There’s a paradox in today’s housing industry: The real estate marketplace is showing signs of potential, but the real estate business is still falling apart. Home affordability is the best in decades; mortgage rates the lowest in modern times. Sellers and buyers are starting to get it. Yet after hundreds of thousands of REALTORS have left the industry, the news continues to be about bankruptcies, layoffs and implosions at brokerages nationwide. Agents are demoralized; managers are shaken; brokers sweating. This, even at a time when online operational costs such as marketing have plummeted and technology-driven success stories are soaring. Why, then, is the industry stuck in the mud? Perhaps it’s because we’re focused on the problems – and not the opportunities.
Peter Drucker, the management guru whose works inspire the consulting ideas at Matthew Ferrara & Company, once said: “Unless there is a true catastrophe, problems are not discussed in management meetings until opportunities have been analyzed and properly dealt with.” In part because of their risk management orientation, [managers] are exceptionally good at detailing why a new initiative will not work. This includes both employee and customer issues.”
Little did Drucker know that he was going to be describing the central paradox of an entire industry. Real estate, as an industry, has been historically adept at figuring out ways not to implement change. From the initial fight to put listings online to the continued intransigence of MLS rules forcing consumers to register for housing commodity data, REALTORS are experts at detailing why things will not work. Less than 40% of REALTORS have a smartphone, according to NAR; while last year the Pope used an iPhone to send text messages to thousands in his sphere of influence. More than 95% Gen X and Y of consumers who bought a home last year said they used social networking daily; 61% of REALTORS said they were “dissatisfied” with social networking because “it didn’t send them leads.”
If there’s going to be a true catastrophe in real estate, it will not be the market’s fault. It will be the industry’s change-management orientation – or lack thereof – that ultimately brings down the house.
To rebuild the real estate industry, we need to be focusing on the opportunities that are emerging during the recession. For starters, we must abandon all thoughts of the market “returning” from the past. Markets don’t function by returning to the past. They march forward. We didn’t emerge from World War II by returning to pre-war economics. The Dot-Com disasters were not surpassed by recreating them. In fact, with the real prospect of hyperinflation and Boomer wealth destroyed by more than half, there’s almost no accounting method (even Fuzzy Government Math) that will recreate the market conditions from our most recent boomlet period.
Yet that doesn’t mean we won’t be returning to prosperity. It simply means that future prosperity will look different. Driven by market forces, demographic trends, economic conditions and business practices that are yet to be written.
But can these future market forces be anticipated? Certainly. Something else Peter Drucker used to say was, “To anticipate the future, create it.” In other words, the authors of change are ourselves. That’s why it’s important for all industries – especially real estate, upon which so much wealth creation depends – must start focusing on the opportunities of tomorrow, not the problems of the past.
To get you started, let me offer seven opportunities that next generation real estate professionals might consider to create a prosperous future:
1. Consumer-centricicity. The future puts the customer first. Companies who use the recession to break away from protectionist thinking will win. Restrictive rules – from vendors or Associations – contine to blind brokers to viable solutions. The opportunity today is to remove bad influences limiting business opportunities today (think, MLS). Partner with consumers and you’ll find them saying “yes” to your value proposition.
2. Performance management. Companies who move toward by per-person-productivity, not body count, models will dominate. Gone is be the concept of “top producers.” The standard of performance for profitable companies will be 25 or more deals per agent per year. Margins, marketing and management theory demand it. Future sales executives will only pursue career opportunities with incomes greater than Greeter at WalMart.
3. Division of labor. The model of future brokerage already exists. Today’s highest performing real estate entities are teams. No surprise there: every other industry in the universe breaks down complex processes and assigns the best people to each stage. Companies of the future must reorganize themselves today around a division of labor that permits less people to do more work at a higher margin. And manage quality and consumer enjoyment.
4. Relationships, not marketing. Future brokerages will listen to data, not prophets. The numbers tell us that listing appointments come from referrals and past relationships, not websites. Social networking – traditionally called prospecting – matters. Passive marketing is doomed. Google ad-words are already the first casualty. Their insistence on “secret formulas” was tried by – of all people – REALTORS. In the future, companies that focus on relationships, not secrets, will steadily overtake their competition.
5. Sales, not inventory. Profitable brokerages must become operationally leaner. Use the recession to design a model of carrying the least amount of listing inventory at any time. A shorter list-to-sale time structure reduces carrying costs. Market domination will be measured on the sales cycle – the margin made on the least amount of time. Structures that turn inventory over more quickly than competitors will attract sellers and buyers – and of course, agents.
6. Management knowledge. Invest in knowledge as fast as possible during the recession, as failing companies layoff smart people. Capture and leverage talent to create high performing teams focused on the future. In a knowledge-performance oriented industry, human capital is the key to creating the turn-around in the marketplace. Bright ideas implemented by savvy managers energize sales. Bailouts start when companies create capture (or create) management knowledge and apply it to emerging conditions.
7. Technormalcy. At some point during the industrial revolution, companies stopped referring to the steam engine as “that new fangled thing” and started taking for granted new performance-improving technologies. American companies were the best at this – redesigning mills and factories around machinery that surpassed British productivity within two generations. The true innovation, however, wasn’t the machine, but the normalized attitude toward machinery. Real estate brokers that break stagnant cultures and create attitudes around the normalcy of technology will do the same.
None of these seven opportunities has anything to do with “fixing” the marketplace. They won’t help “return it” to the last boom. Change doesn’t t make things “come back” but go forward. These are the kinds of discussions that need to be happening around the table in broker’s conference rooms. They will energize morale and create new ideas. Only by looking for opportunities in the future will real estate professionals have any possibility to create it.