REPOSTED DIRECTLY FROM INMAN NEWS. THIS CONTENT HAS NOT BEEN MODERATED BY WFG NATIONAL TITLE.
Earlier this month, Brad Inman wrote an opinion piece that compared Gary Keller with Compass’s CEO, Robert Reffkin. Although the piece initially focused on the similarities and differences of Keller and Reffkin, it quickly moved to a much larger, and important, subject: the evolution (or revolution?) of the brokerage model, from broker-centric to agent-centric.
Inman wrote, “[The Keller Williams and Compass models are] centered on the success of their real estate agents, not the broker-owner. It includes company equity, training, technology support and putting agents at the forefront of the real estate show.
“Not surprisingly they have become magnets for agents — KW more for newbies and Compass for top producer luxe types. Both companies are on fire, as many other real estate firms smolder in spent ashes.”
What was most interesting in the article was reference to the apparent “pivot” of Realogy heralded by a home page that now boasts “The Realogy Way: We Serve Agents.”
For those maybe a bit newer to real estate, Realogy is the industry brokerage titan. It houses most of the well-known residential real estate franchise brands: Coldwell Banker, Century 21, ERA, Better Homes and Gardens and Sotheby’s International Realty. It’s also home to NRT, the nation’s largest single brokerage company, with most offices flying under the Coldwell Banker flag.
According to its website, Realogy-affiliated brands have approximately 14,450 offices and more than 286,500 independent sales associates globally. This includes the NRT offices and agents.
The U.S numbers were not broken out, but suffice it to say that notwithstanding the size of KW and Re/Max, the collective presence of the Realogy brands are vitally important to the fabric of the U.S. residential brokerage market.
I agree with Inman on (at least) one aspect of his opinion piece. The allure of the agent-centric model is difficult to deny, and when agents clearly own the seller/buyer personal relationship, any model that does not acknowledge and cater to that reality is going to struggle.
Personally, I am pleased with Realogy’s apparent pivot because I believe that the industry needs a strong Realogy.
Business format franchising
While we like to ooh and aah about new models, such as Compass and Redfin and a host of lesser-funded but still intriguing brokerage startups, and give credit to the continued impressive growth of KW, we cannot deny the important presence of the Realogy brands across the nation in maintaining the strength of the brokerage industry.
My concern is that success for Realogy will be far more difficult than a new message on a website. With its cross-functional matrix operational structure and a long-standing culture hyper-focused on the value of the “brand,” Realogy is not exactly positioned for reinvention.
Of course, Realogy’s incoming CEO Ryan M. Schneider and the bevy of new talent at the brand executive level know this. If they can pull off this transition, it will be one of the most successful seismic shifts in modern day big business.
Because most of Realogy’s income comes from real estate franchising. And when we hear the word franchising, many of us immediately think of business format franchising. Like McDonalds.
In business format franchising, franchisees buy into a way of doing business that is tightly controlled by the franchisor so that the customer experience is the same from store to store regardless of various owners.
The McDonalds franchise owner in Tulsa has no discretion on the amount of secret sauce that is put on the Big Mac, just like the owner in Orlando. The result is that the franchisor can control the delivery of the end product to the customer and ensures it meets certain standards.
And if the franchise model is built well, like McDonalds, everyone wins: franchisor, franchisee and customer.
Entrepreneurs or operators?
Early in my career, I did some legal work for some business format franchisors and quickly learned that they really, really loved military veterans as franchisees. Why? Because many military veterans understand a top-down, follow orders, do-not-deviate, kind of environment.
One very successful franchise exec once told me, “We do not want entrepreneurs; we want operators.”
Clearly, real estate franchising has traditionally not followed this model. Most brokers who choose to affiliate with a brand are in fact, entrepreneurs. It’s usually what led them into real estate and eventually to brokerage ownership.
And because of this, most real estate franchising allows the broker-owners to “operate” their companies as they wish — subject, of course, to limitations on how they use the brand and some high-level guidelines.
Unlike business format franchising, the result is that the primary brokerage customer, the agent, might get a very different experience going from one company to another, despite those companies flying the same brand flag.
Moreover, the franchisor has little control over the brokerage product.
A tale of two franchisees
A real life example of this freedom is here in my home town of Seattle. We have two large Coldwell Banker franchise firms: Coldwell Banker Bain and Coldwell Banker Danforth.
CB Bain is by far the more traditional brokerage company. From the outside looking in, CB Bain has a good local reputation, good agents, top-3 local market share and, what some would call, a more traditional split model.
Although not as big as CB Bain, CB Danforth also has a good local reputation and good agents (well-respected Inman contributor Sam DeBord is part of the Danforth team).
However, on the agent careers page of its website, it states: “Why have 370 brokers from across the Puget Sound region chosen CB Danforth? #1 Trusted Global Brand. The Best Tech Tools. $325/mo. $250/transaction fee. No office split. No joke.” (Note: In Washington all licensees are called brokers.)
Clearly, the economic relationship that Bain and Danforth have with their agents is very different. One not being inherently better than the other, just different.
From my experience as a brokerage company executive with both a more traditional firm and one that is less so, the agent-experience with a firm starts with economics.
That’s the driver that creates expectations and from which all the other things that the agent may want or need from the brokerage firm are enabled. And though I am not intimately knowledgeable of the respective value propositions that CB Bain and CB Danforth provide to their agents, I am confident that they are different.
I’m also confident that both firms are in complete compliance with their Coldwell Banker franchise agreements.
Back to Realogy
I believe there was a time not long ago that it viewed its broker owners as its primary customers. Apparently today, its mission is now to serve agents. For Realogy to really deliver on that promise, I believe it must fundamentally reinvent the real estate franchising model.
Agent-centricity is not about giving the agent everything he or she may want — broker be damned.
Brokerage firms need to be economically and experientially aligned with their agents so that both the agent and the broker win from the relationship. For the Realogy brands to compete long-term in this new world of agent-centricity, there must also be alignment between the broker owner and Realogy on how they collectively will “serve agents.”
Real estate should never be synonymous with true business format franchising as agents don’t frequent multiple brokerage firms like fast food junkies.
That said, the continued practice of allowing franchise-owned brokerage firms carte blanche freedom to operate as they wish as long as they follow brand guidelines and pay minimum fees won’t work: for agents, for brokers or for Realogy.
Can Realogy succeed?
I really do hope so as it plays an important part of our industry. It will be interesting to watch this new CEO and his talented team tackle what clearly are some monumental decisions moving forward, and I hope that some of the oohs and aahs that we have reserved for the upstart firms will instead be directed to the folks in Madison.
Russ Cofano has more than 25 years of executive-level experience in real estate brokerage, technology, association, MLS and law. You can find him on LinkedIn.
The views and opinions of authors expressed in this publication do not necessarily state or reflect those of WFG National Title, its affiliated companies, or their respective management or personnel.