on their effectiveness.

2. Accept your strengths: If you list the things you have talents for, you’ll also bring to mind everything you’re not so good at doing. Make a side list of those things. Review the list and label each one “QP” or “NC” – Quick Possibility of mastering and improving or No Chance of being really good at soon. There are some things you might be able to improve – if they already relate to your existing strengths. Maybe you’re a strong prospector, but you are fairly week at generating new contacts. That is probably a QP with a little technology and technique. On the other hand, if you are really bad at paperwork and numbers, then list if NC and put it aside. You will deal with it – but not personally – later.

3. Outsource everything that’s a NC or clear waste of time. Look at your No Chance list from #2 above. Decide whether you can simply stop doing it (and nobody will notice) or if it’s a vital activity required for your success. If it’s vital, determine how you will outsource it. Remember, you’re already not doing it – or not doing it so well you should stop doing it harmfully – so someone else is going to have to do it for you. Find an office staff, another agent or third party business who can do it for you – at peak quality and performance – and resolve to stop wasting time trying to fix things you’re never ever going to actually do well.

4. Set goals, not to-do lists for your business. Rather than make a list of lots of things you’ll buy, try or do, focus your mind on the most important outcomes you wish to achieve in your business this year. Stress and chaos are created by task-oriented planning. You can easily create a list of things you can never get done in the time you have each day. If you want to succeed differently this year, stop worrying about tasks and keep your mind on the goals. Whether it’s financial, professional or personal, three clear and measurable goals which you review and keep in mind every day will more effectively guide you to what needs to get done than a “master list” of intimidating to-do’s and tasks.

5. Organize your time. Most business professionals make the mistake of trying to organize their tasks, rather than their time. They erroneously think the goal is to find the magic combination of scheduling tricks to get the most things done in the least amount of time. That works if you’re a machine on an assembly line. However, most real estate sales is knowledge work, and your brain cannot work “on command” in an unbroken stream of activities. Deal with your time differently this year, by organizing it into periods of most useful outcomes. Determine what is most useful to your business – prospecting, training, presentation skills, negotiating – and then organize your time around getting those things done consistently. Look at the week and ask yourself how to best use the time you have to work towards your goals. Then schedule the right amounts of time to using your best talents to achieve those goals. Eliminate, delegate or forget about everything else.

6. Get effective before you get efficient. We sometimes mistake efficiency for effectiveness. This often leads us to mis-use our talents and time, and especially technology. For example, using technology to organize our databases and create labels for mass mailings may be highly “efficient” compared to the days when we tried to remember everyone’s name and send handwritten notes. However, it could be massively ineffective if the consumer’s preference for contact is email or social media. When you look at turning up the volume on your talents, don’t just take for granted that improvements come from simple efficiencies. You could outsource your prospecting calls to a call center, who could call 1,000 people a week for you; but that might not be nearly as effective as making friends with your past ten clients on Facebook, and writing a personal note on their Wall each week. Both are prospecting. One is efficient by volume. The other is effective by goal.

7. Fire things. Just like you clean out the drawers of your desk at the end of the year, simply throwing away paper and items you packed away rather than dealt with all last year, start your new year by firing everything that no longer works toward your goals. For managers, this might be non-productive salespeople, unattended office meetings, or handing out leads to agents who just throw them away. For agents, this might mean unreasonable sellers who refuse to market-price the home, buyers who won’t work under contract and other agents who refuse to pull their own weight in a deal. Your problem solving must be different this year. If avoid-and-forget didn’t work for you last year, fire-fast-now might be the different approach you need.

8. Stop copying others. Too many of us think that if we just copy someone else’s activities, we’ll reach the same success they have achieved. This is a bad strategy for two reasons: We only see the outward side of others’ success, without the back-story of challenges they handle, but some of which might sink us. We are simply not the same people; problems they can handle with their talents could overcome us if we have different strengths. Secondly, copying others activities means implicitly accepting their goals. Our goals should direct our own activities; There are many paths to success, and it’s important for each of us to follow their own. Some agents achieve high sales performance with lots of technology; others are masters of the telephone and handshake. Both can achieve measurable successful outcomes – based upon different strengths. But adopting the techo-approach for a techno-phobe could be the wrong strategy, and vice-versa.

9. Listen to customers. Lots of consultants, planners, leaders and technologists in the industry claim special access to the future. They have systems, tools, programs you can purchase to get there. Some work; some don’t. But what always works – every year, boom or bust – is talking to customers. They will tell you exactly what they want, how they want it and how they would like to pay for it. And since they pay the bills – not create them, like everyone else – they should be your most important source of information. Then you can go back to the others and ask how their products and services jibe with what consumers are saying, and incorporate the best of these into your optimal use of time and talents.

10. Get to work. While this sounds obvious, it is most certainly not. Most people go to the office but never go to work. They hang out, chat, catch up, eat lunch, run errands, do paperwork, upload a file, check their email, and lots of other activities. But they never actually get to work. If your job is to make sales, then going to work only happens when you make sales. At the very least, you’re only working when you’re doing activities that directly correspond to the next sale you will make. The sales will not make themselves. Others – your fellow agents, your broker, the government – will not make the sales for you. If you want to really do something differently in the next twelve months, then go to work and get to work for every minute you’re there.

So there’s a quick list of ten things to do differently in 2010. Note that none of them are silver bullets, get-rich-quick schemes. There’s not a single specific techno-gadget or snappy-comeback to use for or against consumers. The list requires each of us to assess, evaluate, plan, organize, delegate, focus and do that which is necessary to reach our goals in 2010. To create your next year of success, wishing for a thing is not enough to make it so. It’s time to do the right things – and differently – to make next year your best in the business.

As usual, let’s start with the research. Last year, more than 50% of home sales were to first time buyers. The average first time home buyer was 30 years old, and the vast majority are under the age of 44. The move-up seller is also squarely within the 30 and 47 age bracket. From a real estate standpoint, the target buyer and seller for the next few years is essentially Gen X and Gen Y. With less than 19% of sales happening with consumers over the age of 55, let’s just say the 401k-home-equity-drained-downsizer is not going anywhere for quite some time.

Now let’s assume an operational premise: Successful real estate sales requires brokers to sell real estate the way buyers want to buy, not the way they (or sellers) want to sell. Of course, we know this lesson goes largely unlearnt in the industry, as the proliferation of newspaper and postcard marketing are two of the three pillars of failure for most brokerages (constant recruiting being the third). But for the sake of argument – and hope for the future – let’s assume that someday soon this lesson will be understood and brokers will sit down and ask themselves:

How does my customer use the internet?

Not, how do I want to market homes to customers? If we leave it to brokers, we know exactly how they want to market homes – even online. We don’t even need to mention them here – but a fruitless search through REALTOR.COM should prove the point. And when it comes to social media, the case becomes worse, not better. Just based upon the number of friends updates I’ve had to “hide” in Facebook lately, it’s clear that many agents have not understood that social media is about relationships, not e-blasts of their overpriced listings or open house dates.

If we think about how the real estate target buyer uses the internet – especially social media – we’ll see that games are vital, not incidental, to our marketing strategy. Playing online video games isn’t just an introvert’s pass-time any more. Farmville has more than 72 million active users. That blows away every real estate website – combined – if you consider these visitors play multiple times a week, and often for 20 minutes or more per visit.

Now would you like to play a game?

There is nothing comparable in online real estate marketing as we know it to game-playing online. Of course, the activities are different: REALTORS are simulating their product catalog online, and game players are entertaining themselves. But the objectives are not dissimilar: REALTORS hope to connect with their sphere of influence via their websites, and game players are already connected to their sphere of influence – and interact with them nearly daily – through the gaming nexus. Social media gaming, in other words, is just another excuse to get together with friends.

Of course, some of those friends may also be clients – past, present or future. It’s no different than the days when we used to play games – like golf or bridge – with our networking buddies, past clients or Association friends. It’s simply moved online – because so has the consumer. Keep in mind that Gen X grew up playing Atari and Nintendo games; and Gen Y doesn’t know fresh air exists. The 20-something buyer literally evolved online, interacting with friends online via XBox and Playstation, while exploring dungeons and foreign planets. Their sphere of influence was largely virtual. And unlike the coffee shop or golf course, it met just as regularly.

Online.

This is why social media game playing is a powerful sales tool. It connects people to people, not people to machines. Gen Y doesn’t want to “search your website” and then wait for someone to return their email (assuming they ever do). They already eschew search engines, preferring to ask their friends what cars to buy, schools to attend – and agents to use – via social networks. They don’t talk on their phones, and they don’t check voice mail. They don’t go out to play – so they won’t be seeing their Baby Boomer laywer or accountant or hairdresser or real estate agent at the local pub or health club.

In fact they won’t see them at all – if those people won’t show up online.

Gaming is about relationships. Competitive “war” games let Gen X’ers pit their mobsters, vampires or poker hand against their peers’. Collaborative games like Fishville, Farmville and Cafe World let Gen Y’ers play nice with the collective. But note that none of these games is played alone. They all involve playing with others.

And that means building and maintaining relationships.

Relationships, which are the heart of successful sales practices. In the past, relationships were built by a traditional sales theory that revolved around an advertising-prospecting-proposal structure. Maybe that sales structure is evolving, along with the modern consumer. Decision making processes in consumption are not what they once were: Gen X’ers don’t believe one word of marketing from anyone, and Gen Y’ers are usually put-off by pushy-scary-closing methods that make up the classic Top Agent Betty Barricuda sales playbook. Even awareness marketing is changing, as fewer people use the newspaper-phonebook-mailbox channels to gather product information, but return to the “town square” model of friendly referrals and family advice.

For Gen X, it’s important to use trusted vendors their peers prefer. For Gen Y, advice from the family, extended but reachable online, is more powerful than any price inducement.

That’s why playing games online matters. It’s a chance for sales professionals to make friends and interact in non-traditional sales environments. They can play winner-loser games with Gen X prospects, and earn their respect through game-play competition. Such respect can later be translated into sales propositions and referrals in the future. Gen Y prospects can become part of your company’s family by participating in collaborative games, egg-hunts and “sims.” They will readily accept new connections from anyone working toward the same goal. Later, when the goal becomes buying or selling a home, they will be primed to trust someone who they have already worked with to reach a (entertainment) goal.

Clearly, playing social media games is time well spent building relationships that are the foundations of future business. There’s no doubt that the next generation of real estate consumers is socialized and prefer to interact through this medium. And it’s not just younger generations of consumers: According to a study done in the last 5 years for AOL Games, “women over the age of 40 play most often and spend the greatest number of hours per week doing so, beating out both adult males and teens of both sexes.” The study also shows that adults are more likely than teenagers to play online games. Maybe that’s why Nintendo’s marketing strategy for the Wii features people of all ages – young to old – playing together.

Now it’s time for the real estate industry to understand that social media can build relationships that turn into business.

And isn’t that the name of the game?

.

I get it. Times are tough. It’s a recession, and most businesses are watching every penny. Business spending on marketing and customer service tools has dropped along with the overall economy. Yet the last time I went to my local shoe store or vet’s office, I don’t remember these fancy gadgets – that not only drew my attention, but taught me something useful about their products, and enticed me with up-sell offers.

In the same day, I got a glimpse of two industries that are headed into the future with every intention of remaining competitive. Take, for example, my vet: We actually don’t visit the vet often – maybe a couple of times a year – so certainly not often enough for us to browse their shelves of specialty cat-food, play-toys and pet wellness items. Today, however, one of my cats needed some blood work, so while the vet took her into the other room, we were left waiting in the examination room. Usually, in the past, these were sit-and-stare-at-the-wall moments, waiting for the doctor to return. Not this time, however: There shining bright and inviting on the wall was an LCD screen inviting us to “touch anywhere” to learn more about our pets.

Instantly, we were engaged in the system. The system called Pet HealthNetwork was full of learning content.  Touch here to learn about the breed. Touch there to learn about common health issues. Touch here to learn about products and procedures that can help your pet lead a healthy and long life. And – of course – such ideas could lead to questions about which products and goodies we could pick up on our way out the door, too.

What a clever idea – to put a pet-like-WebMD right on the wall, make it easy to navigate by touch, and get your “customers” involved in your business. In the few minutes it took for the test to occur, we had look at two short articles, a video and a checklist. We even emailed ourselves a copy and a link to the video so we could play it again back home. When the vet walked back in the room with our cat, my Blackberry had just beeped indicating our email had arrived with our requested information.

Later in the day, I was running some errands before heading on the road for another three-city tour of seminars and leads-management workshops this week. After such a busy fall schedule, I really needed a new pair of shoes, so I decided to try the local Main Street shoe-shop, rather than brave the mall on a pre-holiday weekend. I didn’t really expect much for selection or price, but not only was I pleasantly surprised on both, I was again amazed at another small-time-shop using technology to work with customers.

This time, it was a computer kiosk brimming with information about shoes. Not usually exciting stuff, you’d think, but the technology was full ofsurprised. Rather than focus on the inventory of shoes – like sizes, styles, colors, heels and straps – it focused on the experiences of wearing and enjoying life with shoes. You could look at activities and hobbies – and get a perspective on which shoes would support that activity. Or you could look up any feet troubles you may have – aches and pains or walking disorders – and learn how different aspects of shoes could improve or support proper foot function.

Again, a combination of text, diagrams, pictures and videos explained the issues and options that customers might be experiencing. Powered by a system called iStep, the overall experience focused on helping the customer reach hist goals as a foot-wearer, not just advertising the particular shoes the store had on sale. In fact,  I could actually step on a pad and the system would analyze my feet to tell me about my particular foot-features, and options for maximum footwear results!

In both cases, technology made it possible for customers to learn more about their options while the service personnel was busy. It let the consumer tailor their experience and find information they were interested in – and learn about related issues they might not have known. It used friendly touch-screen simplicity and sent home copies of requested information without a single printout or flyers.

In-store kiosks aren’t new technology. Bookstores have been using them for years, to make finding books faster – and self-serve. Even ATM machines are a kind of kiosk, displaying searchable information like balances and offering information on ancillary products like mortgages based upon the banking profile of the person using the machine.

You have to admit it’s new to see such things at veterinarian offices and shoe stores. Not to mention touch-screen, multi-media approaches. We’re talking about service locations where it was typically necessary for someone else to be involved in providing customers with information and recommendations.

Where the doctor or shoes salesman were in control.

In the  traditional model of vendor-to-consumer  information transfer and knowledge-to-decision consumption, the customer experience depended totally upon the particular person they encountered. If you got the good vet, you got great information and service. If you got the unhappy shoe-salesman, you got basic shoe-box delivery and a blank stare as you figured out if the shoe was on the right foot.

The process could be awesome or awful, and totally out of the control of the consumer.

This approach left consumers very much out of control – for either information or decision-helping knowledge. And for Gen X and Gen Y real consumers, it’s just not an option to be uninvolved in the process. Ironically, all it took was the introduction of a little technology – at the point of purchase – to make such a significant change. And engage the modern consumer.

Of course, there’s a parallel to the real estate industry here, and it’s fairly obvious. Look in the typical brokerage office’s reception area: Are consumers asked to wait – are they asked to get engaged? Can they browse your inventory, company information and ancillary services while they wait? Do they view your office as somewhere to go to learn about the market or access trustworthy educational content during their “exploratory” phase in real estate? If an agent leaves consumers in the conference room, are they consumers left to stare at the wall, or a dusty pamphlet, because your network geek is paranoid about offering unsecured internet access to visitors to your office? What if a consumer strolls by your window: Must they decipher printouts or are they stunned by a LED electronic experience  in the window?

Go one step further – to the hundreds of other real estate sales locations your company has. Oh, yes, you actually have hundreds of offices throughout your marketplace, didn’t you know? Every car of every agent, and every home they show is a place where a portable kiosk could make a difference. They’re called laptops – but just how many of your agents actually take them along for the ride?

And let’s not forget our favorite sales-failure location: open houses. Strategically placing two or three laptops throughout the house, with additional photos, videos, maps, and reports would make it possible for browsing buyers to get involved, and get excited about the home – even if the agent is still cowering with the cookies in the kitchen.

As it turns out, the vet called later to say the cat’s tests were fine. I watched the kiosk video again, and bookmarked their site in case I have other questions later. My new shoes fit nicely, and after filling out the customer service survey online, I received an instant coupon by email for a discount on shoe polish or water-proofing. What an efficient way to up-sell a recent customer; and it all started with the kiosk.

Yet I wonder what I’m going to see when I visit my neighbor’s open house tomorrow.

The house down the street just went on the market, with a local Main Street real estate shop. What do you think I’m going to see when I enter the $1.2 million dollar property’s sales event? Will there be a laptop glowing on the counter? Or do you think I’m going to be asked to sign in on a photocopied sheet and encouraged to take a copy with me of the – ugh – pathetically-printed listing sheet?

Hindsight is always 20/20, they say. Unless, of course, you spend most of your time navel gazing. So it’s almost myopic to point out that some ideas’ time has come. And other ideas’ time has passed. On one hand, it’s time for every sale to include in-house ancillary sales. On the other hand, it’s time for NAR to give up the dream of one HAL-like central database. Didn’t they find the bellybutton lint the last time they tried it?

Some of us might recall a time when both of these ideas seemed like a good thing. Creating a central database of properties nationwide – the elusive national MLS – and incorporating ancillary sales like mortgage and warranty into every deal. The first idea resulted in a horribly disfigured technology experiment. REALTORS themselves came to hate their own national marketing site, REALTOR.COM – for all sorts of reasons. So they punished it by withholding data – or uploading junk, if you consider the quality of most of the photos. As for selling more ancillary services, a few companies successfully deployed such “one-stop” services that are today helping to pay the bills when plain-old home-sale commissions cannot.

At the time, each of these innovations was hailed as the industry’s response to customers’ desires for “one stop shopping.” They were unveiled as centerpieces of REALTORS-at-the-center-of-the-deal strategies. Ancillary sales are keeping the doors open at many companies these days. The national website has become an embarrassing central repository of inaccurate and low-resolution data.

We could use more of the one, and less of the other, these days.

Turns out ancillary service dollars would come in quite handy these days, since selling short sales and foreclosures won’t put gifts under the tree. As for opportunity lost, REALTORS disdain for the site that bears their name keeps them from leveraging what would have been handy cost-savings for agents who cannot afford to pay-per-click these days.

Certainly, don’t blame consumers: we love one-stop shopping. We preview, select, test and finance cars within the same building. We  browse, pick and purchase – with a store credit card – clothing at retail shops. We click, configure, cart and ship computers from one website. We’d prefer to have more of everything integrated; but we really don’t need to see every car, shirt or computer available nationwide in one database.

Really.

I thought all real estate was local, anyway? Oh, never mind. But really, this isn’t a story about saying we should have done more to integrate ancillary sales into every deal. Consumers will force that upon the industry eventually. Rather, this is a story about vision going forward. And unlike selling more ancillary sales – which was simply ahead of its time – it doesn’t look some pet projects will take REALTORS into the future.

And the biggest example of blurry vision is the National Association of REALTORS new “Property Resource” database.

Once again, another centralized database project promises to make REALTORS invaluable by putting every home on the map into a single website. Oh, there will be the usual nooks-and-crannies: tax, zoning and past-sale information. Wow. Really potent stuff.

Can you say abacus?

But this time it will be nationwide! Did nobody at NAR read their own consumer study,  indicating the average person moved a mere 13 miles from his previous address? But the database will include neato-features like forms! As if making the paperwork easier is what ails real estate sales these days.

Did I miss a decade or something? Are there really any REALTORS out there struggling to find such data locally? Could someone point out the big crowds of consumers that are in desperate need of instant parcel and school information from their agent? Or do they have that stuff already…….

Once again it looks to me – an admitted contrarian – that a vision of the future is being obfuscated by the shades of the past. RIN, REALTOR.COM and now RPR. How quickly we forget. Like admitting the bubble will pop someday, but resisting efforts to integrate ancillary sales into every company transaction. So we’d have something to sell when it does.

The National Association of REALTORS is trying to solve a non-problem: They keep trying to create the single biggest housing database in the mistaken belief that it will suddenly solve all of the problems in the business. It’s a glaringly Baby Boomer project – to recreate the Sears Catalog of real estate – with no Gen X or Gen Y consumers on the mailing list.

But it’s got a snazzy acronym: RPR. Maybe they can name the next big project RIP?

Everything about this project is backwards. It’s claimed that RPR will let REALTORS “respond quickly to consumers” who want information on any of the 147 million parcels in the country. Are we talking about the same REALTORS, 50% of whom, according to NAR”s own studies, don’t own a smartphone? The same REALTORS who can’t upload decent photos to REALTOR.COM? The same REALTORS who won’t offer their in-house warranty or mortgage service to buyers, well, just because.

Or is this just a “get even” play – to finally get back at REALTOR.COM or Zillow or Trulia, for beating them to the punch. NAR’s own press release hints at it, saying RPR will offer its members such data, “rather than requiring REALTORS to purchase data aggregated by third parties.”

Further, are any of the data elements RPR will provide actually missing on most websites consumers use today? Do not the top 20 real estate sites online offer neighborhood, tax, demographic, school, and other data today? As for liens, zoning and permits: Find me one buyer who asks for such information, and I’ll show you a builder who already knows it.

NAR says this project is part of their “Second Century” initiatives for the real estate industry.  I can’t really see how. Unless NAR means the Second Century AD.

The real estate industry is ripe for a serious game changer. By that, I don’t mean some company that comes along fiddling with  commissions or cutesy technology marketing. I’m talking something that causes customers to stand up and say,  Wow! I’m definitely working with that company. We’ve talked about this before in our blog, but the timing is  better than ever. In fact, I’m thinking of making an appointment with Richard Branson, in the hopes that he’ll  take up my suggestion and do for real estate what he’s done for the airline industry. It’s time for him to open  Virgin Real Estate.

For anyone who has tried Branson’s new Virgin America airline, you know what I’m talking about. Virgin had already changed the game in trans-Atlantic flying, with its upscale, high tech, high touch service. They actually made  flying those long hours from America to Europe enjoyable again. And when they brought the same pinache to the American markets, they effectively changed the game. Again.

That’s why I’m thinking they’re the right company to do something similar in the real estate industry. Could it be?

We all know game changers when we see them. The Apple iPod. The Nintendo Wii.  These companies didn’t just improve their industry’s basic products or standard services. They threw out the book and rewrote what it meant for customers to enjoy using them. And pay for them. That’s why they are so successful – and create loyal,  raving fans (which other companies just call customers).

Who will be the Virgin Real Estate game changer? Can a company  create something in the housing industry that has customers saying, “Bloody fantastic!” when it comes to buying or selling a home?(English accent optional.)

Let me tell you how it’s done. Simply step onto a Virgin America airplane and you immediately know something different is going to happen. It’s not just the cool purple lighting or the luxurious leather  seating, even for the cheapskates in the back. Even first class is above and beyond – with more electronic seat adjustments than a  Mercedes, including heating, that matches the “back rub-like” attention you get from the staff. Sure, Virgin’s entertainment systems are high tech: touch screens, thousands of audio recordings,  satellite television and dozens of first-rate movies. There’s even internet access, and “seat to seat” chat for the Gen Y’ers who can’t beat to watch television without tweeting their fleeting thoughts to someone somewhere. Yes, all  of that stuff is really quite cool.

It’s all a far cry from the crusty-cattle-coach of Southwest, where you can’t even get a dedicated seat number let alone a seat-back entertainment system. Their idea of “game changer” was mostly a knock-off on the “for sale  by owner” approach that plagues the real estate industry. Thankfully they retained a few experts to keep the plane in the air. There’s  something more, though, than Virgin’s  fancy electronics that makes the difference, because JetBlue has a similar entertainment system, and similar smidgens of extra leg room, but they aren’t the game changer you’ll find from Red.

The difference is in Virgin’s people. Sure, most airlines have someone greet you at the door, but they are usually multitasking: stacking cups, serving first class, and squeezing in a “howaya” to the rest of us coming aboard.  Virgin flight attendants are immediately different. They make eye contact. They talk to you. They are  genuinely helpful and excited you’ve arrived. Does it feel like that at an open house today? How about when the secretary answers the phone?

Imagine getting it for only $129, on an airplane.

Such investment – in well trained people focused on their primary objective, the customer – extends all the way  to the back, where food and beverage service is served just like a restaurant. On Virgin America, you  select items from your personal entertainment system, swipe your credit card, and an attendant stops by shortly later to hand-deliver your meal. You can eat or drink any time, not just when the cart is congesting the aisle. And it’s  not actually less work for the attendants – yet they do it with zest and zeal. Is that how we respond to consumers who ask about our listings by email?

Is it only better customer service, more running around for the customer, that makes Virgin America really that different? Actually, not really. Everyone could try harder; but that doesn’t always mean it’s better. When it comes down to it, the real game changers occur when companies mess up. And all companies do – except that very  few ‘fess up when it happens. And that’s where Virgin America really shines.

Last week, this very game-changing difference was contrasted over two days, two flights and two carriers. First,  it was a long-haul trip with Virgin America from Los Angeles to Boston. Those kinds of flights are where you really appreciate the great entertainment system and wireless internet access (free on Virgin, compliments of  Google, until January). Unfortunately, on this particular flight, the system wouldn’t boot up. No movies, music  or internet access (blame Linux, not Microsoft, for that one). Suddenly the entertainment options were worst than had I flown, say, United, whose idea of technology still involves old-style televisions  hanging from the ceiling. Luckily I had my iPod and a good book (yes, they still exist).

Except it wasn’t going to be the same old flight. Virgin won’t allow that to happen. Even after the staff went the extra mile with complimentary food and beverages, Virgin’s culture of customer service wouldn’t let up. As we were coming in for landing in Boston, the Captain made an announcement. In recognition that their entertainment system didn’t work on the flight, he had called ahead and asked the corporate headquarters to issue a credit to everyone on board. Everyone in the main cabin received a $25 credit, while upgraded passengers were credited $100. Without having to ask. Automatically. Before we even landed.

Bloody awesome!

That’s what we mean when we think of a game changer in the real estate industry. Where is the company that’s creating that experience for today’s home sellers and buyers?

It’s also why my flight the next day was such a contrast. It was a JetBlue trip to the Bahamas, and there was a problem. This time it wasn’t technological but biological. And it could have affected the safety of everyone on board. As the flight attendant explained to us our duties for sitting in the emergency exit row, the woman on the other aisle nearest the emergency exit didn’t speak English. Not even barely. When the attendant asked for verbal confirmation that we’d all be willing to assist in an emergency, she didn’t respond.  When he asked again, it was clear to all of us that she didn’t understand.

But what did he do?

Nothing. His approach to problem solving was to return to the front of the plane and tell the gate agent, who came back and asked the woman politely if she understood English fluently. Clearly, the “ya, ya” response didn’t convince any of us. But the gate agent simply turned around and shrugged. Who was he to ask the passenger to be reseated? He wasn’t backed up by a culture that encouraged problem solving. He didn’t even make  eye contact with the rest of us who looked at him, expectantly, to do something. He just turned away. What was he thinking? “It probably won’t be a problem,” wasn’t the kind of resolution I was hoping for.

Of course, nothing did happen on that flight, so it turned out for the best anyway. Or did it? Not really, because someone noticed. The customer. For all of their  similarities – techno-entertainment, legroom, newer planes – JetBlue instantly lost its industry leadership to the game-changer Virgin America.

It’s an important lesson for the real estate industry, I think, because for year’s we’ve been on a quest to find the game changer with a button. Some fancy web technology or an innovative sales tool. Wireless or wired, the game has still remained the same. In fact, the industry is mostly still behind the customer’s game plans – even when it’s simply the use of smartphones or social networks. Yet changing the game isn’t just about the systems and tools. It’s how your people use them. And it’s why the next time I fly to Los Angeles, there’s little chance I’ll choose JetBlue, when I could be on a Virgin America plane changing what it means to fly same skies.

Now can we make that happen in real estate, too?

For whatever reason, a dangerous self-deception has grown into a well-worn cliche in the real estate industry: The customer doesn’t want to be sold. Unfortunately, if we believe this to be true, we’re only going to see more brokers leaving the business. While it may be true that consumers don’t like “hard sell” techniques – the kind of pink-tie-pushy we equate with used car salesmen – it’s dangerous to think there isn’t a place for good sales techniques. In fact, the most successful – and trusted – professionals are always selling. A recent poll of most trusted professions in Australia included jobs that include constant selling – hairdressers, plumbers, bartenders and mechanics all make a living by selling and up-selling their goods. Even sex workers – perhaps the ultimate sales person (and ranked higher than real estate agents in the survey) remind us that sales is the name of the game.

So it’s time to put the contact (so to speak) back into real estate contact management!

For starters, let’s diagnose the typical current sales activity at the typical open house. As a professional open house browser (which helps me identify growth potential for my clients) I’m always looking for the agent who will actually try to sell me their listing. Unfortunately, it’s rare. Most open house experiences with the listing agent (assuming they don’t send their assistant to sit there) go like this:

“Hi, welcome to the open house. Please sign in. Feel free to look around. Here’s a listing sheet. If you have any questions, I’ll be standing right here to answer them for you.”

End of sales presentation.

Does this kind of sales activity happen anywhere else? Maybe retail stores, where the consumer is perfectly capable of picking out a shirt or dress without much sales assistance. Or the convenience store, where clerks mostly avoid making eye contact and begrudgingly tell you where to find the tissue paper. Truth is, most complex purchase decisions require some selling. The hairdresser listens to your “desires” for a new style, then upsells her process, helping you realize how the solution meets your needs. Same with the stock broker or car mechanic. Great salespeople spend the time with the customer, assessing their situation, then offering ideas and solutions as to why their product or service meets those needs.

Yet at most open houses, barely any communication happens between the agent and the browsers. It’s all “hands off” and “non-invasive” in the mistaken belief that the customer actually knows what they are looking at – and why it’s valuable to them. Of course, it’s the kind of non-sales service that does the seller real harm, by losing the opportunity to sell the “un-seen” features and benefits of most homes.

The stuff that buyers really want to know, too.

Most buyers say that their purchase decisions were not made on visible features alone, like room sizes, colors or toilets. Gen Y’er first time buyers are at a double-disadvantage if a non-sales-person is representing the home. Not only do these inexperienced buyers – who have either lived at home or in an apartment – not know what they’re really seeing, they don’t know what they are not seeing either. Items like energy saving windows, new insulation, water treatment, efficient heating and other green features that excite Gen Y’ers aren’t “observable” features to someone who has never owned their own home before.

Thus, the greater need for salemanship when it comes to new buyers especially.

In fact, so many of the deciding factors of homes may go unknown to most people at open houses because even experienced buyers can be distracted or simply misinformed. What someone thinks they know about the neighborhood, what they believe about certain renovations or appliances, or simply what they think they are seeing could be far from the facts. And rarely do these perceptions appear on the listing sheet, that pathetic document of room dimensions and description abbreviations.

Since homes can’t be “test driven” nor returned if they don’t meet the buyer’s needs, sales presentations are even more important at open houses. Ironically, the listing agent probably had a strong sales presentation when it came to getting the listing, but they suddenly think it’s pushy or intrusive to use a presentation with buyers at the open house.

Poor sellers! If you’d only known!

What should a sales-centric open house look like? There are many excellent models to choose from: The computer salesman who starts by asking you what you’ll use the computer for, what kind of programs you need and what kind of experience you have – then proceeds to show you his products’ obvious and hidden features. The investment broker who listens to your financial goals, then matches them up with benefits of his stocks and bonds, explaining how each satisfies your requirements. The hairdresser who reads your emotional desires and suggests cuts and colors you might not have considered on your own.

In each case, the salesperson interacted, listened, and presented. At the open house, it could go the same way.

Start with an opening conversation – perhaps before permitting buyers to wander (unattended, no less) through the house.

Then, take the buyer on an accompanied tour pointing out the many features and benefits of the home. Along the way, ask questions to learn a little about their needs, and try to make connections.

Ironically, it’s exactly what agents do when showing other agent’s houses to buyers during showings. But it rarely happens at the open house of their own listing!

But the listing agent would have a tremendous advantage acocmpanying the buyers during the open house. In each room, the agent could identify key features of each room, including elements that nobody could t know without x-ray vision or years of having lived in the home. They know this because they have talked to the sellers about the hidden features. And what makes each room special!

This is where the sun rises every morning. Here are where beautiful sunsets are enjoyed. These windows save energy; Those floors are actually marble, not tile. The wiring was re-done three years ago; The insulation was upgraded last year. And here’s where you’re going to love having friends and family over for a barbecue!

Technology would be employed along the way. A tablet laptop could display additional information – pictures, diagrams, videos – describing appliances, heating or roofing materials. A sales presentation on a give-away flash drive would include additional photos, warranties, disclosures, inspection reports and other useful information. A digital camera could document the tour and immediately email photos and videos to the buyers to review again later.

In exchange for their email address. Useful for further sales contact.

And feedback from the buyers could be noted along the tour, with comments and concerns documented for sellers to benefit from later. Funny how so much feedback – on price, decor, features – goes un-gathered from so many customers every Sunday. Open houses as a market research toolm helping fine tune the competitive position in real time.

Imagine that!

Of course, it means changes to the current (stale) process. Maybe buyers would have to register for a specific time to tour the home during open house hours. Perhaps tours could start “every 15 minutes,” and buyers would be shown the home in groups. That might create competition, or at least a sense of urgency.

Who knows? What we do know for sure is that the current un-sales-like process of letting buyers show themselves around is highly unproductive. Only a tiny percentage of people make offers during open houses. Yet hairdressers, accountants and computer geeks can get people to make complex, emotional buying decisions on the spot. It’s time to get that to happen at open houses, by selling, not sitting, at the kitchen table.

The big yellow book of phone listings and business ads is a shining metaphor for those companies whose strategy is to hold on to the past, for as long as they can. Surely, the days when people will need their product will return once the recession is over, right? Then, the Yellow book will return to its rightful place in the home: Namely, as a booster seat for babies eating at the kitchen table.

Home phones. Television guides. Mailbox coupons. Sunday circulars. Newspaper classified ads. Real estate websites that don’t display for sale by owner inventory. The persistence of useless items from yesteryear boggles the mind. It’s almost as if some companies haven’t noticed the existence of cellular phones, that cable systems have online programming guides, email  sales promotions  drive impulse purchases, that owners can put their own homes online, and, well, need we even mention newspapers? For some reason, the people in charge of all of these companies think that if they just keep at it, customers will return someday soon!

Sounds kinda like the real estate industry.

The persistence of absurdity is more than just resistance to change. Sure, change is hard, but it pretty much happens with or without us. And mostly to us. Ironically, most of us do change. If we were to look at ourselves from a distance of ten years ago, Some of us would be pleasantly surprised at how much we have grown. Others, perhaps not so much.

What about those parts of the industry that haven’t changed? Do they matter? Absolutely, as the recession proves. Many of the things we’ve “always done’ are able to bring us out of the market downturn. No matter how much we “keep on” doing them.

How is it possible, given so much that did change, that so many of the most important parts of our business remain mired in the past? Worse, some people are actually trying to “revive” past practices in some sort of traditionalist romanticism that what we used to used to work.

As if I – the modern customer – didn’t exist.

A boom and a bust happened. Not just in house prices, but in norms. Of the 250,000 REALTORS that joined the industry in the last decade, all have left, and more. Where 57% of brokers didn’t make a profit a decade ago, should 43% do this year, we’ll be ecstatic. Yet despite a vast array of new things we couldn’t even imagine back then, like smartphones and social networking, too many unproductive habits circle like yellow albatross. Threatening to drown us.

Ten years ago we were just getting the hang of REALTOR.COM. Back then having one photo per listing was amazing; multiple photos were progressive; video tours science fiction. Today, a decade later, thousands of listings appear online, bereft of images, let alone well-written descriptions, although the agent’s air-brushed image smiles nearby. Absurd, then, that consumer surveys consistently show that multiple property photos and extensive descriptions are the two most important things they wish to see online.

Ten years ago many listings weren’t priced right. Long before the pricing bubble made agents think they could ignore proper pricing practices, the vast majority of expired listings (ie, unsold after months of trying by a REALTOR) could be attributed to mis-pricing practices. Today, mis-pricing is the norm for most inventory, even if we choose to blame sellers’ as stubborn. The fact remains that most of the agents who mis-priced homes a decade ago have long since left the industry. Absurd, that the industry still hasn’t figured out how to institutionalize proper pricing practices for its current practitioners.

Ten years ago REALTORS claimed that the innovation of the lockbox justified the selling agent’s absence at showings. “Selling” a home wasn’t widely believed to require the representing broker’s presence to answer questions or discuss the product’s merits with potential buyers. A cooperating agent could do that just fine, especially when inventory was scarce. A decade later, most listings and empty foreclosures are still left to distinguish themselves amongst piles of similar inventory. Buyers, it is absurdly claimed, will sell themselves on the home.

Sunday open houses are still held, even though Sunday dinners have become a thing of the past for busy Gen X’ers. Silent virtual tours typify real estate portals who seem to think Gen Y’ers will be impressed that – at least – the tours are in color. Managers continue to recruit “new” practitioners with neither experience nor training in the art of sales. It’s expected that California’s REALTOR population will actually grow this year: new recruits will come from the ranks of unemployed accountants, discredited stock brokers and laid off assembly workers. Absurd, to think they won’t make great agents for our client’s most valuable asset.

Which brings us back to the yellow pages sitting on my doorstep. Perhaps no greater bible of uselessness exists today. Yet somebody had to produce it. Somewhere, people sat in a room and convinced themselves that I still needed it. Some of their people actually had the task of selling the space to businesses, claiming distribution to every home meant value to the homeowners. Others had to design it, organize it, print it and actually deliver it. And they all believed that it would work, because  it worked in the past.

None of them, however, actually took the time to talk to me. The customer. Or watch me express how much I “valued” their product – as I tossed it in the recycling bin. Next to the ink-jet printed postcards announcing nearby Open Houses and the latest price-reduced listings.

Perhaps that’s why so many agents still overprice, under-market and fail to simply appear at the sales event for their products. And achieve about the same results as my recycled phone directory.

Of course, the people at the Yellow pages did get one thing right: I do use my front porch to gather information. I usually sit there, watching the sunset, looking up the afternoon movie times on my Smartphone and checking the latest property listings, including For Sale By Owners, on my Redfin iPhone application.

Absurd, to think I didn’t.

A recent Businessweek article featuring Starbucks CEO Howard Schultz should be required reading for REALTORS. Its main point – that the Starbucks that told its employees “do anything you feel like” has finally met the cold reality of customer expectations. With sales dropping and stores closing, the Seattle-based giant has had to wake up and smell the coffee. Gone are the boom years, when Starbucks opened a store a week, hired “partners” not employees, and left it up to them to “organically” figure out how to pour coffee and make customers happy. Turns out that was a stupid business model. Not unlike another industry that was only profitable during a credit boom.

When credit was cheap,  customers would drink anything, as long as it was chic. Much like the housing business, much of it has turned out to be lukewarm. Today $4 cups of coffee alone can’t capture enough customers, no matter what the “experience” is like in the store. Moreover, many stores’ experience isn’t all that great, exactly because it has been left to untrained people with no specific process. Again, not unlike the real estate industry that hires recently licensed “agents,” sticks them on the phones or at open houses, and wonders why so few customers are converted into deals.

Starbucks, at least, is learning to grow up. Critically, it is learning that process matters. Much like the dot-coms eventully learned that profits matter, Starbucks has to become more than just image-centric. Consumers desire consistency of outcomes and dependable value – which only comes from managing people operating sound performace processes. All of which parallels the real estate brokerage business that’s learning it has outgrown the mom-and-pop model, even with big websites and electronic lock boxes, where anything and anyone goes…

Not, says the consumer, any longer.

Ironically, most REALTORS earn about the same as Starbucks coffee shop employees. After taxes and without Starbuck’s basic benefits like health insurance, vacation and stock options, 75% of REALTORS actually fare worse. As for the customer, with plenty of alternatives, it turns out both industries require more than just a “people business” operating model that both tradionally mouthed.

Customer value means more than just nice people.  And that’s where both industries have much to learn about process.

Starbucks started out there, but 16,000 stores later found that without specific production processes and active managers, they lost control of the “experience.” REALTORS also used to control the experience, mostly when they had tight control of information; with their strangle-hold gone, agent-personality alone just isn’t enough to sustain customer loyalty in the future.

And less than 30% of customers use the same REALTOR again the second time to sell their home. Or third. Or fourth.

Both industries are grappling with this change: The need to create business models that go beyond the truism that it’s all about people. It may be true; but it’s not enough. For consumers, good people, high service and honest relationships are the beginning of the value equation. Consistent outcomes, understandable processes and reasonably determined fees must also factor into any service business proposition. When these things remains uncertain for millions of transactions annually, it’s no wonder either industry faces challenges when consumers are watching their spending more closely.

The parallels are perfect. Starbucks was renowned for being the place where “… most of its existence was fast-growing and free-flowing, a place where the experience was everything. A place where the boss led by instinct, where authenticity was what counted.” This is the very model of most struggling (and failing) real estate companies today, who have left their success up to managers who work from the gut, and agents who wheel-and-deal the experience mostly with the customer’s dreams and money. The focus – and marketing – is about the “experience” rather than the actual outcomes.

And customers won’t buy that any more. Not, at least, without a discount. And neither industry can afford a price cut.

Most of the Starbucks experience was created by the customers, not the company. The “sit and sip on sofas” experience depended entirely upon which other customers were in the shop at the time, not the employees interacting with the customer. Employees could barely keep up with the long lines – because their process was too “free flowing” it took 8 minutes to pour a cup of coffee. No time left to create experience, really. And once the grunge-group youth hit their credit card limits, the only customers left making the experience were soccer-moms trailing kindergarden kids and retirees. The experience changed because it was completely out of the control of the company. And Starbucks core-customer, the Gen X buyer, simply decided it wasn’t the experience they wanted any longer.

Just like today’s real estate office.

When the customer experience changed, all that was left was competition on price and service. Starbucks’ Gen X customers decided to just buy cheaper coffee, once all the seats in the shop were occupied by kids and grandparents. It was no longer their ’scene’ so the drive-through at Dunkin Donuts was an equivalent substitute: Long lines, poor service and no desire to sit around with those customers either, but half the price.

The same lesson is being learned at real estate companies. Their customers are left questioning the price, since the experience is so unpredictable. Core Gen X buyers and broke Baby Boomer sellers are suddenly asking why it costs $36,000 to sell a $600,000 home, as much as they paid for the Honda hybrid. Neither offers their loyalty automatically any more, certainly not to the bank-owned agents who won’t call you back, even after you put a full-price offer in on their foreclosure. And forget about Gen Y buyers getting an agent to communicate by text messages. If you want them to leave a voice mail, Gen Y is going to go look at FSBO’s by themselves. At least they don’t have to pay a commission for a bad experience.

When customer start to give up – walking out of the coffee shop or waiting for an agent to text them back – the writing is on the wall. Perhaps that’s why Starbucks’ CEO also said, “We got swept up,” Schultz says. “We stopped asking: How can we do better? We had a sense of entitlement. And I’m here to tell you that’s over.” Is anyone saying that in real estate brokerage? Maybe, but certainly not loudly.  While Starbucks seems to have understood that process matters, the real estate industry can’t seem to get the message. Too much recruiting still claims it’s “all about the agents.” Too few companies even know how many customer inquiries go un-answered each day. Even those with the best technology aren’t making the process changes necessary – to training, management and quality controls – to get customers to come back regularly.

Instead, customers are walking away, while agents are still preening in the mirror. While Starbucks is learning how to pour a cup of coffee all over again, too many REALTORS are just waiting for their entitlement days to return again.

The bad news is that too few will be around to see them return; The good news is that at least Starbucks will still be hiring.

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Two questions demonstrated better than ever the degree of transformation occuring in those brokerages who are committed to being market leaders. And the answers from both sides of the room proved that, no matter what the struggle, the industry continues to be flexible, innovative and dedicated to its customers.

[Note: The following is paraphrased from each participant, purely from my memory; no exact transcript was used and it's certain that the audience and speakers were much more eloquent and insightful than my recollection. I have tried to encapsulate the excitement and energy of the discussion, including some of the questions and answers that stuck out in my mind. I think you'll get the point.]

Audience member: How can we think differently about recruiting – and attract new salespeople, perhaps younger, to join our companies and build a long-term viable sales force?

Steve Harney: Stop thinking of it as recruiting; and start thinking of it as “rescuing” those agents who are at risk of leaving the industry altogether. The biggest danger to the industry today is that experienced, capable and trained agents associated with failing companies may throw in the towel completely if their organization goes under. Focus on these knowledge-experts first and go rescue them before we lose them completely.”

Audience member: What about younger people who aren’t in the industry yet? How do we attract them – since they aren’t really “rescue” candidates yet? Do you think we need to offer them salaries?

Matthew Ferrara: Agent compensation isn’t why people join real estate, nor a major reason for performance or non-performance. And younger people are more likely to respond to the “sky’s the limit” proposition than “it’s $20 per hour salary.” The top agents in the world are paid on commission; the worst agents in the world are also paid on commission. The common factor – being paid by commission – isn’t the deciding factor in their performance. It’s management, which creates a performance environment for them, provides the right tools and the knowledge on how to use them rightly, and shows agents what it takes to build a career. Some may never become “superstars” but most should still be able to create viable long-term careers. But that means recruiting agents who are focued on selling to the customer, and worried less about how many ribbons and pins their competition has on their chest.

Audience member: One of the biggest lessons we learned is that when you’re trying to attract younger agents, you don’t want them to be interviewed by their 25-year-plus peers. It’s hard to create a connection with them if they feel like they’ll be working with people their parents’ age that don’t seem to connect with them in the same way.

Mike Staver: That’s where leadership comes in. You have to ask yourself, why would anyone follow you? Do you inspire them to stick with you because of a viable, visionary mission, or just because you are the boss. Age can become less of a barrier if your mission is exciting – and the leaders of your company, including yourself – are committed to it. That’s how to connect with people; not just because you all have the same iPhone.

This kind of back-and-forth happened for two-plus hours. And I found myself more energized by what was being asked and offered by the audience as much as by my peers in the front of the room. Then the “biggie” question hit:

Mike Staver: Let’s ask the audience a question for a change. What is it that the real estate industry is “pretending” not to know? In other words, what is it that we all go back to our offices and ‘know’ is our biggest concern, but we’re pretending like it doesn’t exist?

Audience member: That someone will come along with a model and blow away all traditional brokerage. Redfin and Foxtons almost did it. What if the next company that tries succeeds in finding that formula?

Audience member: That we don’t really know what the customer experience is like because we’re always looking at it from the inside out. Even when we try to measure and survey our performance, it’s really designed and analyzed with the answers we wanted to hear anyway.

Steve Harney: That on December 31, we’re going to have the biggest day in American history for expired listings. And on January 1, will our agents be prepared to take advantage of the situation. And are we sharing this information – including the upcoming shadow-inventory that’s also going to hit the market – with our sellers so they understand what the real market looks like and we can advise them to make good decisions?

Matthew Ferrara: That the real estate industry still works too hard, in general, and produces to little, per person. It’s the easiest business in the world that we make harder than it has to be. Most agents put in too much effort and time to make less income than a coffee barrista. Even the successful agents spend more time trying to make $100,000 than top performers in other industries. I think the biggest thing we’re pretending not to know is that our production model isn’t keeping up with the modern world and that the era of 60-plus hour workweeks, inefficiency and redundancy, is slowly killing our current top performers and scaring away our potential future ones. And it’s bankrupting too many brokers along the way.

It went on like this for the rest of the afternoon; and it continued later in the restaurant downstairs. Not all questions had “final answers” and many answers created new questions. But the real lessons from the day wasn’t the ideas shared on the various topics, or the discomfort some people showed when asked to challenge their assumptions. The real lessons could be seen during the break, and in the side conversations after the session: Brokers talking to each other and to the speakers with one common theme:

Sure the business is changing, and the future is unknown. But dammit, I’m going to be a part of that change this time around, not wait for it to hit me on the head and then try to catch up.

As Peter Drucker once taught, “The best way to predict the future is to create it.” Yesterday, in Manhattan, a hundred brokers, three thinkers and representatives from the network of Leading Real Estate Companies of the World began learning that lesson. And creating their future, one question at a time.

Believe it or not: Yes!

As faithful contrians, we at Matthew Ferrara & Company think the housing industry recovery isn’t going to be spotted by the usual stripes. That’s because there’s a big difference between an “industry recovery” and a market recovery. Realistically, there won’t be a market recovery – if it’s defined as a “return to high prices and commissions” – for decades, despite the Fed’s inflationary attempts at raising house prices through monetary policy. Remember that inflation may cause housing costs to go up, but spending power will go down;  higher priced homes won’t yield higher commissions for the real estate industry when consumers don’t have the spending power to purchase them. But we think that’s still looking in the wrong direction for an indusdtry recovery.

The market will be whatever the market wants to be. The housing industry – REALTORS, builders and mortgage brokers – will not really have a say on whither the market. But they will have a say on whether they wither. And that’s the industry recovery we should be focused on.

For the industry to recover it must return to profitability. That means significant portions of the current industry “standards” must be discarded. Clearly, the “ways we’ve always done it” won’t work in an contingency-fee industry whose primary commodity value has already dropped 30% from the time when most of these “ways” were instituted. In other words, we can’t keep practicing like it’s 2003, or even 1993 (and for some, 1973) because the market won’t support such low standards of productivity.

The numbers are well known: Seventy-five percent of REALTORS make less than $45,000 annually, with less benefits than a coffee barrista. Most brands are closing more brokers than adding new ones, and shot-gun weddings are the new M&A in the business. Recent surveys from Harris Interactive ranked real estate agents lower than accountants and stock brokers; A Chinese public survey ranked them even lower. It’s hard to believe that we still think there are ways to be profitable in an industry under such pressures.

Yet profitablity doesn’t necessarily require a growing marketplace; it simply requires a margin-making business plan, and operational practices that support it. That’s why we’re still able to see companies making money – yes, even today – in the real estate market. These companies have already mastered the benchmarks for real estate profitability. And when the rest of the industry does, we’ll be quite on our way to a housing industry recovery.

What are these benchmarks for a real estate revival? They are the performance metrics that we’ve all known all along: Of course, it takes industry gadflies to speak them out loud (so we shall here):

1. High Per Person Productivity. It is productivity, not cost management, that is going to revive industry profits. Only significant, steady and sustainable sales can create a turn-around. This requires companies to adopt serious performance goals for their sales teams, and consistently reach them. From most data, it looks like agents must sustain 25 or more closed deals each annually. Dollar volume can fluctuate with market values, but a per-person productivity in units less than this simply costs too much to support (see #2). This means cutting the under-10-unit performers and consolidating their business into 2/3rds fewer performers in each office. Body count cannot compensate like it did in the old days.
2. Lower Per Person Operational Costs. In the old days, we could “just add bodies” because per-person costs were low. Training was minimal, and per-person technology and management costs barely existed. Today, the basic entry costs per agent are reaching tens of thousands of dollars. Even “virtual” companies don’t save as much as they hoped, since space-off-setting technologies aren’t necessarily less expensive. Add in the cost for higher training, quality control and performance management (ie., a manager who manages) and companies will need to drive down per-person costs to be profitable. This means – to its horror – less per-agent advertising and more company-consolidated marketing. Redundant costs – like “per-agent” activities – make little sense when most customers stick to whomever responds to them first, not necessarily whomever was best.
3. Less inventory per day. This doesn’t mean less inventory as an industry or even less inventory per company. But it means that the average carrying-days per listing must be significantly reduced – perhaps by as much as fifty-percent. Better pricing, shorter listing contracts (ie., marketing cost obligations) and faster turn-around will not only produce more serious sellers, smarter pricing and faster cash flow, but it will be necessary to achieve #1 and #2 above.
4. Taylorism. Or at the very least, some form of waste-management optimization for time. Most failing real estate agents spend too little time doing the right things; too much time doing nothing. Most productive agents still work far more hours per capita to comparable salary earners. Time – the scarcest of resources – is poorly managed in this business. The average time spent selling each unit of housing is far too long. Until the industry focuses on streamlining processes and applying comparative talent advantages on a company basis (not per agent basis) sales margins will remain too low to sustain any recovery.
5. Decentralization. For nearly two decades, the industry has been consolidating. Even “independent” brokers are innovation-hampered by centralized decision making at local, state and national levels. Local MLS committees, statewide regulatory agencies and national brand systems have frequently imposed processes and requirements that merely pile on costs and constraints. Where most other industries have scaped off layers of bureaucracy, the real estate industry has spent twenty years substituting procedures for progress. Until companies understand that there are more ways to “get things done” than their REALTOR or company headquarters suggests, costs will rise (a la healthcare) while commodity costs fall.

Of course, what’s more interesting – to my mind – isn’t what’s in this list of housing industry recovery benchmarks, but what has been left out. Notice that recruiting isn’t mentioned – because adding more untrained, unsupervised, unproductive bodies isn’t a viable solution. Notice that more technology panaceas aren’t listed, because the technology tools most companies have today are so poorly administered and used by agents, managers and staff that adding more simply increases costs. And notice, too, that the usual does of “it’s the consumer’s fault!” does not appear, because the real estate industry isn’t suffering from too few opportunities; it’s suffering from too little productivity. Only one of these is really within its ability to control.

A housing industry recovery can occur, even during a sharp recession. Many top-quality, highly-profitable companies were started during economic declines within their industries. The benchmarks for performance won’t be what we’ve always done; but thankfully, they won’t give us what we’re currently getting, either.

Making mountains out of molehills seems to be a favorite activity in the real estate industry. First, it was the “internet” going to put brokers out of business. Then, it was websites who were “selling” real estate consumers back to agents as leads. Along the way the industry even ate its own, claiming REALTOR.COM was “stealing” the value of brokers’ data because they used it to create a profit selling ads. None of these issues turned out to really be anything more than a few busybodies being, well, busy. So it’s no surprise that over at Inman, they’ve been humping another non-issue for some months now: The great debate over whether agents compensation is at the heart of the industry’s failings. We can tell you right now this is another non-issue because, in order for it to be a problem, agents would have to be being compensated – something not really happening in the business these days. But do let’s go on…

Slightly more seriously, the reason agent compensation is really a non-issue is because it’s totally disconnected from the problems it is purported to create. The usual “it harms consumer” canard doesn’t stand up to scrutiny for the most basic of reasons: consumers aren’t idiots. If they really thought the practice of charging a percentage of their sale – on contingency, mind you – was not in their interest, they would have defected by now. More companies would have heard from consumers that they “preferred” a flat fee, or some other form of payment mode. Yet the industry has been charging a contingency commission percentage for decades, and consumers have been paying for decades. More than 5 million times annually, on average. And as a percentage of overall industry activity, the few that have complained fall far under the levels of what we’d call a “harmful” practice to the consumer.

It’s the height of hubris for industry pontificators to posit that consumers “don’t know enough” to care whether the compensation model is “in their interest” or not. Of course they know – they are the ones paying it – and they have plenty of access to information, as well as legal and financial experts (there’s a lawyer at most closings) to make up their own minds. In most cases, we’re also only talking about a few thousands of dollars: Six percent of the average $200,000 home sale in America is a measly $12,000. The average consumer spends twice that when purchasing the average automobile (government subsidies notwithstanding). Consumers know how to spend their own money.

Within the industry, the handwringing over agent compensation is like worrying about a pimple on your nose while your head is half chopped-off. Should buyer’s agents be compensated by their client or the listing agent: it’s a non-question because both practices occur every day. The law of agency is disconnected from the practices of compensation – so the industry can represent whomever it wants by signing contracts, regardless of who pays. In fact, if some buyer’s agents prefer to risk their compensation on the percentage – or willingness – of a listing agent to share their commission with them, then it doesn’t harm the consumer in any way because their agency contract provides them with certain legal assurances regardless of the agent’s ultimate compensation. Consumers win no matter what; some agents simply lose – of their own fault. Conversely, many buyer’s agents charge a fee to their client – the buyer – contractually, up front, just like any other professional (plumber, lawyer, cleaning lady) for services rendered. Consumers know up front what costs are involved, and can decline or sign of their own free will. Again, the compensation model doesn’t need to be “one way” or the other because lots of ways work for lots of consumers. Even barter.

Real estate industry purists posture that the commission model harms consumers because only a “salary” based model would enable the broker to “tell” the agents what to do, how to do it, and how to do it right. Nonsense. Nothing in the independent contractor laws anywhere in the nation prevent a broker from doing this today – under the commission system. In fact, most regulations require the broker to supervise and be responsible for their agent’s conduct – which de facto means that they are expected to issue directions and hold agents accountable for adhering to them. That’s why most brokers are supposed to have an office policy document. Why would that be “standard practice” if the commission compensation model made such guidelines practically irrelevant? Because compensation isn’t the issue when it comes to getting agents to do the work – and the right work – for the consumer.

Some companies do pay their agents salaries; most choose not to. It’s not a problem, but more of a joke: The purpose of “independent contractor” status is mostly a tax loophole that absolves the broker from costs that are normally incurred by the average sandwich shop or auto mechanic: workers compensation, social security contributions and other insurances. But just because it’s a tax loophole doesn’t mean it’s consumer un-friendly – or that compensating agents only if they make a sale is harmful, either. Nor does it automatically mean that salaried agents actually perform better – or protect consumers more. Plenty of salaried employees in every industry perform poorly. And harm consumers.

The solution to the industry’s problems – of low performance per-person and potential for consumer harm (if real) – isn’t to change the money model. It is to change the management model. Adding agents to payrolls would merely hasten the bankruptcy of most companies – since brokers would be forced to pay hourly for non-performance. It would put companies out of business more quickly – perhaps the unspoken goal of salary-minded utopianists – and actually limit consumer choice to fewer companies, and operational models. Might consumers be harmed then?

Performance isn’t a money problem; it’s a management problem. Low wage workers often have very high output, when they work for companies with good operational models, technological efficiencies, adequate training – and most of all, management participation. The opposite is equally true. Even within the real estate industry, many of the “best compensated” agents don’t necessarily produce the best outcomes for consumers. Too many stories from consumers of their “top” agents not returning phone calls proves the point.

After two decades in the industry, we’ve seen this issue rear its head from time to time, only to creep back under the bed because ultimately, everybody understands it’s a non-issue. Real estate is one of the few industries that continues to tolerate – perhaps even foster – multiple models of meeting consumer needs. We have more than fifty regulatory regimes for agency; we probably have more than twice that number of brokerage operational models. Consumers can pay the tiniest of fees to list their homes in the local MLS, offering only compensation for the agent who brings the buyer; or they can pay tens of thousands of dollars for “white glove” total service.

In fact, some consumers have proven they can avoid compensating agents altogether – successfully selling their home on their own. Which begs the real point: The industry is too focused internally, squabbling and posturing about whose “model” is better or right. As usual, it’s staring at itself in the mirror, preening and primping, and comparing itself to the competitor. In the meantime, the consumer is walking right by all of the models. But not because they don’t want to pay, but because they don’t like what they are paying for.

Rather than talking about how or how much agents get paid, maybe it’s time we discussed the level of performance consumers are looking to pay them for?

Nah… that would mean we’d actually have to manage….

Look at it this way: It costs about $20,000 to tear down a home. That’s about four clunker-car trades. But the money would be so much better spent, with greater trickle-down effects in the housing sector (if you believe in that stuff). The housing industry is far bigger than the automobile industry, considering the suppliers, builders, salespeople, maintenance, repair and improvement industries combined. Plus, the total dollar value of housing far exceeds autos, as a segment of the economy. So if we’re going to spend a few billion improving the economy in direct handouts, it makes sense to put it directly into the housing market.

With Cash for Clunkers, the subsidy changes the supply and demand curve by “spurring” consumption. Offering a massive “discount” to the consumer, people who might have purchased a new car in the next six to twelve months are spending money today. While that does increase the dollar circulation, it also distorts the cost of autos. Car dealers have inventory that is suddenly worth $4500 more (they know free money is coming, so they can mark up – or hold off marking down). Furthermore, since the program requires that clunckers are destroyed – car dealers must pour destructive liquids into the engines so they cannot possibly be resold – the  program distorts the “resale” lower-cost used car market. This will further push up the value of new cars, and poorer households that typically purchase used cars can take public transportation to save energy and money anyway.

What a smart plan: Get some people to spend money, raise the prices of the commodity (new or used) and get poor people to take the solar powered bus.

So why not do the same things with the struggling housing industry, too?

Start by offering a government subsidy for tearing down used homes. They are so energy inefficient anyway – and millions are still “unaffordable” or empty (foreclosed), so who cares? Let’s offer a subsidy to owners – whether consumers or banks – to destroy these Clunker Homes. At $20k per tear down and $2 billion Greenbacks, we could easily demolish 100,000 homes. If we just burn them down or use dynomite, maybe more. If we recycle the scrap, we can create a self-funding program to tear down the million or more excess homes that are depressing house prices.

Brilliant!

New home prices will rise. “Used” home prices will soar, too. Poorer consumers unable to afford either can live in Green public housing or just rent. The important point is that we’ll be giving the housing industry money to “spread around,” especially to the depressed demolition sector. And we’ll create all  those the wonderful jobs in the  rake-and-shovel labor market to clean up the mess!

Spending money to demolish homes will create housing scarcity, which will nicely drive up prices. Everyone keeps saying that only price stability in the housing sector will save the economy, right? So sellers will get more money for their homes and we’ll recreate the appreciation spike to save those borrowers who were duped by predatory lenders into interest-only loans from becoming upside down on their mortgages.

If we’re really lucky, we might experience some “unexpected” results, such as accidentally destroying too many homes (maybe a run-away fire in Southern California?). That would mean – wow – new homes to be built, saving jobs with builders, suppliers, laborers. Construction materials would rise in demand –  their prices will rise, too, saving a lot of retirement accounts that invested in commodities. Lumber and steel companies would sell their excess inventory, and more sales mean more jobs, right? Never mind the higher costs, because those “profits” will either be taxed away or transferred to laborers through the new minimum wage laws.

More economic recovery!

With Cash for Demolition, unemployment would be solved: There will be lots of  jobs tearing down neighborhoods, shovelling away debris or restoring open space to its rightful place on the empty lots. We can only imagine a stream of grateful Wall Street laborers shedding their three-piece-suits and Blackberries for sweatbands and shovels. Each dollar spent on the Cash for Demolition program would offset falling prices, expand employment and trickle throughout the housing industry. Even rental landlords would benefit, as fewer used homes meant more renters – and that would mean more jobs for superintendents and landscapers and cleaning ladies.

What a lovely, circular economic recovery we’d get! Cash for Demolition would be even more environmentally friendly than trading in smog-producing clunkers, too. Everyone knows how awful housing is for the environment. It’s ugly, all that urban sprawl. We kill  trees and waste water building homes with lumber and concrete. Home heating spews pollution into the atmosphere, and toilets and ice makers just waste water. Homes use electricity, too, which means burning coal and natural gas. Tear down homes eliminates garages, which means less places to store those foreign-fuel-consuming cars.

What a win-win we’ll for Mother Nature and the economy!

Yet something doesn’t seem right… I can’t quite put my finger on it. In its infinite wisdom, wouldn’t Congress have already seen this answer? It seems like the perfect magic formula: offer tax subsidies for people to consume. Why stop at cars and homes? Why not computers, cell phones, even energy-inefficient clothing? With a Treasury Credit Card, can’t everybody get a new pair of shoes?

Still, I think we should try it. Cash for Home Demolition would definitely be a hit. What better vision of the future can you think of from our government than using tax money to destroy the two icons of America: the classic car and the family home.

Readers of our column know that we called the beginning of the end of search engines some time ago, when we noted that Facebook and MySpace had already started to generate more ad views and targeted traffic than Yahoo and Google. Unfortunately, Microsoft didn’t seem to have read our post, and went ahead with Bing. Microsoft calls it a “decision engine” and it certainly works differently than the traditional search sites. Yet technology improvements aside, none of the  search engine players have considered the basic question: Do people really “search” for things on the internet any more?

When the internet came out, nobody could find anything on their own. Most website traffic came from somebody writing a magazine article about them. Readers would then punch in the URLs manually in a crude browser. Then Yahoo and Google came along, and started the  ”yellow pagination” of the web. On  early versions of Yahoo, the better content was found by drilling down in the categories, click by click, until you found the right list of sites. Google’s approach was different, with it’s empty-box approach, capable of responding to your questions. The trouble is, if you’re looking for something, you usually have empty-brain, as well. Getting Google’s box to give you the right results is still mostly a guessing game, even today.

Then came the monetization of these databases. Advertising penetrated the search world. Search results have become, well, somewhat polluted. Even the most direct searches are  surrounded by “competing” websites from paid advertisers. And that’s not to mention the silliness of a million search results for any search topic.

Yes, it essentially works. But will it in the future?

Think about your last visit on the web, even how you got to this article. I’m willing to bet it didn’t involve a “search” event. For example, when I fired up the browser to write this entry, I went directly to my blog’s administration page. I used a bookmark, not a search. While I’m writing this, I also have other sites open – Facebook, the Wall Street Journal and my company website. I didn’t search for those pages either; I typed them directly or used my links-bar to launch them.

In fact, most of the time, this is how I use the internet. Not searching for stuff, but going to places where I already know I’m likely to find answers.

If I need to travel, I go directly to one of the major travel sites, like Travelocity or Priceline. To order a book, I type in “bn.com” for Barnes and Noble. If I’m thinking of a new laptop, I punch up “lenovo.com” or “dell.com” or maybe “cnet.com” to look at some reviews. I don’t perform a search for any of these things on a search engine. Mostly because I know the results will be useless. And any sites on page one will be companies I already know.

Why waste my time searching?

Interestingly, within my favorite  sites, I conduct all sorts of  searches. I search for flights and hotels on the travel site; comptuer reviews and comparisons on the computer sites; and books and music on the bookseller sites. So I do search for things; I just don’t use the search portals.

The same is true for real estate.

Do we really think people go to Google and Yahoo and type in “real estate, AnyTown, USA” these days? Doesn’t the Average Internet Joe know that places like REALTOR.COM, Zillow and Trulia exist? Hasn’t he just seen a television ad or even – gasp!- a newspaper ad for his leading local real estate company or its parent national brand?

The average consumer – if they are anything like average me – searches for real estate on sites he already has bookmarked. He already has his “go to” sites for almost every major commodity. He understands the web, and now uses it to patronize the companies he already knows. For most consumers, the “search and find” excitement has worn off the web.

If I’m looking for vacation ideas or hotel suggestions, I am just as  likely to search reviews on the Wall Street Journal website as I would go to the travel portals. Both are already “bookmarked in my head.” I am least likely to go to a search engine and type in “hotels in Las Vegas” or “fine dining in Rome” because I know I’m going to get 1 bazillion useless results. The front page will be dominated by the biggest paying players – and  I am already familiar with them. So why did I need to search?

If there are any “hidden” treasures hidden on the web, the search engines aren’t going to help me find them because they are probably too small to compete for prime spaces. The best real estate company in a local town still probably can’t outrank the major sites – and the search engine noise – that a typical search will likely return. The first few pages are dominated by the same companies that dominate my common knowledge for any product. Search has just become a waste of time.

The exception is for super-targeted information. A particular phone number. A street address of a company I know, but just need to locate on a map. A news story that I wish to find more information about. Even these searches, however, are becoming useless, when top spots are taken up by “related” results like a dumb YouTube video parody of the news story I’m looking for.

Search has become “ugh” more than “wow!”

Finally, let’s not forget that nowadays, I’m more likely to ask my friends in my social network for suggestions on products and services, like what book to read, where to vacation and a referral to a good REALTOR. Not a machine – but a real person. I think people prefer hearing ideas from other people, not HAL.

Now, if any of my experience is even partially the same for others, we could arrive at some very interesting consequences for the real estate industry, such as:

1. Real estate brokers can shift considerable marketing dollars away from search engines and into other marketing activities. The pursuit of pay-per-clicks and the tyranny of the “unguessable” keyword game will finally end. Brokers can shift resources into activities that generate “persistent” brand recognition in their target customers’ minds, using customer relationship management campaignsrather than trying to  ”guess the keywords” to trigger an ad.
2. Agents should give it up when it comes to search engine advertising. At least anything paid, like keywords or ads. It’s all cool and fine if your blog or Facebook page help you rank higher for certain searches; but remember, it still depends upon consumers to search in the first place.
3. Making and maintaing friends on social networks is likely to outpace search engines as a source of future traffic, especially amongst a broker’s sphere of influence. That’s good news, considering most social networking is free, and costs for effective search engine page domination continue to skyrocket.
4. Start looking for the next consumer awareness channel. If searching is declining – perhaps fastest amongst Gen X and Gen Y who are masters of the web – then find the next medium that will reach future customers. Maybe it will be social networks, maybe not, if  consumers quite  social networkingsites en-masse once they become more commericialized. Check out mobile marketing. Consumers won’t use smartphones to search. They keys are just too small. But they will be connected to trusted partners – through applications, widgets and feeds.

Except for the last item above, which could end up like all predictions, real estate professionals should already be able to measure their search engine effectiveness. Web traffic reports might possible be reflecting this shift already – especially if companies have cut back on their pay-per-click budgets during the recession.

Of course, most of us could just monitor our own internet usage for a couple of weeks. How many times do you use the internet effectively without conducting a search? It’s a matter of internet maturity: As we have become more comfortable with the tools, and have demystified the web, we have started to memorize the areas that are most important to us. We find ourselves going on directed and targeted journeys on  the web; more in control and less at the mercy of 1,985, 434 suggested search results.

It has happened before. It’s just like memorizing your favorite television channels. When we first got 500 channels of cable, we were excited to endlessly flip through the onscreen guide. Now most of us  are familiar with the system – and because our time is limited – we click to our favorite channels directly. We record our favorites shows with one click, like downloading a podcast, without searching the guide for the next episode’s time. Our habits change.  We don’t flip through the paper, but turn to our favorite section. We don’t scroll through the dial, but click a preset radio station button.

Now we use the web from bookmarks sites and familiar URLs.

The game of out-guessing the search is over. When nobody picks up the TV Guide at the checkout counter, why advertise in it? The next great challenge for companies won’t be getting a page-one ad spot, but earning a position as one of the “preset buttons.” And not on the computer screen or the control panel, but in the minds of consumers.

Two seemingly different mediums collided in my brain last night. First, I was reading a front-page story about a home that was struck by lightning and burned down the night before. I didn’t recognize the street name: Was it nearby or across town. My first inclination was to look for a map. Of course, there was none in the newspaper. My second inclination was to right-click something and Google-up a map. My fingers actually flexed for the mouse. Frustrated, I threw down the newspaper. Switching on the television, I fired up my new favorite show “Real Estate Intervention” on HGTV from the digital recorder. The show features real estate agents showing sellers comparable homes in their marketplace, to provide market perspective on how their home is competitively situated – especially on price. I like this show particularly, because I had a similar idea suggestion for REALTORS recently, and also because it shows how anyone who fails to ask, “What does my customer want?” is doomed to failure.

After the end of the show, I looked back down at the newspaper on the table and then back to the freeze-framed screen and declared out loud: “Newspapers and sellers just don’t get it!”

The central problem with newspapers and home sellers is that they think it’s all about them. Newspapers write articles from their perspective. The style depends upon the writer (there are no journalists any more). Everything from style to grammar to selective presentation of the facts isn’t geared for the reader, but rather the newspaper’s needs to draw attention, sensationalize, and sell ads. They take their reader for granted, and fail to edit their stories from the reader’s standpoint. Will the reader know where a certain street is, the background or credentials of a person quoted in a story, or key issues of law, finance or politics in the story? Something as simple as including a map of a crime or fire or parade never occurs to the newspaper.

But looking for the map occurred directly to the reader.

In fact, most readers today are used to looking up all sorts of information as they absorb news. We are a generation of information people who right-click as we go, open multiple tabs in our browsers and cross reference facts, biographies and images. Reading a story has become a “participating” activity – and not just when we add comments at the end. The days of the “newspaper reports it, you accept it,” are over. We want to engage the story as readers. Moreover, we want the full story, not just the truncated, selective and writer-oriented perspective.

Every time a newspaper story fails to accommodate this new requirements of the reader, we throw it away and decreasingly wish to purchase it in the future.

This isn’t to say that all newspapers are not trying. Some papers regularly surround stories with maps, charts, graphs, mini bios, call-outs, definitions and other content that anticipates the reader’s normal inclination to “right-click and open a new tab” for more depth. So it can be done – even in an offline medium like print. It’s just a question of perspective.

Is the newspaper about the newspaper, or about the reader?

The same phenomenon is hurting many sellers in the real estate marketplace. Every episode of Real Estate Intervention shows just how little sellers understand the fundamental lesson, “It’s not about you. It’s about the buyer.” This show should be mandatory viewing for every POTENTIAL seller. It should be mandatory for every new seller during  their first week on the market. The cringing absurdity of the sellers profiled on the show is the archetype of why so many homes are overpriced and unsold.

Every REALTOR should be forced to watch this show. Even the repeats.

In each episode of Real Estate Intervention, the camera follows sellers who are taken on tours of  recently sold homes similar to theirs and nearby currently-competing properties In almost every case, the homes shown to the seller are priced less than their asking price. And in almost every case, the seller tours the home tearing it apart. Standard lines from sellers on this program:

“I would never have chosen those colors.”

“I like my [kitchen/tub/back yard] must better.”

“I don’t like these types of [tiles/countertops/appliances/fixtures].”

When presented with competing homes with more square footage, the sellers come up with rebuttals such as “It’s just more space to clean.” When shown kitchens with newer appliances, the common response is, “Yes, but I hate stainless steel appliances.” In fact, my favorite episode was from Baltimore, where the sellers were shown an outdoor patio with good views of the neighborhood and beautiful floral landscaping; Their own outdoor space was completely enclosed by tall walls from the attached townhouses.

The seller actually said, “Well, you can see more from this patio but in our patio, you’re completely surrounded by walls, which is more private.”

Right – like a prison. Over and over again, the camera shows sellers who cannot see things from the perspective of the buyer. Every flaw in the competition is dismissed because of “personal preference,” even though the sellers aren’t the ones personally deciding between their home and the competing properties. Even when another home as significantly more space (one episode featured a comparable home with twice as much square footage) the sellers continue to defend their price and “betterness” because it appeals more to “them.” So they can’t adjust their price, terms or conditions because, in their minds, they’d choose their own homes if they were making the decision.

Of course they would. They already live in them!

As any REALTOR knows, it only gets worse, especially when you combine sellers who demand their agents advertise in the local paper. It’s a double-whammy of self-centeredness that only amplifies the likelihood of failure. Even the sellers on the television show are filmed using a laptop to look for their next home. Yet so many sellers insist that the buyer for their home is going to find it from the newspaper.

Neither the newspaper nor the sellers get it.

Where does this leave the real estate industry? One choice seems obvious: Use interactive marketing to deal with buyers in a declining market. Right now, very few marketplaces can justify a listing-based business strategy. Even stable markets are stymied by lending chaos. And the cost and frustration of working with sellers and advertising tools that cannot or will not see the “buyer’s perspective” is causing company after company to close its doors.

Another choice is to prepare ourselves for these inevitable situations, like addressing sellers who are unable to adopt a buyer perspective. Practicing and preparing to have tough discussions – about how buyers do not care about their decor, how buyers prefer standardized rather than customized color schemes, how buyers jump at more space at a lower cost, how buyers aren’t emotionally attached to the home and have no fear in making significantly lower offers, and how ultimately, the buyer can afford to wait longer than the sellers can keep making upside-down mortgage payments. Are agents prepared to have these honest conversations? Are managers practicing these discussions and helping build their sales force’s experience and confidence for tough challenges? Is the company mentally and financially prepared to walk away from bad business tied to emotional intransigence?

The irony of the situation is that many available homes today don’t feature “emotional” sellers. A significant number of bank-owned properties feature sellers who are Wall-Street finance-types (asset managers) with no emotional attachment to the home. Their decisions are made on raw data – like square footage and mortgage-margins. They don’t put these properties in the newspaper, but exclusively online because they cannot afford to lose any more money or time. And while they reject crazy buyer offers with the flick of a pen, they also set prices squarely in the market. Sometimes, even lower than average, because they are unemotionally trying to sell the property, without ego.

They price it to attract buyers and sell.

With a second wave of foreclosed and investor-controlled properties hitting the streets, it’s going to get even harder for “self-centered” sellers to compete. Their personal preferences are going to place them in a significant disadvantage to the facts-only foreclosures. Buyers may come to prefer to shop foreclosures more than owner-occupied listings. A low price still still trump the frustration of dealing with the faceless bank – or a difficult owner.

The very existence and emotional intransigence of an actual seller may cause more deals to sour, and buyers to just look for unoccupied foreclosure homes “off the shelf.”

Buyers will learn that an “as is” home is easier to buy than endless negotiations with an emotional buyer who fights every finding in the inspection that requires repair or price concession. It’s a twist of fate that the real reason why newspapers and homesales are suffering today is that neither understands that the customer sets the rules. REALTORS can be caught in the middle, if they are not careful. Advertising in the paper wastes resources and generates little business; Representing unreasonable sellers will do exactly the same.

As Sam Walton famously said, “Find out what the customer wants and give it to them.” It’s time for the newspapers and the housing industry to learn this lesson before its too late.

Even before the housing bubble, research into real estate consumer preferences showed a strong desire for one-stop shopping convenience. The auto industry, computer industry and other high-ticket commodity sales industries had been leading the way in “one-stop shop and finance” models. Yet the real estate industry remained mostly fragmented up until about a decade ago. Agents sold consumers homes, but left it to a bunch of third-parties to inspect, appraise, finance, clean and move people into them. At best, it was an orchestrated comedy of too-many-errors. At worst, a significant number of deals disintegrated – or at least customer satisfaction did – from the fractious model.

Little wonder, then, that consumers were clamoring for companies who made it possible to just “grab the keys” to their new home.

An era of “integrated services” was just being born when the housing bubble started. Excess revenues from hyper-inflated sales pushed companies of all sizes into the “concierge” business. In-house mortgage services soared, but so did other “one-stop” options. Using allied companies and direct subsidiaries, real estate professionals had begun to transform the disjointed purchase process into a systematic satisfaction experience. Sellers could rely upon their agent for preparation services; buyers could select from an in-house menu of conveniences. Time from offer-to-occupy decreased for most consumers. And general satisfaction improved significantly.

The integrated assembly line had finally arrived in real estate. REALTORS had finally arrived at the “center of the transaction.”

And then the bubble burst. And the REALTORS walked out of the center ring. When the easy money slowed, few brokerages could support their integrated services model. The models were still incomplete, in the process of streamlining and refining, so costs remained high. Easy pickings for brokers’ knee-jerk reaction to plummeting sales. Yet slashing one of the best things that happened to consumers in a long time also cut off brokers’ only opportunity to pursue some critical “ancillary” profits during leaner times.

It was a double whammy of the brokerage community’s own making.

By eliminating in-house ancillary service systems, the brokerage community threw the consumer back to the wild. Buyers and sellers were left out in the cold, with mere “recommendations” by their agents. Agents once again outsourced their deal’s closing process – and are paying the price for it every day. Collapsing deals are one price; customer satisfaction is another.

When brokers decided to leave the center ring, their agent ceased being the center of the transaction. Once again, they were just another side-show under the circus tent, abdicating the role of ring-leader for their customer. The cut-cost approach destroyed a decade of progress towards controlling the consumer; and it eliminated any possibility of capturing a few more dollars per transaction as per-commission margins plummeted.

These days, winning the “unit sales” game isn’t a victory in the marketplace. More likely it means everyone is working harder for significantly less returns. Commissions have trailed home prices down by the same third in a year. And in foreclosure-dominated marketplaces, capturing both sides of the deal is a fantasy. Bank owned properties are controlled by asset managers, not everyday REALTORS. Maybe a few have been lucky enough to be chosen to represent the bank, but most agents only hope to capture the sales side. And then hope their “bid” is accepted by an arms-length asset manager. More work, more waiting, for less income.

The paradox – and the solution – is the same for the brokerage industry.

Consumers haven’t stopped desiring one-stop service, even though many brokers who once offered it have stopped offering it. Had brokers sustained their ancillary service models – or used the recession to expand them, taking advantage of lower costs offered by equally-struggling housing-related service companies – they would have found it easier to offset the drop in per-unit revenues.  They might have even found better margins on fewer sales. Less work, less waiting, more income.

Consumers still want to be sold “one-stop” services. They continue to take advantage of integrated finance, repair and loyalty programs in travel, technology and automobile sectors. These industries are finding a few “extra” dollars in each transaction to supplement the bottom line while overall unit sales actually fall. The formula adds up – and is perhaps vital – the any company’s ability to eke out (or simply sustain) a few extra dollars of revenue during the recession.

In fact, adding ancillary service dollars to every unit sold should be less expensive than ever for brokers. They could leverage their existing websites, leads management systems or social networking pages. Responding to requests by email – or tweet – could cut manpower costs dramatically. Modern consumers don’t need to see or hear the concierge in person or by phone; they’re perfectly happy to receive service by text-message. Coordinating with vendors should also be more cost-effective than ever: if collaboration tools can coordinate millions of social networkers who have never met, organizing a few dozen vendors into a concerted sales and support effort should be a piece of cake.

Once again the solution for the real estate industry is to simply ask the customer. If consumers haven’t stopped desiring one-stop services, it’s up to brokers to start selling it again. From a buyer’s point of view, this is a time when it’s harder than ever to navigate a successful transaction. Having access to an integrated, coordinated team of professionals working in concert for them might even be worth a few extra fees. Gen X and Y consumers may fully demand such services, having neither patience nor interest in managing multiple vendors.

Holding the line on sales units won’t be enough for REALTORS to succeed. They may find that they have cut too deep – not just into expenses, but into growth potential – by cutting one of the few areas of the transaction that consumers actually found satisfying. And would be willing to pay *extra* for – if only someone would start selling it again.

First, let’s define our terms. Just what would the housing “bottom” look like. Most non-economists make the non-economist mistake: They call the point of lowest “prices” the bottom of a commodity market. Nothing could be further from the truth; but most laymen took “Home Economics” not “Market Economics” in high school. So most people think the bottom in housing is the point at which home prices are at the most “discounted” levels in a range of time.

That’s called a sale; or clearance; or flea market. But it’s not necessarily a housing market bottom.

A bottom in any market represents the best time to buy the commodity. The “best” time is usually that point at which, all things considered, the purchase of the commodity would represent the better choice for using capital than any other alternative. In other words, buying a house at the “bottom” would be the best use of money compared to buying “anything” else that money could purchase at that moment in time.

They key is to understand the phrase “all things considered” because only then can you even attempt to estimate a bottom in a market. Here’s a simple example from everyday life: assume you’re going to purchase an automobile. What are the “all things” to be considered? Price, certainly, but also issues like total cost of ownership, fuel efficiency (which represents the weekly ownership cost), insurance, typical repairs, and warranty reliability (and in the case of US automakers, future likelihood of manufacturer existence). Finally, there is the cost to acquire. For most people, this comes down to the decision to finance or to pay cash.

Now consider why some people finance – even when they have enough cash to purchase outright. The decision comes from a judgment call on whether it’s better to use the cash for the commodity purchase, or to hold it for a “better use” such as paying other bills, investing, or any other alternate use of the funds. Borrowing becomes a better idea than cash-funding because the “alternate uses” of the cash on hand are more valuable than the cost of paying interest on borrowed funds.

Simple. We do this all the time. Do we use a credit card or pay cash? Do we lease or buy a computer. The “all things considered” calculation comes into play when we select temporary bottoms (investment moments) for lots of purchases.

How come we missed it, then, when it came to the housing market.

Make no mistake: The housing bottom has already come and gone. The “best time to buy” has passed us by. Sellers can only expect longer waits and higher borrowing rates to slow their sales – or force them to cut prices again. Buyers are now facing new pressures on their downpayments, including an expiring tax credit window for first time purchases. But don’t just believe me. Look at the ways in which housing has no longer become a “good moment” decision in this market.

First, interest rates are at their highest in six months. And rising. So the cheap funding bottom has come and gone:

Next, basic consumer prices (ie., CPI or normal goods inflation) are rising, making it harder to qualify for a mortgage:

Specific energy costs are also rising to half-year highs (and more than double since the last quarter). Higher costs at the pump mean less money for downpayments or mortgage insurance:

And lastly, qualifying for a mortgage depends upon getting and holding a job, which is becoming harder to do every day:

If you look at each of these charts carefully, especially Unemployment, Gas Prices and Mortgage Interest Rates, it looks like the bottom occurred in April of 2009. Since then, the “other things to be considered” for using one’s money (or earning it) have been losing value in economic terms. According to the Wall Street Journal today:

The Mortgage Bankers Association cut its forecast of home-mortgage lending this year by 27% amid deflating hopes for a boom in refinancing.

That means the bottom isn’t “ahead” but behind the mortgage industry, for refinancing. Even home purchases lending will slow, because “The dollar value of new loans for home purchases is being depressed by lower house prices,” says an industry spokesman. Ironically, then, lower home prices (the “highest discount” for the commodity) will actually stall the market, not make it tick up. Makes sense, since nobody wants to purchase a commodity that is still falling. There must be better “things to consider” using your dollars for instead, such as buying gold, or even oil stocks, which the consumer directly sees is rising every day.

And even though the National Association of REALTORS assures us that now is a great time to buy, because their Housing Affordability Index shows the best “ability” for purchase based upon household incomes, it’s a misleading indicator, because it assumes a 20% downpayment. And right now, with the cost of household goods, borrowing and inflation rising, most households are rightly opting to hold onto the cash that might have been their downpayment. Especially, they aren’t using it to chase homes down a declining value curve.

For sellers, it’s going to get much more costly to sell. They not only compete with other properties in their local area and price range; they now compete with other “alternate uses” of cash and borrowed funds that buyers could choose. With costs rising for energy, food and basic goods, and job growth stalled, would-be buyers may just decide to rent – a very stable and predictable use of their funds, at least for a year at a time – and invest their excess funds (or credit) into commodities more likely to rise than fall.

This means house prices go lower still, in many markets. They must reach clearance level lows from their irrationally exuberant highs. But the cheapest housing prices will not coincide with the best times to buy. And where prices are stable – or even rising – the “other factors” that influence housing purchases are getting worse.

The housing bottom has come and gone. It will only get harder, not easier, for buyers to complete a transaction for the next year or two. For 2009, that means the normal home sales season has come to an end already. The rest of the summer will be slow and slower. By the time we go back to school – then hit the holidays – buyers will find lending scarcer, tax credits expired and housing prices still falling. They will be kicking themselves – and perhaps the REALTORS – for having missed the call in April on the housing bottom.

This grow-to-win strategy offers real estate professionals a model, too, as they reach the end of their “cut more expenses” reaction to the recession. Yet many companies don’t think growth is possible, since expansion conditions seem impossible when sales and revenues are down. Is it possible, in a housing recession, for smart companies to grow? Here are five ways to do exactly that.

1. Grow per-person productivity. Traditional growth at real estate brokerages has always meant more people. More people mean more expenses, like business cards, email accounts, web marketing and training. That’s nearly impossible when revenues are down. That’s why growing per-person productivity is critical. To create a “leaner” company, you can’t just cut expenses but must increase per-person output. Training and technology help, but the biggest tool to grow production is management. Managers must focus on developing per-person output using clear goals, close and consistent coaching and reducing the distraction of marginal-producing factors (whether it’s people, marketing, technology). Eliminating marginal production and reassigning the work to more capable (but not yet maximized) people reduces expenses and grows output, which creates a competitive advantage for the company. But management must also provide coaching and support to reach that higher output. Reducing redundancy also creates higher margins for everyone, including income per person, even during a recession.
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2. Grow each transaction’s margin. Most studies show that, after paying all parties and expenses, the remainder of each real estate transaction is under $175 profit to the brokerage. Even agents who think they’re making good money with higher commission splits will find that, at the end of the year, very little margin remains. This is because operational costs have risen in the decade leading up to the recession, as new technologies, marketing and training requirements have grown while downward pressure on commissions increased steadily. Volume cannot make up the difference, especially in a recession. The only way to grow is to “go deep” on each transaction. This means selling more ancillary services, like mortgage, warranty, title and concierge services, on a greater percentage of deals. Even if the number of units holds steady year-over-year, a 10% increase in per-unit ancillary sales can create serious revenue growth. Companies must standardize the “do you want fries with that,” approach to transactions to grow revenues.
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3. Grow the percentage of closed leads. Recessions mean less dollars spent on marketing. Cuts in advertising cause both short- and long-term damage to any organization. During recessions, however, few people are thinking long term. This is also the reason why so many internet leads remain un-converted, in the long term, into deals. It has never been a question of generating more consumer leads, but in downturns, agents and companies that convert a greater percentage of the leads they generate will grow without expanding expenses. Converting greater percentages of leads requires more effort, something that less-busy agents in a recession should have plenty to spare. In some cases it may require training, but thinking of item 1 above, it makes more sense to redirect leads to agents with proven ability to convert them first.
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4. Grow relationships, not databases. The vast majority of real estate deals come from one’s sphere of influence. So growing real estate professionals don’t need to grow the size of their database, to do more mailings. They should focus instead on growing the strength of their existing relationships. Whether by social networking or a phone call, growing one’s influence with consumers who already trust them is both cost effective and productive. In a sales business, growth comes from repeat customers and referrals, not the biggest “friends list” online. A particularly lucky opportunity exists today, since more than 50% of buyers are first-timers from Generations X and Y. Creating strong relationships with them now will pay repeat dividends as these groups purchase 8 to 12 homes over their lifetime. To dominate the future market, it won’t be how many people you know, but how well you know them.
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5. Grow your customer service. Hyatt moved into a marketplace dominated by hit-or-miss service from small-town motels chains in 1957 and grew through highly structured training efforts. FedEx offered fed-up post office customers a highly predictable level of service even at a much higher price, winning both units and margins. Microsoft responded to home and small business consumers with in a personalized way that Bigger and Bluer companies wouldn’t, by offering a customer-friendly mouse driven operating system. Burger King let customers know they could “have it your way” every day. When each of these companies entered during a recession, they targeted then-dominant players whose customer service was inward-focused, that’s-how-we-do-it, take-it-or-leave it. Growing your customer service can target those same attitudes of real estate competitors today, too. At too many companies, a residual mentality of “they need me” from days gone by pushes consumers away, rather than draws them in. Inattention to inquiries by email or text message literally “turns off” younger buyers. Aggressive sales techniques (or the reverse at open houses) create tension with Gen X’ers who demand control in their purchases. Growth will come to companies who focus more on the consumer, less on the practitioner. Real estate websites still force people to register. Listing data is frustratingly incomplete. Photos are missing. Silent movies. A different customer service attitude could reposition your company as a better experience within a crowded market, to attract growth.

You don’t have to be a Microsoft or a Hyatt to grow in a recession. You simply need to adopt their growth attitudes about business. Any one of these changes can create new opportunities to be the future leader who, like many other global leaders, got their start when times were tough.

When was the last time one of your customers said that about your products or services? Yes, I’m sure you have lots of surveys that say customers rank you “highly” or “excellent.” Some even say they “would” refer you to a friend. But they never do, so let’s not overstate it. Do most of your customers just “like” your service? When you ask them for feedback or to fill out a  survey, are they really just being polite? Would you say that, deep down, most might even keep an appointment for a root canal before jumping in the car to tour more homes with your agents?

When was the last time your customers yelled out, “That was (Bleeping) awesome!” about your products and services?

Too much of the real estate industry still revolves around “just get by” levels of performance. It seems like we’re never going to see the day when the majority of listings actually look good online: filled with accurate data, stuffed with photos, bristling with multimedia videos. And that’s just the online marketing product. What about the rest of the real estate service experience?

Somehow, “it’s good enough” has become the norm. And customers (especially Gen X and Gen Y) are starting to know it.

To be sure, there are some exceptional agents, companies and services out there. But why is it that so few of us have customers who say, “That’s (Bleeping) awesome!” about our company? We seem stuck in the Age of Mediocrity, where the coolest, bestest, fastest, neatest, most exciting things in the business are as hard to spot as a UFO.

And as infrequently believable.

Imagine if we put all of the time wasted on the dull and mediocre in our business and into making our products and services Bleeping Awesome! No more effort on wasted office meetings, struggling with overpriced listings, carting buyers around without contracts (or money) and recruiting agents who can’t even sell lemonade. What if we just cut it all out, and focused on what it will take to make consumers scream, “Wow! When I worked with that company, the experience was Bleeping Awesome!”

Would it really be that hard to design services that thrilled customers, just like going around a curve at 80-mph? Yes, perhaps harder than we think, because, so far, very few of us have been able to do it. The starting point would just be fixing all of the little stupid stuff that makes customers shake their heads in disbelief – bad listing data, silly-looking websites, unresponsive agents, being ignored at an open house, pathetic ink-jet listing sheets. Those are just the clean-up items the industry needs to address to claim it is keeping up with the times.

But delighting customers is not the same as saying, “Our services suck less than our competitors!”

Try to remember what it was like the last time a product or service caught your breath. Made you smile – or even laugh out loud. It was more than just the “expected” level of service and definitely more than what you’d expect from “everyone else” in the business. Getting a fast cup of coffee in the drive-through should be the standard, not the delightful, level of service. Flights leaving on-time should be the norm, not the “thank-goodness” experience. In real estate, companies must first make sure their people and products meet the norms.

But they must also strive to create the Bleeping Awesome experience.

Some of us have given up on that effort these days. We’re locked into just “keeping the lights on” or getting through the month. Even with our feet out stiff, we’re slowly sliding back. But is it really the market’s fault? Or could it be that once you stop striving to move forward, there really is only one place to go, which is back? Going forward will require creating Bleeping Awesome experiences; and that means it’s time to get our heads out of the sand.

There won’t be one way to do it, either. There will be many different approaches to making customers’ toes curl. Ritz Carlton makes it happen one way; Godiva chocolates does it another way. Some companies never do it (think phone company, Amtrak, registry of motor vehicles, Medicare). The way a hospital like Lahey Clinic does it isn’t the same way a car company like Acura must do it. But you know the experience when you have it.

In fact, we don’t want everyone to do it the same way: There shouldn’t be a “standard formula of delight” for the brokerage industry. We’d just be back to a level playing field, like choosing any Ford you wanted, as long as it was black. But until we get our industry focusing again on the customer experience, we won’t begin the hard work of creating the next generation of real estate professionalism. And profits.

The future of the real estate industry shouldn’t depend upon mortgage rate fluctuations or inventory cycles. Plenty of people are always buying, always selling. Success or failure shouldn’t depend upon a few extra or a few less units, or rising or falling appreciation and commissions. Real success comes from delivering an experience that creates customers, in any market.

Success depends upon delivering products and services that can get your customers to yell, “That was Bleeping Awesome!”

- M