Is it possible to stem the deflation of commission rates in the foreseeable future? If it is, are we willing to take the necessary steps to earn the higher rates?
I recently facilitated a broker seminar with a friend, colleague and nationally recognized publisher who made what I thought was an unusual announcement during his remarks regarding the near term future of the real estate commission. After tracing the significant downfall of commission rates over the past few years he indicated that there was little chance that this trend would turn around. Later in the program I engaged him again on this subject by suggesting that brokers who wished to increase their commission rates need merely respond to the current consumer value calculus. He agreed, but indicated that his research suggested that few brokers would have the courage to take that step.
At the risk of sounding naïve I must say that I find this state of affairs to be unacceptable. Over the past several months our firm has worked with over a dozen brokerages across
This is not magic. The formula for maximizing profitability in 2007 is tied directly to understanding the complexities of today’s multi-generational consumer.
Current research and complied evidence clearly indicate that today’s consumer:
- Wants to work with a real estate professional (in all generations and at most price points)
- Expects to be treated with respect and parity
- Seeks to be engaged in an appropriate, personalized, value added experience
- Will pay full compensation to any vendor who meets the proposition generated by their personal value calculus
All that stand between today’s dismal commission levels and adult level revenues are the ability and willingness to meet the marketing, branding, delivery and compliance challenges created by these four factors.
Why will thousands of brokerages continue to experience falling commission rates rather than meet these challenges? For the purposes of this article the primary reasons may be too personal. For the purposes of our readers they are definitely irrelevant. What ultimately matters is whether or not you are willing to step forward and lead the charge in your market.
The brokerage community is the structural steel of this industry. The current level of commissions not only fails to approach the levels suggested by the media on an almost daily basis but, more importantly, are reaching levels that will not support an acceptable return on investment. Encouraging a financially sound and stable brokerage community is in the best interests of everyone involved in the transaction including brokers, agents, affiliated professionals and yes, the American consumer.
So what is the problem? Factor one is cause for continuing celebration. Factor two is a matter of simple respect, as difficult as that might be within a generationally diverse marketplace.
It is factor three that causes the immediate breakdown because it runs in the face of traditional training. Creating personalized experiences require unique and considered approaches for each customer. Consider, for instance, the difference between the fast food drive thru window attendant and a personal coach.
Factor four often fails because without an appropriate experience, as defined by each consumer, the value calculus cannot be satisfied.
It is incumbent upon every brokerage to meet the challenge of providing consumers with an appropriate experience. Success in meeting this challenge will not only meet the consumer’s expectations, but will, more importantly, trigger a positive value calculus response (read full commission).
Every great experience involves four phases. These phases were originally conceived by Johan Arndt, a German Lutheran clergyman, in his writings about the experience engagement process.
The four phases are: Discovery, Evaluation, Acquisition, and Integration and extension.
This concept was further developed in Priceless, an excellent book by Diana Lasalle and Terry A Britton. Priceless takes its reader through a meaty discussion about how to turn ordinary products and services into extraordinary experiences.
Discovery marks the beginning of the consumer transaction. It can be stimulated either internally or externally by either intellectual or emotional factors. A successful intervention by the brokerage will, in every event, require an understanding of the exact nature of this stimulus.
Evaluation met its ultimate purpose with the development of the Internet. Today’s consumers can access an endless treasure trove of information about every possible subject involving real estate. Once equipped with this knowledge the consumer engages in a process of evaluation. The winner of this process is likely to become the new service provider. The secret here is devising a way in which to influence both the information gathering and the evaluation itself.
Acquisition is the successful culmination of any transaction. In most cases it is the process of the acquisition that determines the overall success of the experience. The American consumer has stated without equivocation that the acquisition process connected with real estate is totally unacceptable. Here is an opportunity for brokerage firms to differentiate themselves.
Integration can only occur after a successful acquisition phase. It is here that their new acquisition must be integrated into the consumer’s life. It is also here that the biggest surprises arise. The difficulties of real estate closings are legionary. Post closing issues that arise during the integration phase are totally unanticipated and can taint the entire experience long after the commission check has been deposited and spent.
While some argument can be made that the real estate industry has attempted to help the consumer survive the first three phases, there is little evidence to suggest that any thought has been given to the long-term implications of the acquisition. Successful brokerage performance in this fourth phase is almost guaranteed to not only tip the value calculus but to put the finishing touches on the perfect real estate experience. It is this phase that determines whether or not the consumer and the brokerage are left with the prized long-term relationship or merely a memory of what could have been. This phase can create the kind of differentiation that will net the brokerage firm referrals for years to come.
Each of these factors taken separately can effectively impact the success of the overall real estate experience. When bonded together they become the chemistry of a powerful system that can positively impact brokerage revenues and profitability for years to come. Together they can be used to create a unique consumer experience that becomes almost addicting. Try experiencing your firm’s commissions.
