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Issue 142 - July 14th, 2023
What is the one simple thing that has pushed the real estate brokerage industry evolution forward and had a MAJOR IMPACT on business model concepts, ideas, and innovation over the last 30 years to present day?
When I think long and hard and try to come up with one simple thing that I think has driven so much of the change in our industry it is this: the methods of property listing information distribution.
This simple concept has impacted the industry and thought process of broker-owners, CEOs, and entrepreneurs way more than most people realize over our industry’s lifetime.
We all want to get our listings sold - that is why we are in this business. When a property sells, agents get paid.
Let me break this down into 2 very different time-frames that I believe define our industry - pre-Zillow (Pre-Mainstream Internet Usage) and post-Zillow (Post-Mainstream Internet Usage).
Pre-Zillow and Pre-Mainstream Internet Usage aka THE DARK AGES
Listings were solely distributed via brokerages and their media efforts which included weekly meetings, printed flyers shared in the office, and most importantly via newspaper ad purchases in the weekend newspaper. Open Houses were invented to push people to listings on the weekends via these ads. The dominant brokerages had the most ad space and hence attracted the most agents and held onto market share in their local markets.
As an agent, you had to be affiliated with a large or well-known brokerage firm in your area in order for your listings to get DISTRIBUTION. Your clients or potential clients chose a listing brokerage and firm way more on the firm’s name and distribution efforts over the individual agent name.
The power in these times was heavily in the BROKERAGE’s favor.
The role of the brokerage & agent was “information gatekeeper”; client’s needed the information so they had to go to the brokerages to get the information. Agents had to be affiliated with these firms to know about other listings and to get their listings in front of more agents.
Brokerage business models were built in a way to handle this type of listing distribution mindset: lavish offices, large staff of people to handle marketing items and agent support items, and a large fee to compensate the brokerage for these efforts (which was warranted in this type of environment).
Agents happily paid large “commission splits” to their brokerage house because the brokerage provided a ton of value in this time due to the way listings were distributed. An individual agent could never compete with the power of the brokerage in these “Pre-Zillow and Pre-Mainstream Internet Usage” Dark Ages.
Post-Zillow and Post-Mainstream Internet Usage aka THE NEW WAY
As internet usage gained steam, Zillow broke down the barriers on listing distribution and made the exact same information that was available solely to agents and brokerages available to the general public. This is still not mentioned or recognized enough as a monumental change in our industry, but the day Zillow launched, the industry changed way way more than most people want to admit.
The value of the BROKERAGE NAME immediately dropped the day Zillow launched, and over time since then the AGENT NAME has evolved into being much more important than the BROKERAGE NAME.
The methods and money required to distribute listing information has also radically changed over time since this day. The old methods are no longer needed for agent’s to get deals SOLD in today’s world.
Distribution of listings is now just a commodity as all agent’s have the power to push listings in similar channels. Newspaper ads are non-existent for the most part, and the role of the agent is no longer “information gatekeeper” but instead “consultant and concierge”.
The power has shifted from BROKERAGE to AGENT.
The cost to run a business for an agent has dropped significantly due to software becoming cheaper and listing information being widely accessible to all.
I say all of this to highlight the fact that some of the largest brokerages in the world today are still operating their company from a business model architecture perspective as if we are living in the past. The thought and mindset of brokerage business models has not kept up with the pace of innovation and change with the rest of the world.
In the old days, brokerages provided much needed marketing and distribution exposure to their agents which was expensive and cost a lot of money. Agents happily paid these fees because it helped them operate their business and get deals SOLD. They needed access to these DISTRIBUTION CHANNELS.
In today’s world, the cost to run a brokerage business that puts agent’s first has radically dropped in cost. The brokerages of the future operate in the cloud with nimble and light operating expenses. Investments are made in processes and support systems to empower AGENTS to succeed, and the business model architecture of the firms of the future looks nothing like these newspaper ad driven business models of the past.
Most people are still living in the Dark Ages when it comes to this mentality of how a brokerage should operate in today’s world. The industry is changing much faster than most people realize.
Agents are the most important people in the real estate ecosystem, and if agents are empowered to run their business in the best way possible for themselves then all of their customers (home buyers and sellers) will benefit greatly as a result of this innovation in the value chain between “brokerage and agent”.