Are traditional Realtors being undercut? There’s always room at the top

This is me from last July. Real Estate Wives has a post on Redfin and WalMart today, so I thought I’d bring this back to the top of the queue.

Are traditional Realtors being undercut? There’s always room at the top

Let’s see… Our customers are leaving us in a steady march. They’ve found an alternative that is easier to use, more convenient, overall just a better fit to their lives — and to top it all off, it’s much cheaper than our product.

What should we do?

Here’s an idea. Our customers are telling us in no uncertain terms what they want: More! Newer! Better! Faster! Cheaper! So let’s do the same things we’ve been doing all along, only less!

From Reuters.com:

The New York Times Co. plans to narrow the size of its flagship newspaper and close a printing plant, resulting in the loss of 250 jobs, the company said in a story posted on its Web site late on Monday.

The changes, set to take place in April 2008, include the closure of a printing plant in Edison, New Jersey. The company will sublet the plant and consolidate its regional printing facilities at a plant in Queens, the paper said.

The newspaper will be narrower by 1 1/2 inches. The redesign will result in the loss of 250 production jobs, the company said.

The New York Times said it expected the changes to result in savings of $42 million.

The narrower format, offset by some additional pages, will reduce the space the paper has for news by 5 percent, Executive Editor Bill Keller said in the article.

The Times will join a list of several other papers from The Washington Post to the Los Angeles Times that have reduced their size as they cut newsprint and other production costs and try to stem a loss of readers and advertising to the Internet and other media.

It might be fun to chortle about someone else’s troubles — and who doesn’t love seeing the New York Times get it good and hard?

But what they are doing is what the real estate industry, in general, is doing. In both cases, the consequences are likely to be unhappy. The Times would argue that theirs is strictly a financial decision, but it’s one that is likely to be repeated over time, a persistent policy of retrenchment. And even if its customers are not consciously aware of the changes, they will feel the loss of perceived value subconsciously. At some point, each one of them will start to reconsider the once automatic decision to buy the newspaper, to renew the subscription. One by one, they will drift away, and, in response, the Times will give the remaining readers even less perceived value, giving them even better reasons to drift away.

In real estate, the response to price pressure from the discount-realty bottom-feeders has been more-competitive pricing (along with a triumphant chest beating about The Way Things Have Always Been Done). The trouble with that — as a strategy and not just a tactic — is that there is no bottom. There is no price you can set that someone else cannot undercut. If emongoo.com is willing to do next-to-nothing for $29.95, exactly how much is the traditional Realtor’s next-to-nothing product worth?

“But, but, but!” the Realtors will expostulate. “We deliver added value! We bring you pumpkins and drink cozies and calendars and baseball schedules! We even hold open houses when we’re not playing golf!” Yes, I’m being unfair, but I can make a good argument that most of what traditional Realtors see as being added value is actually useless or even annoying to potential clients. Certainly most of what Realtors do to market themselves and their services is entirely wasted — in the sense that it doesn’t do anything to motivate a potential buyer or seller to act. Much of the success traditional Realtors have enjoyed has been an artifact of two historical factors:

1. As bad as their marketing and salesmanship might have been, their competition was even worse.
2. The marginal cost of pursuing an alternative solution exceeded the marginal value.

Welcome to the internet. The marketing of disintermediating real estate web sites is not horrible now, and it will get better in time. And the marginal cost of pursuing an alternative to traditional real estate is plummeting toward zero. Is the marginal value of those alternatives actually greater than working with a traditional Realtor? Even if it isn’t, if the customers believe it is, then what can we say to persuade them otherwise?

One of the things I like best about listing appointments is listening to the sellers tell me what is wrong, in excruciating detail, with each one of the competitive listings.

At the end of the rant, I’ll say, “You’ve sold me.”

“Wh-uh-what?”

“You’ve sold me. You’ve looked at each one of those houses like a buyer would, and you’ve told me why every one of them is overpriced. Now tell me why buyers won’t say the same kinds of things about your home?”

“But that’s not what I meant!”

“I know. But even so, you’ve uncovered what really will happen. Buyers will compare this house against all the others it’s competing against, and they’ll see exactly how it stacks up in terms of positives, negatives and price. So which should we do? Should we turn all the negatives into positives or make the price more competitive?”

Let’s repeat that last question, addressing it to the traditional Realtor marketing model: “Should we turn all the negatives into positives or make the price more competitive?”

Unfortunately, if the answer is “price”, the game is already over. There is no bottom.

That means we have to deal with the negatives. You might want to argue that the negative factors working against traditional Realtors are more perceived than real. That’s a colorable argument. Every time I run across a vehemently anti-Realtor weblog, I’ll read the comments to see what people are saying. I simply cannot believe that all the ugly stories told in those places are true — but they are told and they are passed-along, and they are granted at least some credence by some segment of the consumer base. On the other hand, we ourselves are building a very successful real estate practice by identifying and doing the kinds of marketing our competitors are too lazy, too cheap or too uninformed to undertake themselves. In other words, traditional Realtors may be a lot better than they are perceived to be, but perceptions of Realtors are colored by everything that practitioners could be and should be, but aren’t.

Truly, we live in interesting times…

Recently, I spent an hour on the telephone with Amanda Schulze, Director of Distance Learning for the Council of Residential Specialists. Amanda is putting together a new CRS course to show Realtors how to put technology to work with and for their clients. Here are some of the things we talked about:

• Web-based marketing and how it differs from traditional Realtor marketing
• Using Search Engine Optimization to attract potential clients
• The promise and perils of disintermediating web-based realty services
• How Realtors can counter-market against disintermediation
• Why traditional Realtors who do not develop and effectively communicate a Unique Selling Proposition will be wiped out by disintermediation

The conversation was fun for me, but it was also disquieting.

Why disquieting?

Because no one that I talk to in the real world — in the non-internet-world — in my day-to-day real estate life — is talking about these things. My associate Cathleen Collins and I talk about this stuff all the time, of course, because we’re working very hard in our own brokerage to string a tight-rope between the Scylla of discount Realtors and the Charybdis of internet disintermediation. But out in the real world — a deafening silence…

Here’s a lens for thinking about this, much like the example of the New York Times cited above:

Imagine that a Super WalMart has come to your sleepy little town. Fred the grocer gripes and moans and writes testy letters to the editor about unfair competition and cut-throat pricing and the sad and somber demise of the sacred small-town family business. When Fred runs into one of his former customers, he says, “Hey, Bob, haven’t seen you in the store lately. I understand that price is price and selection is selection, but, heck, our families have been friends for three generation. Our kids are in the Scouts together. How about a little loyalty?” And then one day the Sheriff puts a padlock on Fred’s door, and the next day the inventory and trade fixtures are auctioned off. Fred goes and gets a job — thank goodness WalMart is hiring.

My question is, what should Fred have done differently? Is there something he could have said to hang onto his market share? Is there something he could have and should have done? His former customers voted with their feet and with their pocketbooks, and there is no doubt about what they voted for: More! Newer! Better! Faster! Cheaper! Is there any one of those — or any combination — that Fred could have delivered to his customers in order to compete effectively against WalMart?

Of those five consumer values — or others you might name — which can traditional Realtors deliver that disintermediating real estate web sites cannot?

I know the answer, and so do you. The Realtors who survive the coming disintermediation wave will be the ones who deliver so much exceptional service that their clients won’t think to care about anything else.

If you decide to try to compete on price, you’ll starve yourself out of the real estate industry. There is no bottom.

But there is no top, either, no level of amazingly excellent service that cannot be eclipsed by an even greater effort.

The bottom will be crowded for a while, but not a long while. But there is always room at the top…

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