Next time you stand on line for a $4.00 cup of steamed milk and espresso ask yourself how, during a time when America was littered with dime-a-dozen coffee shops, when Krups, Braun, et al, were manufacturing affordable, home coffee brew machines, when a cup of coffee was $.60 a cup and that was considered too much, could Starbucks enter the markert with prices 200-400% higher than the norm.
I’ve asked myself that 1,000 times over the years. Usually after I ask myself how it is that during that same decade, during a time when Americans where making conscious choices to pay more for almost everything – $350 billion to be exact according to the authors of Trading Up – did real estate think to Trade itself Down by launching one discount model after another.
Forget about what it actually costs to list and market a home. I hear the arguments all the time. The average Realtor spends less than 1% of their commission to get the job done. So what! If you can sustain a business model with that markup – rock on.
No one cares what Starbucks charges. They care even less about their COGS. People gladly pay the price.
Starbucks, Callaway, W Hotels, William Sonoma and other brands like them get their high markup because Americans value innovation and upscale service.
Real estate is under scrutiny for one reason: Whatever innovation or service real estate provides must not be good enough or impressive enough. Certainly, in many cases, it is no different that it was two decades ago. The marketplace is saying it doesn’t feel it should pay a premium price for the same old real estate brokerage experience.
W Hotels has "Whatever Whenever". You’re in your $500 a night room and you need something odd like a Cuban cigar at 2:00 am. Pick up the phone, dial 0. Someone who sounds like they are your old friend attends to your need. Might cost you $200 but if you want a Cuban bad enough …
Same person lists a million dollar home. Fee is somewhere around $50,000 – $70,000. Does their Realtor have a Whatever, Whenever? If not, if all they get is a voice mail that says, "Hi, this is Alice. I’m either on the phone or away from my desk…" Where does that leave Joe consumer?
No URL. No alternative number. No cigar.
Real estate needs to start investing in the consumer. Not what it THINKS they want. Not what they seem to enjoy. Real estate needs to KNOW what they want. And what they VALUE
Do you know what that is?
- Davison
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Great post. Unfortunately, it's much easier to create a dinstinctive, consistent coffee experience than it is to craft a new kind of real estate experience. But try we must.
Marc… I agree with Dan, the proposition is incredibly complex. But that complexity can't be the reason NOT to try.
Of course it's complex. But that's becuase real estate gets in it's own way. Hard?
If earning a $50,000 commission were easy, everyone would be doing it right? Oh wait…everyone is doing it. 1 in 52 homeowners have their license. And that's why there is this breakdown. It appears too easy to be a Realtor.
The solution is simply creating a ladder of escalated benefits to the consumer.
Step 1 – Make it harder to get a license. Consumers should understand that the person transacting their 6-7 figure deal has a business degree with a minor in business law. Or that the person in charge of marketing your 6-7 figure home has a Marketing or Advertising degree. These are things consumers respect and equate to a occupation that wants to earn what Realtors charge.
Step 2 – Make it mandatory to intern before being allowed to cut full service deals. Consumers are all too aware of their cousin Bob who got his license and is now selling real estate. They assign that bias to all new agents and then to all agents. A new agent, first day on the job is not qualified to earn 6%. Just ask the seasoned pro who is on the other end of that deal. Nuff said there.
Step 3 – Mandatory CE. Not e-Pro. I'm talking full on courses in everything from customer service to technology. Its not an acceptable answer today to not know what Real Estate Shows are. It's not acceptable to not know where to post a home online other than the MLS. There are 15-year old budding guitar players who know more about the the music business than 10 year veteran agents know about the real estate business.
If you don't know things your value is up for scrutiny.
Step 4 – Brand education. Taught by real Brand experts not coaches who were once agents themselves. Posing with a dog when 100,000 agents pose with that same dog is not branding.
Step 5 – NAR needs to publish a document that is consumer centric and teaches the consumer what a spectacular real estate transaction would look like. Not agent propaganda and nutty commercials featuring agents doing things that don't exist in the world. I'm suggesting taking a consensus of the 100 best professionals and crafting a bar which all should be measured. This way the consumer is gifted the yardstick.
Step 6 – Paperless Transactions. My 1000Watt Partner Brian and I were part of the team that invented the biometric e-signature software that completed the first step – the signature. Combine that with Relay for example and a tablet computer and a Realtor is well on their way to establishing themselves as a clear cut above the rest.
Step 7 – Market Knowledge. Watch the video I posted in the blog. That is was a Realtor should sound like.
You find me a Realtor who sounds like that, has the tools I'm talking about, has an education, and meets the criteria set forth by the worlds largest association and you have yourself a darn good campaign to distinguish yourself from the riff-raff.
Duplicating a cup of Starbucks coffee is not as difficult as duplicating a certain level of service provied and services rendered – two very different measurements of value in a real estate transaction. I beleive that real estate services should be rendered at a cost related to experience, not pricing standards. Just like attorneys and medical doctors. What one with extreme experience and skill – pay more. Need only an intern or a paralegal – pay less. Licensing is not a measurement of capablitiy, only a measure of meetring minimum standards to practive real estate. From there the value and related price for services rendered should be determined – and it should come as no surprise that they will be very variable.
You're right Ken. Great point. A more refined idea would be to create a new parameter, a new bar, a new level of criteria that becomes synonymous with the definition of "full-service." Today this term translates to "I charge 6%. What it needs to become is universally accepted definition of what a 6% fee brings to the mix, i.e. education, tool set, and levels of service backed by a guarantee. This way a consumer can more readily distinguish between a "discount" agent at Redfin, a full service agent at Coldwell and finally a Coldwell agent who by their own design decided not to be full service by either not having a degree, or CE, etc.
These are all great points…which as a full-time realtor I applaud and support. Raising the standards of service and delivery of our services are essential in a competitive industry that now includes discount and online brokers, not to mention the explosion of free data on the internet (which is great, I love working with an informed consumer). On the other side of this coin, after we've suffered through sellers who have unrealistic price expectations and buyers who misrepresent their qualifications to buy and sometimes just disappear, after we've spent countless hours providing our superior service – when do we decide it's time to start charging in a fee-for-service model? Should buyers and sellers be held accountable at some point also? When realtors are put in the same category as an accountant or attorney, and our knowledge of our respective markets and real estate transactions means buyers and sellers will pay a fee for our knowledge, then the bar is truly raised. Whether you liked the coffee or not, you still paid four bucks for it. I just put the question out there.
Great question. Plays into the overall problem the industry has. Real estate gave away certain things for free that maybe it should have charged for and sought to charge for things it should have given away.
Personally I feel guilty when I spend time with my Realtor looking at property. He's up in Portland and I feel I should be paying for his time. I guess I do in that I am loyal and I buy property.
I don't practice real estate – never have but I believe people will pay for upscale services at any point in the transaction. Here's a wild idea – depending on the marketplace but would people pay to be escorted around a community in a limo, served food and beverage and taken to view properties with a rea market expert.
I know this is not a web based idea but it's a tangible service that depending on the marketplace might carry value. The bigger question is, does that become a service relegated to premiere clients,investors as as way to present an upscale service and protect the 6% commission?
I caution real estate to not consider charging during a time when their current value prop is being question. First step, raise the bar of what you do offer to where you are never questioned about what you charge. You may find yourself busier, doing more deals then ever.
Marc- once again…great post, great questions and of course you have spurred some great comments, ideas and in a perfect world…well, in a perfect world lots of things are possible.
They say a fish stinks from the head down. That is so true with a company's attitude toward the customer.
A company can spend a fortune on advertising to create an image or send people to countless seminars, but several recent experiences illustrate that a company's attitude toward the customer doesn't start at the level where workers interact with customers. Rather, the real company line on customer satisfaction starts at the top and trickles its way down to the front line troops. So the best barometer of whether the company really cares is the attitude at the executive level.
The Executive level of NAR is so far away from creating the "Starbucks" Experience, that it's laughable. This industry is built on a house of cards. Having heard of the antics and money spent at the recent DC NAR fun fest…we can be assured that power corrupts and absolute power absolutely corrupts. NAR has its 1.3M members. This year they voted for a dues increase. It’s all about money and power. The power to KEEP things as close to the status quo as possible. Remember the real estate agent that does the national average of 2 deals a year or less pays NAR and the local associations the same as the broker who does 300 deals. NAR does not need just the 20% that are doing 80% of the business…they need them all.
You will never see any significant movement in the professionalism of this industry until there is an end to any type of dual agency and end to any type of published broker cooperative fees, “broker coops”.
A model of cooperation amongst brokers? Well, it’s the crux of all of our problems. Without Coops…there is no refund or rebate issue. There would be no "Redfin" Model. 75% back on a 0% coop, is ZERO. This just shows how ludicrous the DOJ and FTC actions are in the states that "Prohibit" rebates or refunds. First of all, there is no other industry in the world that prohibits rebates or refunds. But it shows you the power of local associations and the money they have to buy politicians and protection. Let’s be blunt- if a broker has to negotiate, up front, in writing and full with disclosure-HOW THEY WILL GET PAID- without having the crutch of the standard 3.0 %, "oh, Seller pays it for you", coop fee…it will get very professional in the real estate industry. That's because most brokers could not negotiate such a fee.
The best solution would to allow buyer side brokerage fees to be financed (as they already are) in mortgages. But none of the "High Profile" groups such as NAR, FHA/VA or Fannie/Freddie will allow separate brokerage fees (non coop) to be placed on top of the loan. This single change alone would destroy not only the membership of NAR and local associations, but he large brokerage companies that rely on the cannon fodder commission fees brought in by the newbie and 2 deal a year producers.
The second issue that would improve consumer service overnight, increase professionalism and decrease membership numbers would be the abandonment of dual agency. Lawyers know it, English Common Law knows it and of course NAR’s recent study on the source of litigation, stems around this very issue. Separating Selling companies from Buying Companies would give not only a better experience, but true fiduciary representation to all consumers.
Thank God there are innovators that are providing the true “starbucks” experience today”but it’s far and few between.
I feel like an outsider in my own profession. I join associations and boards to push innovation and change. I'm tired of walking into our association offices and seeing the same faces and names in leadership that has been there for 30 years.
I have no confidence in my state or the NAR that they are capable of leading us out of this quagmire of protectionism we are in. If it's to be- it's up to WE!
I know your post was from June of 2007, but it's another great one. I have consumed myself in your blog for the last two days. The one problem with Blogs is great material gets buried. There should be more "re-runs" of blog posts.
Reruns — not a bad idea. You've actually given me an idea.
Stay tuned.
Marc… I agree with Dan, the proposition is incredibly complex. But that complexity can't be the reason NOT to try.