Unveiling the Business Models of Tomorrow

The NAR Power Broker Roundtable participants discuss how they will evolve their business models

RISMEDIA, April 11, 2007-Virginia Cook: No single definition exists today for what constitutes a real estate brokerage firm. The marketplace, influenced by changes in technology, regulations, the economy, and the competitive landscape, is now home to both traditional and nontraditional business models. How dominant each will be in the future, however, is still hotly debated. A few years ago, a NAR study predicted that firms of each model will be successful but change will affect all of them. We asked two brokers their thoughts.

Moderator: Virginia Cook, Special Liaison for Large Firm Relations, NAR
Participants: Harry Caparo, CEO, Coldwell Banker Preferred - Philadelphia, PA
Steve Ozonian, Chairman, Help-U-Sell Real Estate - Irvine, CA

Virginia Cook: What, in your opinion, are the major models competing today?

Harry Caparo: There are three major models competing in today's market. The traditional full-service agency offers a full menu of real estate and home-related services to buyers and sellers. The discount broker offers limited services at discounted commissions, and there are multiple tiers of this brokerage type with regard to services provided and commissions charged. The third model is the Internet company, such as House Masters, Lending Tree and Willow.com, whose responsibility lies in culling online real estate consumer inquiries, and then selling those leads to full service companies.

Steve Ozonian: The industry has the traditional commission model, meaning the percentage-of-the-sale price-based model. There is the full-service, set-fee model, which is the model that Help-U-Sell uses, where you receive full service but you pay a set fee, or a fixed amount for the transaction. There is also the limited-service model where a small amount of services are provided. And, lastly, there is the for-sale-by-owner model at the other end of the spectrum.

VC: What type of models do you see emerging or gaining greater application in the future?

HC: The full-service brokerage has always been the predominate model and will continue to gain strength for several reasons. The home buying process is one of the more complex transactions involving a significant financial investment. The emotions of real estate consumers - who are faced with lifestyle questions related to schooling and commuting, among others - drive their decisions. These issues will continue to keep the full-service real estate agent and company as a vital piece in the home buying and selling process.

SO: Data from a recent Real Trends survey shows that alternative fee models have quadrupled in market share in the last five years, and this trend is expected to continue. This has certainly been the case at Help-U-Sell, and we continue to gain market share every year. In the meantime, the traditional model and the for-sale-by-buyer model have lost a little market share, another trend which is expected to continue. As consumers continue to be educated on the real estate transaction, and the industry beings to move further toward universal transparency, the alternative fee models will continue to gain market share and top-of-mind awareness among the general home buyer and home seller.

VC: How should brokers define the best models for their companies or marketplace?

HC: The best way to define the model that works for you is to identify your target market and identify their needs. That will likely determine your direction. One factor that drives our decision to remain a full-service brokerage company is that the Philadelphia market is a mecca for relocation activity. Our ability to identify and capitalize on that early in our growth, along with our highly successful relationship with Cartus - the number one relocation company in the world - has played a major role in our success as a full-service brokerage company. Employees who are transferring are highly dependent on the broker's ability to assist them in managing one of the most stressful and multi-faceted life events they can experience. We find it immensely gratifying to offer a level of service necessary for them to meet their needs.

SO: Unfortunately, the residential real estate industry works from a historical perspective, meaning that a lot of what's done is done because that's the way it's always been done. Most of the brokerage companies in America have evolved under a model that was started 100 years ago. I think brokers try to anticipate what the market calls for, but quite frankly, they end up caught in a dilemma between the cost of change and the ramifications of that change on their existing business. The most important thing to look at is consumer research - what's best for the consumer will always be what is best for the local real estate company, because that is what will attract business. Today, the Internet has changed forever the way people buy and sell properties. As a result of increased information available to consumers, they want more disclosure; they want to understand what it costs to have service delivered and why they pay what they're being charged. Real estate companies that have embraced this and provide this transparency are having unprecedented success.

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