Introduction

A person must start with the realization that the real estate transaction triggers significant financial events and generates many complimentary fee and commission opportunities. Wall Street recognized that many years ago, and since that time there has been an attempt by non real estate entities to harness or take advantage of the real estate transaction. Very few have made a serious attempt to actually engage in real estate brokerage, but they have demonstrated a desire to be connected to the event in order to share in the additional financial opportunities.

In the last several years the industry has observed an interesting phenomenon, one that has generated new competition. Traditional real estate has expanded its role and moved into the financial services, mortgage, title and settlement services. We have also seen pressure coming from the other direction, specifically from title providers, dataa gathers and mortgage companies, all vying for the attention and the loyalty of the customer.

That is where the future battle is going to be waged. The issue will be who will get to the customer first and how to influence that customer as the relationship moves forward.

What is in the future for HomeServices in the real estate industry?

The HomeServices strategy is a long-term one. The company is fully committed to developing a full-service enterprise that serves its customers and clients on multiple levels: brokerage, mortgage, title, escrow, property/casualty insurance and settlement services.

HomeServices future is to build out a model that will support the home ownership experience beyond the closing. The Berkshire philosophy is solid companies that have promise and the likelihood of sustained future growth. Warren Buffet, the CEO of Berkshire Hathaway, likes companies that are easily understood so that he can readily identify the key metrics and opportunities. Finally, he likes companies that have strong cash flow and solid management. HomeServices brings all of those components to Berkshire Hathaway.

What affect will the entry of financial services companies have on the real estate brokerage industry?

Financial services companies have circled the wagons and looked at this entire industry characterized as the real estate sector. Financial services companies have recognized that the real estate transaction is a critical element of mortgage origination. As they continue to expand the services in the consumer sector of financial services they clearly understand that a major component of their growth opportunity and success is going to be centered around the mortgage, title and settlement services.

In the old analog business model the customer first entered the transaction or real estate cycle through the broker. Today, in the technology enhanced business world, you might argue that the first point of entry, at least for the majority of people, is via the Internet. Financial services companies would like to take advantage of that fact and win the respect and the loyalty of customers early in the game. They could then build on that platform by offering those same complementary services in a bundled package from their operation and source.

That is going to be a point of contention with traditional full service brokers that are vying for those customers and who want to offer these services at the initial point of a contact. The real battle for consumer loyalty will be fought on the consumer's turf and will be a question of who first gets the attention of the customer and uses the opportunity to serve them effectively.

Will the real estate industry consolidate and what are the chances that major consolidators like NRT and/or HomeServices will be sold to a bank?

The industry clearly needs to consolidate, but if we look at it today, we see it is significantly different from what was predicted a decade ago. During the early to mid 1990s the common belief and forecast levied against the industry was that, because of a lack of technology and general inefficiency, it was going to diminish in size. Just the opposite however occurred and today the number of real estate brokerages and sales associates are at an all-time high. It would therefore be unwise to make another prediction. Yet there is significant internal consolidation taking place through companies such as NRT and HomeServices and I think there will be still consolidation to come.

Of course it is possible that NRT and/or HomeServices could be acquired by an ultimate consolidator such as a bank. But as this kind of activity does not correspond with the HomeService core strategy it very unlikely. Such an event should however not been feared as a threat but rather as just another step in the overall consolidation and growth of the real estate brokerage industry.

Why have only a small percentage of real estate transactions gone paperless?

The prospects for technology streamlining certain aspects of our business and enhancing the entire process are glowing. However, challenge that we face is that the tide of consumer habit moves slowly. Adoption and change on the part of real estate professionals appears to be moving even slower. Agents do not like change for change sake. At this point in time, even with lots of work and creative energy directed towards the paperless transaction, it is still in its early stages and clearly not eliminating any costs.

The transaction is still not interactive with all the other components; mortgage, title, appraisal and inspections. Even though the technology is there, the notion of a paperless transaction that can be quickly communicated or transmitted to various components of the transaction has not been realized. As we move forward with companies providing one-stop shopping (those having all the key components of the transaction in house), the opportunity of seeing more of the paperless transaction will be a reality. Today it is still more of a concept, but the technology is available to make it happen.

What products/services should agents be using, and how important is technology to the new generation agent?

When we think about the changes that transpired in our industry, particularly over the last 10 to 15 years, there are none more dramatic than those being ushered in by technology. The most significant change has occurred as a result of the Internet and the access it provides to information. For the consumer it has had a dramatic impact on the transaction. There has been a shift in the balance of power from the agent to the consumer. That has caused some upheaval and consternation for the traditional brokerage mentality. It is requiring a re-pricing and re-valuation of the services being offered the consumers. Not everyone in the industry has fully caught up with this need.

What we bring to the consumers through technology is an opportunity for them to gain a much better perspective of the marketplace. It is the job of the agent to take that information and feedback a meaningful interpretation; one that meets the consumer’s individual need. There is a big difference between knowledge and information. Information is available, but the interpretation of that information is the value added proposition for the agent; knowledge. It is in this area the new generation of agents is going to be far more professional and interactive with their customers. They are going to be communicating with them in realtime rather than with delayed voicemail messages. Technology has compressed the interaction time significantly.

What is going to happen to real estate data and with national MLS aggregators like HomeStore?

The most underutilized and under-appreciated asset that our industry has – that is increasingly becoming more available – is data on property, marketplace and customer. The concept of data management, marketing, interpretation and intelligent application is going to play a far greater role in the future of the industry. Data analysis clearly gives us the opportunity as professionals to take a leading role in assisting customers in making better decisions. In the same way this data will assist agents in making better decisions concerning the advice they are providing.

Data has been collected for decades but the ability to access it quickly, analyze it and feed it back in a meaningful way and in the appropriate context has just not been there. It is a huge untapped resource of opportunity for the astute professional. How it will be used and how it will impact the industry is yet to be fully determined.

With respect to the MLS and national aggregators: As information is aggregated and disseminated back through various sources, the old MLS, as we knew it, is probably looking for a new value proposition. Out of necessity it will have to re-define its role in the entire real estate equation – likewise with HomeStore. I do not think its initial founding strategies are still relevant. The MLS was the early aggregator of regional data. Now with IDX, VOWs and other national aggregators as competitors the industry will need look into the future to find new meaning and new values.

Is real estate the last major national entrepreneurial business to be consolidated and how will this change the structure of the industry?

I believe that the real estate industry is either the last or nearly the last major industry sector that is largely owned and operated by small business entrepreneurs. The real estate industry represents about 15% of the Gross Domestic Product (GDP). The expanded industry, including the mortgage and title services, represents approximately 20% of the GDP. When you look at it in this context, it is totally amazing that an industry of this size and magnitude does not have many more national companies with a large national footprint. One reason is that it has largely been a fragmented industry and there is very little concentration of market share with any one company. If you examine the top 500 US companies in the real estate industry, they represent less than 20% of all transactions. There is a vast untapped potential here. The change is going to take place and, as that change occurs, we will see more consolidation as the industry migrates to very large brokerage operations, whether that be regional or national.

Then there are the niche boutique brokers. The companies in the middle that are going to have a very difficult time competing for brand equity while trying to provide all the demanded services, with a backdrop of necessary bottom-line profit margins. These smaller niche brokers can probably survive but only based on the relationships that they have already established within in their very small markets.

In reality, is the ownership of a brokerage company in competition with its agents?

No, I do not believe that it is. If you look at the current structure of a brokerage operation, there is a broker that is an entity, an individual, partnership or a conglomerate that owns the company. That broker is providing a series of services, facilities and programs to independent contractor agents. Good brokers must take the position that everyday they have to earn a relationship with their agents.

Ownership should not make a difference. Psychologically and emotionally there are often repercussions as a result of discussions around the office about who owns the company and who owns the stock. In the old mindset, real estate brokerage has been an industry run by families or single proprietors, which is truly mom-and-pop capitalism at its best. As circumstances change, some agents develop a suspicious attitude towards a large corporate owner. That perception can easily turn negative when in fact corporate ownership could be a benefit through its resources; bringing in more business, more efficiency and more scalability.

This industry needs the benefit of all aspects of ownership, in all shapes and sizes. Our own experience has shown that what is more important than the question of who owns the stock is the vision and culture of the company. If that vision and culture are going to change through an ownership transfer, another question might be whether that new owner's vision, culture and value system are compatible with the agent base. If it is not, that is where the real conflict begins.

Does it matter to consumers whether a company is an independent, a subsidiary of a larger conglomerate or a franchisee?

First and foremost what matters to consumers as well as to agents, is which brand in the marketplace has the brand equity, tradition and reputation that causes consumers to relate positively to its products or services. If a new brand enters the market place and simply tries to ride on the parent company’s brand name, which is well respected in other markets, I do not believe that consumers are necessarily swayed one way or another, particularly by the color on the sign or the name on the logo.

Real estate is first and foremost a localized business. It is a business that is at its very core a relationship built on trust and integrity. If a new brand is introduced to the marketplace and that brand is comparable to one that has been in the marketplace for some time – both having similar characteristics – the consumers will determine the similarities and differences in relationship to their individual needs. If it is an independent brand but one that has been around, then the consumer will pay loyalty to that brand if it stands up to its claims.

If the debate is over a franchised brand with a great reputation and the consumer has experienced it, then the consumer will patronize that brand. Conversely, if the discussion is over an independent versus a franchise and the company in question has less than a stellar reputation, then that brand name does nothing to build new brand equity in the marketplace. I do not think that brand is as important as what the consumers in the marketplace are comfortable with, i.e. the reputation of the specific brand in that marketplace.

What is the win-win formula for agent and brokerage survival and success?

I think that at different times and places as our industry has evolved, there have been various attitudes toward brokers by agents and vice versa. Sometimes there have been points of conflicts and tension. I think the new business model is going to provide the best opportunity for both parties to see the relationship as a true partnership. At the end of the day, our real commitment and obligation is to give the customers what they want. Agents cannot truly succeed on their own without the tremendous support services and the critical mass that a serious broker can provide. With the assistance of a broker, agents can also better realize their true potential in serving their customers – just as the broker cannot survive as a sales organization without having the most talented agents in the marketplace, promoting the company, promoting themselves and serving the interests of customers.

I have always believed, and continue to believe, that the win-win situation cannot accommodate the agent’s view of the broker as an impediment to their success; just a claim on a portion of their commission. This mindset has been there through the years that it was almost unpatriotic for a broker to expect to make a profit. On the other hand, the consumer is expecting all of the services and programs that come with a price tag for the broker. The agent is not able to provide that full menu or compliment of services, including support and stability, if there is not a reasonable level of partnering. Going forward, a cooperative partnership is the only proposition that will deliver a win-win strategy for all parties, including the customer.

Closing comments

The winning brokerage is going to be one that has broken out of the old paradigm of thinking of itself as strictly a real estate broker. Providing integrated service offerings for the consumer in the areas of pre-contract and pre-closing services, brokerage, mortgage, title, settlement, property and casualty services in a seamless format to create a superior customer experience is really what the leading home services companies are going to have to offer. Offering only a brokerage service will put that company at a disadvantage. That broker is competing head-to-head with other service providers (financial or title) that are trying to capture the customer by offering or influencing him with a menu of services the broker is not offering. It is going to be very difficult for the broker to compete without a menu of services offered in-house and in a streamlined simplified fashion.

The consumer is looking for a simplified solution to a very complicated transaction.

ACKNOWLEDGEMENT

This is an extract from the new book “Real Estate confronts the Future” by two of nation’s two leading futurists, Stefan Swanepoel and Tom Dooley. This book details the trends affecting the real estate brokerage industry and includes interviews by 20 of the industry’s thought leaders including people such as Terry McDermott, Dave Liniger, Bob Moles, Bob Becker, Gary Keller, Lennox Scott, Stewart Morris, Pam O’Connor, Dr. David Lereah, Jack Peckham, Marty Reuter and Dr. John Tuccillo. In this article, an extract from the book, Ron Peltier, Chief Executive Officer of HomeServices of America, Inc. In 2003 Peltier was named number one on REALTOR® Magazine’s 25 most influential people in real estate. In 2002 he was recognized by Ernst & Young as the “Master Entrepreneur of the Year.” The book is published by Thomson South-Western (January 2004) and can be purchased online at www.RealSure.com.