Posted by: realestatewebtrainer | June 1, 2011

Does it Make Sense to have Large Real Estate Offices in every little town?

This blog will be a bit controversial since it goes to the heart of the franchising process and how Real Estate Organizations grow. There was a time when the Internet was second fiddle, if not last fiddle, to how Real Estate Transactions were consummated. Consumers would drive around, read newspapers, and go to offices to search for homes and find their next home… ahhh… remember those days…

They are gone – never to come back…

This is not to say that consumers enjoyed that process; it was the only process they had, and so they adapted.

This simple idea led to the Real Estate Franchise Model; which to this day is still captivating the industry; and there is nothing wrong with that.

The question one must ask is how many such franchises can you have in a town of less than 10,000 people before they start collapsing?

I have interacted with many Broker/Owners and looked at the statistics of many Real Estate locations, and the conclusion is simple: Any less than 100,000 population and a franchise office will be quite challenged. There are of course exceptions but let us put those aside, and have a constructive conversation.

The Hub and Spoke Model can only work if you embrace Telepresence!

The Hub and Spoke Model can only work if you embrace Telepresence!

Let’s look at fixed cost:

1. The office size:  The number of Real Estate agents per capita is an important measure on how large an office one ought to build in a particular location. This is truly driven by consumers; but, since 99% of the whole transaction is being spent electronically via the internet – does it make sense? I hear many anecdotes where agents tell me: “I met my clients for the first time at closing!”

2. The Franchise Model needs to start thinking of The Hub and Spoke Model of Airlines. Large Offices in Major Markets should be the parent offices in surrounding cities and town of less than 25,000 in population. This kind of thinking will create Economies of Scale as the number of transactions have dwindled and the number of agents has also shrunk. These Models are already around – think of redfin.com; a purely Web-based Real Estate Company.

3. Let me explain Economies of Scale: A large office with 50 agents would probably have a 3,000 to 5,000 square foot office in a large market. The satellite offices in the adjacent small town cannot afford the same; so why not open business offices run by managers at the main office with full immersive communications?

– The main office will manage a centralized accounting and processing system through a well paid CFO (Chief Financial Officer).

– The main office will maintain the Marketing of all the Listing Inventory through a COO (Chief Operating Office) and a Marketing Director.

– The main office will maintain Deals Management through a Principle Broker who works full time to take care of her agents.

– and all of this must be done in an immersive way – the internet is providing such ideas by allowing your 5 or 6 agents to work in locations 30 miles away so long as they can have Telepresence with the leadership.

– Telepresence is easy to build, all you need is High Speed Internet, Computer, Large Flat Screens, Fish-Eye Lens Webcams, and Software (similar to OoVoo – and there are many others.) This Telepresence allows Large offices to open small business offices with a small conference room to meet clients, and for agents to come into the office and be connected directly to the broker in charge or any other manager at the other location. 90% of the communication is happening via Cell phone anyway – but a good telepresence allows agents to join office meetings, specialty trainings, and one on one mentoring and coaching without having to drive miles to the main office.

4. Let’s look at another Monster Cost:  Building Successful Real Estate Websites is very expensive; especially if they are going to grow organically. The cost for building one for a New York City Real Estate Office is the same as building one for a tiny town in Beebe Arkansas (population 6,000.) Vendors have no problem charging $30,000 a year to each one of these brokers – but we all know that the second one has no chance of recouping the cost. The Hub and Spoke model of building a centralized website for the benefit of the hub makes sense especially since they all belong to the same MLS.

Real Estate Offices with small populations are having a hard time surviving because the economies of scale are not translating to them. The Franchising of the Real Estate Industry was supposed to be offering these economies of scale; but it seems that only the vendors to the industry are thriving in this process. A large number of  Brokers in small markets are working for free to run their offices and many of them are tired of it. This is not to say that there is a revisiting of the franchising process – but it ought to be tweaked to fully include the realities that the internet is imposing on it.

I have claimed many times that the most creative force in American Business has been the Internet – it is also the most Destructive… Opportunities abound and the thinkers of tomorrow must truly look at the big picture with enthusiasm and with renewed vigor.

Happy Blogging 🙂 – Key Yessaad, Real Estate Internet Strategist

Advertisements

Responses

  1. It makes sense to have little real estate offices in little towns – whether franchised or not, although not all franchise business models are built to be in smaller markets. The franchise gives access to products and services that would be unaffordable to a small office individually.

    The internet is no substitute for a personal meeting with the client, face to face. There are not many transactions done without meeting the client and helping them assess their needs.

    Yes, the hub and spoke can work well with the technology base, and the franchisor can create a larger, more efficient hub … over a much larger geography. This is still a career with independent business owners, both agents and small companies.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: