No one seems to doubt that Detroit desperately needs the help. Many analysts expect all three domestic car companies to face a life-threatening crisis if the U.S. car market, down about 20 percent so far this year, stays in the doldrums. GM and Ford could start to run out of cash by the second half of 2009, a precursor to declaring bankruptcy. Chrysler's finances are now private, but its sales are down even more than at Ford and GM. It may be starting to bleed its corporate parent, Cerberus. Cerberus must be feeling at home, given the fact that it was named for the mythological three-headed dog that guarded the gates of Hades.
The idea behind the loans is to buy time while the three headed dog in Detroit: revamps its lineups, develops new hybrids and other fuel-sippers, and converts old SUV plants into factories turning out hot cars able to compete with those from Toyota and Honda. In essence, to give them time to re-engineer their entire business model.
All of this posturing should sound familiar, for it mirrors quite precisely the conversation that is currently going on within the American real estate industry. An increasing number of experts and observers are coming to the conclusion that the industry’s current business configuration is not now, nor will it ever be, functional in today’s consumer controlled marketplace. Moreover there is a growing realization that if we don’t field a new brokerage business configuration that is not profit aversive, major negative things could be just around the corner.
Interestingly enough, there is one more similarity between automakers and brokerages. Who is missing at the table in Washington when the car maker’s CEOs make their appearances? You guessed it, the United Auto Workers.
No amount of money or restructuring will save the auto industry, unless the UAW member comes to grips with the idea that conventional, inveterate jobs for ‘thirty five dollar per hour plus unbelievable work hours plus great benefits’ are not a reality in 21st century America. They only flew in 20th century American economics because consumers were to weak or too ill-informed to question what was obviously a subprime automotive product and consumer experience. That luxury no longer exists, in the automotive industry, or any other industry.
Today the literature of the real estate industry is alive with articles about “life after the recession”, “reconstructing the industry” and “How to survive the down times.” Expert after expert is expounding about all the changes that will have to occur if the industry is to survive. Yet, just like the car industry, few of these writers are presenting the obvious. Just as the 20th century autoworker is not relevant to today’s consumer, neither is the 20th century real estate agent relevant to today’s real estate market.
The problems of today’s real estate brokerage started before the recent economic downturn. They started before the down market cycle of 2006. They even started before the refusal of agents to adopt technology, support core services or participate in Internet lead programs. The problems that are picking off real estate brokerages around the country have been a fact of industry life for the past twenty years.
At the core of these problems are the complexities of the traditional broker/agent relationship. In every way they are as outrageous, if not as irrational, as the problems that exist between the automakers and the UAW.
By way of history, take a moment to recall that the period between 1947 and 1974, known as the “Era of the Broker.” During this period of time, the industry, and the market, were controlled by Civic generation giants. The post WWII real estate broker was a master of their universe. And what a universe it was. Profitable brokerages spun off enough capital to delve into subdivisions, apartments, spec homes and property management.
By 1974 this generation was losing steam and the industry began its next era (1974 – 2001), known as the “Era of the Agent.” Fairly quickly, and throughout this quarter century, the real estate agent became the central focus of a rapidly growing industry. By the late 1980’s they were the undisputed kings and queens of the real estate empire. They were taking almost eighty percent of gross commission revenues and generally refusing to ascribe any value to the brokerage or its services.
Unlike the autoworkers that expressed their outrage through work actions and strikes, agents elected to exercise their discontent in an even simpler manner; they simply didn’t come back from lunch and set up shop at the brokerage down the street. Brokers responded by declaring agents to be their customers and lavishing upon them compensation and peripheral benefits that would make an autoworker blush. The formerly powerful brokers were soon reduced to shadows of their former glory, forced to spend their time wondering what went wrong as they waited for the next round of breakage.
All of us are familiar with that time-honored cliché; “what goes around comes around.” Sure enough in 2001, following an apparent quarter century schedule came today’s consumer to start what will now be known as the “Era of the Consumer.”
We have some real problems in or industry. But they aren’t about national economies or down markets. They are about the fact that our traditional service model and value proposition is simply dysfunctional in today’s consumer centric society.
There will be no real estate industry bailout.
The political and social capital of the American real estate industry has never been lower. All we have, with which to win this battle, is each other. The only solution that will take us to the promised land is to create a new brokerage value proposition that will please investors, satisfy participants and thrill consumers. Anything short of total cooperation, collaboration, and symphony will simply hasten our demise.
This is the stuff of which great New Year’s resolutions are made …
