A Full Service Proposition

Key Takeaways 

  • Consumers expect and desire a consistent service experience and are unwilling to accept a substandard level of service to achieve cost savings. 

  • In order to succeed long term, a hybrid brokerage must offer an excellent, predictable level of service to every client, every time. 


Many hybrid brokerages have tried and failed to disrupt the archaic service/pricing model of the real estate industry. Examples include Foxtons North America and Help-U-Sell, organizations which declared bankruptcy in 2007 and 2008, respectively.  

These failures, in part, suggest that consumers are not satisfied with partial real estate services, regardless of price. They want reasonable pricing, but they are also willing to pay inflated commissions of up to 6% if it means they will achieve the service level they desire. 

Consumers have expressed doubt in their ability to trust real estate agents; a December 2015 Gallup poll ranking consumer trust in numerous occupations ranks real estate agents in the bottom half of the list, right between lawyers and labor union leaders. But consumers’ desire for fair pricing and transparency does not outweigh their need for service. The mistake past (and some present) hybrid brokerages are making is the assumption that a pricing discount should equal a discount in the level of service provided. The price for real estate services is out of line with the value of the services provided, but the need for a thorough service experience still exists. The failure of partial service organizations to radically disrupt the industry, despite a significant cost savings for the consumer, is proof that price alone is not enough.

A viable full service real estate proposition includes control over the level of service and predictable, extraordinary customer experiences. Consistency is vital to the success of every transaction. 

The challenge self-service, a la carte and discount/partial service hybrid brokerages have had in the past, and will continue to have, is that a certain level of emotional support is necessary to sustaining clients through the difficult portions of a home purchase or sale. 

  • Consumers need experience-based reassurance from an agent or team during negotiations, before and after an inspection, while waiting for the appraisal to come in and any time an unexpected event occurs over the course of a transaction.
  • The consultative side of a real estate transaction is completely missing in the case of a for sale by owner scenario, or a minimal engagement level with a la carte services. 
  • The value of the counseling aspect of a real estate agent or team is more than a value-add for consumers; it is invaluable. 

Real estate agents are predominantly independent contractors. The model of independent contractor Realtors as non-employed associates of a traditional real estate brokerage does not encourage a consistent customer experience; legally, a real estate brokerage has little control over the level of service an independent contractor within their organization provides. The nature of the employment relationship between a broker and an independent contractor lacks enforceable oversight; the level of service an agent provides, his or her level of training or education and the ability to offer a predictable experience for consumers are variables that cannot be controlled by a traditional brokerage. The agent must be employed, trained and put on a career path to success, all inside of a full service predictable environment in order to ensure a consistent customer experience. 

A managed approach to the sales and service process has streamlined the consumer life cycle in many industries including food service, retail, health care, legal and insurance services. The entrenched level of inconsistency among service professionals in the real estate industry creates a standard below that of many other industries, and the inconsistencies of some agents damages the reputation of many. 

Employment Model: Employed vs. Independent Contractor

Key Takeaways

  • No traditional brokerage is legally allowed to enforce quality control for independent contractors; whether independent contractors choose to follow a standard of client service or a code of ethics is completely up to them. The enforceability of these standards is nonexistent. 

  • As a paid employee, lead agents and real estate associates will be subject to managerial standards of conduct and practice, training and education and a high expectation placed on the level of service provided to clients. 
  • As paid employees, agents and team members can achieve benefits including job security, paid time off, insurance and tangibles such as paid company mobile phone service or a company car. 
  • A paid employment model under a hybrid brokerage will allow the real estate industry to regulate the level of agent education, on the job training, communication, service and consumer satisfaction in a way that is not possible through the outdated traditional brokerage model employing independent contractors.

 

“The knowledge and competency gap from the most to the least is very large, due to the low barriers to entry, low continuing education requirements, and the lure of quickly making big dollars. For decades the industry has held the opinion that it’s a profession, however the reality is that those outside the industry don’t hold the same opinion. Most professions (doctors, lawyers, accountants, and engineers) require thousands of hours of study, beginning with a bachelor’s degree … But to become a licensed real estate agent requires an average of only 70 hours with the lowest state requirement being 13 hours.”  (NAR: The D.A.N.G.E.R. Report)

Under the current business model, no real estate brokerage is legally allowed to enforce quality control for independent contractors. In order for the level of knowledge and professionalism to rise, the Independent Contractor model must be replaced with an Employed Agent model in which agents are held to an enforceable higher standard of excellence.

Hybrid brokerage TRELORA is an example of the specialization model of employment. Specialist positions include paid employees in service to Buyers or Sellers (not both), and a differentiation between paid employees who work in the Field and those who work in the Office.

The system of training and accountability in place allows employees to master their specific skill set; there is no crossover of roles. There is a clear career path in place which allows employees to aim for professionalism and excellence, rather than trying to do a little of everything. A clear expectation of the standard of service offered to consumers at each stage of the transaction, and the ability to enforce it, help ensure a consistent experience for the consumer. Much like you wouldn’t want your heart surgeon to keep the overhead lights running in the operating room during a delicate operation, this system of specialization isn’t asking a real estate pricing specialist to conduct contract negotiations; a team of specialists is trained to expertly handle individual facets of the transaction. 

Under this form of hybrid brokerage, the company assumes full responsibility for quality control; the personnel in question are not independent contractors, therefore the organization is able to enforce these standards. The “accidental Realtor” phenomenon is eliminated.

This model holds benefits for agents as well; as paid employees, licensed agents and other personnel achieve job security and may qualify for health insurance, paid time off, a planned schedule and tangible benefits like a company laptop, mobile phone or car. The expenses of a traditional agent such as signage, continuing education and licensure become company expenses.

The average Realtor in the US closes 11 transactions annually. Based on the median sales price of Denver area homes, that equals an annual gross commission (in Denver) of about $90,000. Subtract the cost of doing business, including: Errors and Omissions insurance (the real estate version of malpractice insurance), office/desk fees (including commission share with the office), signage, fuel costs and continuing education; in the end analysis, 50-60% of a typical agent’s gross commission income covers the variety of expenses currently associated with conducting business as an independent contractor. There is a better way.


Tinker vs. Specialist

Key Takeaways

  • There are few barriers to entry into the real estate industry; this results in a multitude of undereducated, inexperienced “accidental Realtors” offering little expertise to consumers. Minimal oversight exists to ensure consumers are privy to a positive transactional experience.

  • The task specialization method requires an individual to master specific aspect(s) of the service transaction, rather than scratching the surface of a myriad of tasks as a jack-of-all-trades. 

  • Deliberate practice at a particular task or series of tasks and a clearly defined role lead to confident mastery and a high level of service for consumers. 

  • Task specialists work as a team to cover all bases. Consumers need to understand that a multifaceted approach to the transaction, encompassing a team of specialists rather than a single individual, will give them an edge in the marketplace.

  • Consistent communication is key to successfully implementing this method.


“What makes ridiculously successful people so successful is that they’re experts at practicing.”
— Malcom Gladwell

Whether or not you are a fan of the book Outliers by Malcom Gladwell or are familiar with his Rule of 10,000 Hours, you may appreciate the notion that to become excellent at any given skill, one must undertake deliberate practice of the task in question. This is true of the game of chess, the art of medicine and the practice of real estate. 

While the typical real estate transaction is not life or death in nature, the minor details of a home sale or purchase are of the utmost importance. It is through the deliberate practice of each individual aspect of a transaction that excellence in knowledge, service and professionalism can be honed.  

The average Realtor closed 11 transactions in 2015.  A deeper excavation of the statistics points out that this number holds true for an active individual, but a significant percentage of the total US Realtor population completes 6 or fewer transactions per year. If you or a family member required a complex medical procedure, how many times would you like the surgeon to have practiced his/her technique before operating on you? One hundred? Fifty? Less than a dozen? 

The employment model of specialization (as seen in hybrid brokerage TRELORA) puts a lead agent, backed by a team of task specialists, in the position of handling 100-150 transactions annually. This is ten times (or more) the volume of transactions, giving the employed agent many more opportunities for specialized, experiential practice of a real estate transaction. Specialists working synergistically to serve clients will provide an edge over a single Realtor attempting to master every aspect of the transaction. When task specialization is combined with transparency for consumers, service level and consumer confidence both rise. 

In a service industry such as real estate, the modern consumer largely equates service with transparency and an element of control over the process. 

“When we ask consumers what they don’t like about Realtors, it is never that they find agents to be cocky, stupid, or anything derogatory, rather [consumers] complain that communication is terrible in their experience.” For real estate consumers, not having answers in a timely manner is stressful. When left in the dark, consumers begin to craft false negative truths about the state of their transaction. The level of stress associated with a typical real estate transaction is part of why consumers have continued to pay an inflated commission of up to 6% for services. The lack of transparency or systemized communication is largely to blame for this heightened level of stress, and overpaying for services does not alleviate the problem; instead, it perpetuates the service model that is the root cause of the issue.  

The answer is to create a system of not just communication but transactional transparency, which gives consumers full access to the details of their home purchase or sale. Realtors have historically been protective of information, disclosing the minimal amount of information necessary to the consumer. This level of secrecy has assisted agents in maintaining an air of mystery and convincing clients of the necessity of licensed real estate representation, but the advent of the internet has given consumers not only the expectation, but the right, to be an informed advocate on their own behalf. Keeping consumers in the dark about any aspect of the real estate transaction can only be harmful to both the consumer and the process. Rather than a hindrance or threat, informed consumers directly benefit their own transaction, the agent working on their behalf and ultimately the economy through robust and timely real estate sales and purchase transactions.

Simplicity is the key to removing friction and balancing out the inflated commission structure currently associated with real estate transactions. Task specialization involving a team of niche experts, communication and transparency are the methods by which simplicity will be achieved.

Technology

Key Takeaways 

  • Technology has changed the way the real estate industry conducts business, but consumers have largely been denied and dissuaded from interacting closely with the technology that could benefit them most: that which offers a high level of transparency and an increased level of control within a real estate transaction. 

  • A hybrid brokerage planning to survive the innovation necessary to modernize the real estate industry must offer consumers technology through which they can achieve transparency of every detail of the real estate transaction, an increased level of control over many aspects of the transaction, and effective methods of communication throughout the transaction. 

  • Hybrid brokerage TRELORA provides consumers the myTRELORA platform, a client interface designed to offer consumers a high level of information transparency, increased control, ongoing monitoring of the transaction through a simple to use mobile app and opportunities for increased communication throughout the transaction.


Technology already plays a powerful role within the real estate industry; many tools have changed the way the industry functions including smart CMA programs (current market analysis), systematized transaction management tools and eSignature capabilities. 

The challenge is many of the advancements that would be of direct benefit to consumers have been kept out of their hands in an effort to protect the industry’s inflated 6% commission rate.

Online portals like Zillow have made access to listing information and market statistics a game changing proposition for consumers. As a result, Realtors are under pressure from the National Association of Realtors and high level leaders within the largest national franchise organizations to view Zillow, Trulia and other consumer-centric online portals as untrustworthy and a waste of resources in terms of promotional opportunities for Realtors within these sites. 

Currently, there is no widespread technology available to provide consumers the level of transparency and control they desire in a real estate transaction. Clients want to view showing feedback from both buyers and agents in a timely manner; they want to know if the average days on market for their neighborhood has fluctuated since their home was listed; if interest rates appear to be affecting the buyer pool, they’d like to hear about it. Knowing this information reassures them of the process and helps them understand the timeline of their transaction and the activity level taking place at their home. Realtors are afraid, and rightly so, that once effective technology of this nature is in the place, consumers will no longer be willing to pay inflated prices in order for mysteries to be unveiled over the course of a real estate transaction. Their desire is for a simplified process that is neither mysterious nor elusive. They are seeking real estate transactions with an increased level of control provided by reduced barriers to communication and a better understanding of the process. 

Innovation in real estate consumer technology will not replace full service real estate; rather the price of services will fall in line accordingly and consumers will become active, informed participants in the process. 

Successful consumer technology will complement specialized service to provide quality control, true transparency and an effective means through which to ask questions and receive answers in a timely manner.

Q: Will consumers readily adopt advances in real estate technology directed at the client?

A: The industry will teach and inform consumer behavior. The notion of reading a book on a tablet or iPhone was once foreign to consumers, but the marketplace has embraced this technology and eBooks have revolutionized the publishing industry. 

For hybrid brokerage TRELORA, technology is a dual relationship. Pricing specialists consult with clients in their home to discuss price and provide education. Consumers are then introduced to the myTRELORA platform. Home photography, public data including county records, showing history and personalized information is all in one place and available 24 hours a day. Jabber, the platform’s communication interface, allows clients to chat with the team any time, and an easy to use mobile phone app lets consumers track every new communication or update to the transaction. When the data onscreen is not enough, clients can talk to their full service team for reassurance or clarification; the consultative aspect of real estate is vital, and the tools onscreen won’t replace this resource. TRELORA is the bridge between the now and what’s next.

Financial

Key Takeaways 

  • An inflated, variable commission rate for real estate services should not remain the status quo simply because it has always been that way. 

  • Higher commissions for high end property listings or purchases unfairly punishes “high end” consumers, who are likely better educated, better informed and more capable of making decisions regarding the sale or purchase of a home. 

  • Buyers often lack a thorough understanding of who pays their representative, believing the seller pays this fee and they are off the hook; in reality, a standard 3% commission rate for the buyer’s agent affects the final sale price of the home, and the buyer is picking up the tab for the inflated commission amount whether they realize it or not. 

  • Traditional real estate brokerages are dependent upon the inflated 6% commission rate to remain in business. High overhead including management salaries, franchise fees and operating costs necessitate two things: a large number of agents paying monthly office/desk fees to the brokerage (whether or not these agents are productive); and an inflated level of commission sufficient to allow the agent to contribute a significant percentage of gross commission earnings to the brokerage.

  • If consumers across the country demanded a flat $2,500 fee be paid to the buyer’s agent in lieu of an inflated 3% commission, brokerages across the country would be out of business; high overhead and outmoded business models would not allow them to survive.


Q: Should the cost of real estate services be variable and commission-based? 

A: Both sides of a real estate transaction should charge a flat fee, not variable commission. 

Many brokerages have proven a home can successfully be sold and a profit made on services rendered for $2,000-$3,000, but this pricing does not address the commission on the buy side of the transaction – the 3% traditionally offered to the buyer’s agent. 

Buyers are often misinformed about who pays for the cost of real estate services in the purchase of their home. They believe their agent is ‘free’ or the cost is ‘passed along to the seller,’ when indeed they are paying the 3% commission for their side of the transaction in the form of a higher price for the home. The industry does not address this misinformation, and despite the obvious benefit of a lower price for the buyer, sellers are fearful of lowering this fee lest agents refuse to show the home. As an example, agents may refuse to show a property to their buyers because the compensation advertised is a flat fee of $2,500, or 2.5% instead of the 3% they are accustomed to in their marketplace. They may show clients a home offering a flat fee or non-standard commission rate, but actively steer the client toward listings offering the traditional 3% commission rate. 

According to NAR’s own research in partnership with Google, 90% of buyers say they found their home themselves, not their agent. Just 14% of buyers initiate their search with the assistance of an agent.  This underscores two points: Buyers are doing a significant portion of the work of the buyer’s agent themselves, and the seller’s fear that offering a lower commission rate to the buyer’s agent will result in fewer showings is unfounded, since 9 out of 10 buyers find the home they desire to purchase themselves before reaching out to an agent. Finding the right home to make a purchase offer on is a decreasing aspect of the buyer’s agent job description. 

The high end buyer/seller scenario points to the ridiculousness of inflated variable commission rates placed on real estate transactions. High end buyers and sellers (the definition of this term varies regionally; $750,000+ in some areas, $1million+ in others) are often better educated and able to make informed decisions about the transaction more quickly. They are arguably easier to work with, yet they are charged significantly more for nearly identical services. 

High end buyers are typically more financially stable than their lower-priced purchase counterparts; benefits of this scenario include increased financial stability (they may be able to purchase their next home before their current home sells), increased flexibility in terms of purchasing a home in need of repairs (buyers at lower price points may be pinching pennies and unable to afford repairs or upgrades in a home), and the ability to hire a moving company and other services to assist with the transition to a new home. The overall process for a high end buyer is better funded, removing many sources of stress that arise for buyers at a lower price point.

Consumers must face the fact they are charged by their income, not the work it takes to sell their house. A flat fee on both sides of the transaction is the answer to this inequity. 

If every agent in the country dropped the commission for either buyers or sellers to a flat fee of $2,500, brokerages across the country would go out of business. The current real estate brokerage model is not designed to support a singular cost of doing business; rather it is designed to support a top heavy infrastructure in which high level executives, owners and managers benefit from the excessive profits tallied as a result of commissioned real estate transactions. 

Overhead costs are too high to be sustained by a flat fee for real estate services, and the cost of remaining in business is covered, in part, by two sources:

  • A large number of unproductive Realtors who contribute to the brokerage through monthly office fees, but engage in little productive business activity within the industry.
  • The commission split is a policy of revenue capture for the brokerage wherein agents pay a varying percentage of each earned commission, the “split,” directly to the brokerage. This policy explains why it is in the brokerage’s best interest to advocate for inflated commission-based fees. 

When a flat fee for real estate services becomes the standard, one result will be a net decrease in the number of Realtors. The value of each transaction will decrease, forcing non-productive agents out of the business. This exodus of haphazard agents will provide greater opportunity for educated, top producing agents and the level of service for consumers will rise. The evolution of the real estate industry will force traditional brokerages to either innovate or expire.

Discussion Questions & Further Resources

Q: Why is the industry so resistant to innovation, when consumers will clearly benefit?

A: Fragmentation within this industry has kept everyone in competition within franchises, and allowed a negative industry culture of cut throat agent vs. cut throat agent to thrive.

What the industry can agree on is a collaborative assertion of, “Let’s keep the industry just like it is.” All the while, brokerages are vying for each other’s agents and even within individual brokerage firms, agents are fighting for each other’s business. 

Healthy competition serves every industry well, but the infighting that is rampant within the real estate industry is ugly, sometimes backhanded and has not moved the industry forward for agents or for consumers. If anything, the fear-based messaging Realtors are bombarded with from NAR and the companies they work for slows positive momentum, as agents are hesitant to embrace new technology or allow consumers the transparency and increased control they enjoy in other industries because of the internet and advancing technology. 

Collaborative fragmentation has made the real estate industry complex and scary for consumers, who are willing to pay more to avoid dealing with this friction.

Simplicity removes friction and fees. 

Full service hybrid brokerages that embrace technology, charge a flat fee and offer greater transparency and control to consumers are the future of real estate.

TRELORA is the full service alternative to the complex, tension-filled hall of mirrors presented to consumers now.  

Q: How long will it take the Denver-based TRELORA hybrid brokerage model to expand beyond Colorado? 

A: Franchising TRELORA or similar hybrid brokerage models does not make sense. By the very tenets of deliberate practice and task mastery this paper discusses, hyper speed growth and expansion is not a practical or viable proposition for the long term success of this model. 

TRELORA must invest deeply in the local marketplace, striving to become local market experts before broadening the organization’s reach. 

Once the recipe for TRELORA is perfected, it will be scalable and quickly be cloned and spread across the country.

TRELORA has applied lessons learned from the failed attempts of hybrid brokerages to disrupt the industry; this application has contributed to the development of TRELORA’s holistic, consumer-centric approach to real estate service. 

Pricing alone has proven not to be the answer, although consumers (and deep down the industry itself) are aware of the fallibility of an inflated 6% commission rate. Developing a viable model that answers the pricing and service concerns of consumers while prioritizing the training and success of affiliates is part art, part science and requires deliberate practice and patience. 

Premature expansion because “we’re onto a good thing” will not support the long term viability of the organization, and could even serve to inhibit learning or endanger the long term livelihood of the company.