What happens when the rules of the game no longer allow you to win the game? Do you keep playing the game or do you change the rules to level the playing field? Using that as backdrop, let's take a look at one major newspaper industry category who's revenue is not only at risk with cutbacks in advertising; but may be at risk and lost forever to the slumping economy and online competition - that would be the real estate category.
How to change the rules! First, let me preface these comments with a short disclaimer stating this course of action isn't for the faint-hearted, however it is certain without exception to change the rules in your market. In addition, it won't win you many lunch dates with local brokers and agents. Secondly, I personally wouldn't embark down this road until you felt your local real estate revenue had dipped to far and wasn't likely coming back. With that caveat, here we go.
Once you've practically lost the real estate category; why not just jump into the real estate game or business as a company? I submit that it would actually be quite easy. Simply venture into your local market and find a good broker that doesn't have the highest marketshare, meet with him and lay out your new business proposal. Simply let him/her know your newspaper company has decided to open a real estate brokerage and is seeking a broker/manager of the new operation. Explain that this new brokerage will spare no advertising expense and will reward the brokers and agents with outstanding commission splits, the best around. Lastly explain to the broker, he/she will be provided with a base salary along with a piece of the action. What appetite wouldn't be wet at this point, but let me go on.
To convince the potential broker that this is in his/her best interest, you simply convey that you will be making a print/online commitment far greater than any real estate company has seen before. You buy ink by the barrels and sellers will have their homes in print 2-3 times each week; you have the most visited website in the area that will displayed listings online as long as the home is on the market. You will provide a non-stop stream of bill stuffers targeting potential buyers and direct mail will be available. In a nutshell, their promotional package will be second to none. Office space will be provided to the broker and agents at no cost along with the services that go along with an office. (Most of us have plenty of extra desks at this point, won't cost us dime.)
Furthermore, you might explain that home sellers in your market will flock to the new brokerage once they see how often the homes appear in print and are aggressively promoted. Agents will flock to the new brokerage that offers a nearly unlimited promotional budget while allowing them to list homes a slightly lower rate for the sellers.
If you play your cards right, you could become the largest brokerage in your market almost overnight, thus attracting even more business. It would force the other brokers to advertise more or slowly become irrelevant in the marketplace. On the other hand, why not invite all brokers to participate in this new venture thus capturing the entire market and getting a piece of the whole pie in lieu of just a portion. While the newspaper brokerage could certainly keep more than 1-2 percent (most brokers keep 3-3.5 percent), if they only kept 1-2 percent while giving the brokers/agents the other 4-5 percent; a newspaper could generate approximately $300,000 for every 100 closings handled each year. (That is based on a $150,000 sales price, most markets would be much more) Multiple this by the potential transactions in your area and you can see how fast this ads up.
As I said, this isn't for the faint-hearted, but it would drastically alter the rules of the game. What if newspapers around the country did this creating the largest national brokerage in the country and shared referrals as well? There is no end to where it may go and just think what it might do for readership as once again, a robust real estate offering is appearing in your pages and online.
Is this feasible in the real estate market, maybe and maybe not? But regardless, I will submit this type of thinking is what is needed for our industry to make a comeback. We must stop thinking outside the box and blow-up the box. This type of thinking is a potential game changer. Like all ideas, I can't take full credit. I have thought through this similar business model or process with other business categories; as an example we have become a Penske truck rental dealership here in Ottawa allowing us to get discounted trucks for our transportation needs and then getting paid a commission for renting to ourselves as well as those we rent out to the community. While Budget and U-haul don't much care for us, they never advertised anyway. So while I have thought about this in other arena's, I must give Brent Low in Salt Lake credit as he has sparked my imagination as to the real estate opportunities, so thanks.
Maybe it would give many business categories cause to reflect on the consequences of leaving the print product. After all, who wants competitor that owns a press and barrels of ink in the marketplace?
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Hi John, interesting idea. I read it right after this piece in Westword called "Dean Singleton's Giant Balls" -- http://blogs.westword.com/latestword/2009/01/dean_singletons_giant_balls.php -- certainly a publisher who tries this would need them.
ReplyDeleteBut to develop the thought: to avoid being in the position (after starting an inhouse brokerage) of soliciting advertising from your competitor, why not invite all the brokers in and say to them:
"For the next twelve months, we will run X amount of advertising, each week, for every active listing you own, for free. This will amount to considerably more advertising than you used to run in good times. It's open to any agency in our market, whether or not they advertised with us in the past. The only caveats are: (a) when the property sells, you pay us 1 percent at closing, regardless of where the lead came from, (b) for unsold properties, the owner must agree to a price reduction of at least 1 percent on the first of every month, (c) every ad must list the price, (d) you give us access to your MLS database and allow us to put every listing on our own real estate site as well, and (e) when listings move from one agency to another, the price can't be reset upward. We have lined up three banks that will guarantee mortgages to qualified buyers on any property sold under this program."
You need to fine tune the math and make sure a 1 percent cut works for you, maybe it should be 1.5 percent or whatever. The monthly price cut basically a Dutch auction makes it a Dutch auction, and you promote that feature. I did this once during a slow RE period in the 80s, got a lot of owner/broker participation, and it helped break the logjam by encouraging owners to realize that prices needed to come down. In economic game theory Dutch auctions are recognized as a very fast, efficient way to sell goods at a genuine market price. (And in reality the real estate market always operates like a Dutch auction -- the price starts high, comes down until somebody bids. But normally it's a slow process because there's nothing to force the price down on a regular basis. This scheme accelerates it. You could even say the price has to ratchet down every week, or every 2 weeks.)
So rather than setting up a confrontation, you create a market and get paid on a different basis. And you leverage some incremental bank advertising too.
Both approaches are very interesting...and in former lean real estate years have had similar thoughts. One thing we always worried about was the in-bred nature of most local business communities...that the guy who owned the real estate brokerage was brothers/cousins with the guy who owned the local Ford store, plus his sister worked in marketing at regional Grocer. Pulling something like this could spark a major back-lash in the local business commuity. Any thoughts on dealing with that?
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