Tomorrow's Profits

April 1, 1996

Don Harlan, CRB, CRE®, and Gail Lyons, CRB, CRS®, are Colorado brokers who each have two decades of experience as practitioners. They are also educators who, as a team, have taught more than 37,000 real estate students throughout the United States, Canada, and Eastern Europe. As authors, they won acclaim in past years for their ground-breaking books on buyer agency and dual agency. Now these renowned industry observers have turned their attention to the challenges of tomorrow in their latest book, The Future of Real Estate: Profiting From the Revolution. We asked them about some of the changes they see ahead for residential practitioners.

Q: In your book, you predict that the work of salespeople will grow increasingly "segmented." What do you mean by that?

Lyons: The real estate industry, like other industries, is finding that some parts of the salesperson's job can be done by others---whether you call them personal assistants or transaction coordinators.

Salespeople have learned that the best use of their time is that actual face-to-face interaction with the client or customer---showing property, making listing presentations, and negotiating contracts. That's where the salesperson brings a lot of added value to the table. The other tasks---setting up appointments, gathering information, developing marketing materials, telemarketing, dealing with routine paperwork---can be done by personal assistants or transaction coordinators.

Not everyone needs a personal assistant. Those who are highly computer literate will use their computer to handle the routine chores.

Q: What other changes do you see in the way salespeople practice?

Harlan: We're going to see a lot more specialization. There's a lot of it going on now in terms of geography and niche markets. In the future we're going to see specialization in even smaller geographic areas and more sharply defined niche markets.

The reason is that consumers are demanding more. Salespeople are expected to be highly knowledgeable. They can't fake it.

Q: You predict that commission income is going to decline in importance. Why?

Lyons: Consumers are beginning to ask for very specific kinds of services rather than a package deal in which they pay a commission and get the whole range of services.

For example, let's say the consumer wants help with developing a marketing piece or coming up with a price or with negotiating. Whenever you break down a general service into a menu of services, you start looking at hourly fees. That's a relatively new concept for residential brokers but a fairly common practice for commercial brokers.

Harlan: Yes, with hourly fees, real estate practitioners are going to look more professionallike lawyers, doctors, accountants. One natural outgrowth of this is that more experienced salespeople will earn more per hour than others.

Q: Is the relationship changing between brokers and salespeople?

Lyons: The power is shifting from bro-kers to salespeople.

It started with the introduction of the 100 percent commission concept. Sales-people started taking on more responsibility for running their own practice like a business. The broker wasn't involved in as many decisions.

At one time, in the typical real estate office, every salesperson had the same commission split. Today the commission splits are all over the place. If brokers have a handful of salespeople who are bringing in 50 percent of the revenue, they're going to treat those salespeople differently from the others. And those top-producing salespeople are going to start making some of the decisions the broker used to make.

Q: If brokers have less power, does that mean they have less liability?

Lyons: No. In today's market, the broker still has most of the liability.

Harlan: And they're not getting compensated properly for their relative share of the risk. The exposure to liability for the mega-salesperson is tremendous compared with that for the salesperson with modest production. If they're in a 100 percent commission company, the broker's share of their monthly fee is the same for both salespeople.

Brokers are becoming aware of this issue. They're saying to the top salespeople, "You're going to have to pay a more proportionate share for the liability."

Lyons:In the past, when highly productive salespeople got upset with a broker, they'd leave and start their own company. That doesn't happen so much anymore, because the salespeople have another option—they can create their own "business within a business." That's a situation in which mega-salespeople have two, three, or four personal assistants working for them---a separate business within the broker's office. The advantage to the mega-salespeople is that they don't have to worry about liability. The liability remains with the broker.

Q: Today a lot of the emphasis in a real estate practice is on the listing side. Will that stay the same?

Harlan: No, the emphasis will shift from the listing side to the selling side.

Consumers will have widespread direct access to computerized real estate databases and services. If sellers want to list a house, they can contact a real estate company on-line. The on-line program will ask them questions about their property. Do they want to show the house themselves, or do they want a salesperson to show it? What kind of media do they want to use for advertising? Will they need advice on how to make their house more salable? A listing form will be available on-line for the potential seller to fill out.

Potential buyers, on the other hand, are in a different situation. Yes, they can access the database of properties for sale. But once they find a property they're interested in, they have a problem. How do they go about buying the property they see on their computer screen? The computer can help them some, but they're going to need a salesperson to guide them through.

Q: Is the philosophy of real estate practice changing?

Lyons: Yes. Under the old way, there wasn't a lot of choice or differentiation between one real estate company and another or between salespeople.

Today companies and salespeople are beginning to differentiate services. That means giving the consumer choices. When you do so, you put the consumer as opposed to the company or the salesperson in charge of the process, and you also greatly increase the level of competition in the industry.

Q: OK, so what do you need to know to avoid getting left behind?

Lyons: Let's start by reviewing three trends. One, computers are giving con-sumers direct access to information on real estate markets and values. Two, consumers are getting discounted real estate services through affinity groups. By an affinity group, I mean any type of group you belong to by virtue of your occupation, your interests, or your beliefs. A lot of real estate companies are offering discounts on services to members of affinity groups.

Third, buyer agency is growing in popularity. It's giving buyers what they always assumed they had—a trusted agent who represented their interests.

How should companies and practitioners respond to these trends? First, they need to learn how to use the computer to develop "clients for life." Through this technique, you capture as much information as you can about clients and their interests and preferences. The key is to know them so well they really don't want to go to anyone but you.

Second, companies and practitioners should look into the area of affinity relationships. Third, they should become very competent in buyer agency.

The Future of Real Estate: Profiting From the Revolution is published by Real Estate Education Co., Chicago; $29.95 through Harlan Lyons & Associates, 2541 Spruce St., Boulder, CO 80302.

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