In Search of a New Model

Analyze the way real estate brokerage companies operate, and it’s easy to conclude that the existing business model has not only outlived its usefulness, but may be excess baggage for brokers trying to respond to marketplace changes.

Our industry operates under old assumptions about how we make money, about who are customers are, about what products and services are in demand, about how much the consumer will pay, about how we should structure our relationship with labor, and about who our competitors are. These assumptions form the structure for the business model under which most brokers have operated for decades. Yet, in today’s changing environment, these accepted paradigms may be so outmoded that they are a threat to survival.

Rather than trying to gain market share, increase volume, and search for economies of scale, brokers might be better served by asking three important questions:

1. What profit opportunities exist in the industry?

What business model will allow us to maximize those profit opportunities?

How can we create and test a new model while continuing to operate smoothly (and one hopes, profitably) in the short term?

Karl Sopke, the president of Pacific Union Real Estate Group, is an example of a broker who has obviously asked these questions and come up with some interesting answers. Sopke, who runs a $1.8 billion residential brokerage operation in the San Francisco area, and owns businesses in a variety of other industries, wasn’t content to continue his brokerage business based on status quo. He asked his travel agent to book him on a cruise so that he would be away from day-to-day distractions. Then he packed his notebook computer, boarded the ship, and went to work. The task? To forget what he knew about the real estate business and approach it with fresh eyes. To do that, he assumed the role of a recent MBA graduate with the job of creating a new real estate brokerage model, one which would be responsive to consumer wants and needs and would exploit the new profit opportunities.

Sopke says he didn’t even know where the cruise ship was going until he boarded. When the gangplank was lowered back in the U.S., Sopke stepped off the ship with a complete business plan for a real estate retail store. Now he’s testing it.

Located in San Francisco’s trendy SOMA (South of Market) neighborhood, Sopke’s new real estate operation is a far cry from a traditional brokerage office. The prototype "buyer’s store," called SOMA Living, looks more like a high tech library than a real estate office. What’s more, there’s not a real estate agent in sight. A salaried resource coordinator is available to help customers find the information they want. User friendly computer kiosks offer free Intranet information on neighborhoods, schools, new and resale housing, planned developments, even FSBO’s, Customers can take virtual tours of homes, check mortgage rates, even video conference with loan originators and secure pre-approval on mortgage loans. If a prospect isn’t computer literate, material is available in printed form.

When consumers are ready to look at houses, they are matched with one of the store’s buyer’s agents, all of whom are salaried employees (with offices out of sight of the information area). If a customer has a home to sell, the listing is referred to one of Pacific Union’s traditional real estate offices.

After visiting homes and deciding to make an offer, the store’s manager/negotiation expert is called in to represent the buyer in contract negotiations. After the offer is accepted, a salaried transaction coordinator steps in and guides the buyer through all that’s necessary to get the transaction closed. Technology even allows the buyer to use a personal code to track the progress of the transaction through a private Extranet within the company’s Internet site. The on-line transaction documents remain available to the consumer long after the transaction has closed. The store also provides one stop shopping for a variety of ancillary services and offers resources for repair and redecorating.

According to Sopke, the store reached a positive cash flow after three months. Over the next eight years, Sopke’s investor group hopes to open over 400 more outlets nationwide.

Is this high tech retail store with salaried employees, new job categories, and ancillary services a model for the future? Only time will tell. But it is an example of the innovative thinking and experimentation, which residential brokers must do to keep from becoming obsolete.