A common complaint we hear from real estate companies across the country is that it has become increasingly difficult to compete with companies who are recruiting their experienced agents on very low-cost fee models (i.e. nearly free).
Here’s an example from an email subject line that came across my desk earlier this week: 
“Experienced Real Estate Agents: 100% Commission plus $99/Month Desk Fee”
How does a full-service real estate broker with a significant level of overhead compete with this? The answer…just like everyone else in the world.
Last month, Farhad Manjoo, a columnist for Slate Magazine wrote an article making the point that almost every industry now has to compete with “free” business models:
“In an earlier generation, we might have scoffed at this marketing strategy. What business gives away its products? But not anymore. Free is the new normal. Today, every business that deals in intellectual property — from software to journalism to music — feels the no-cost push. If you’re not giving it away, the thinking goes, you must be doing something wrong.”
Real estate companies are in the intellectual property business. Much of the value that a real estate professional contributes to a business transaction involves collecting information and then customizing that information so that it is usable and valuable to a unique individual and their unique circumstances. If you look around the internet, you’ll find that there are many companies that claim they can do the same thing—for free. And some do a pretty good job of delivering on that promise!
So, how do you compete? Manjoo uses Google’s new free desktop operating system to make his point:
“Though digital prophets champion our pay-nothing future, it’s instructive to consider why free sometimes fails. To return to Google’s Chrome OS, sure, Google will persuade some computer makers to install the OS. But when you consider what free really buys, the answer is not much.
The computers are likely to sell at $20 or so less than the price of comparable Windows machines (Microsoft sells Windows XP to netbook makers for just $15 a copy). In exchange for that slightly lower price, customers will get computers that do much less — they’ll run fewer programs and connect to a smaller range of peripheral devices. And good luck finding tech support.
Most consumers get it. There’s already a free operating system for computers: Linux. Yet netbooks running Windows outsell their Linux counterparts by a margin of nine to one. In other words, free is getting trounced.”
Free (or very low cost) should be getting trounced in your industry as well, but in many cases it is not. Here are some ideas that may help you compete more successfully for the talent that is getting lured away by the promise of free.
1. Play up the “Hassle Factor.” Why do nine times more people choose to pay for an operating system on their computer when they can get one for free? Because using the free one comes with a boatload of hassles. Most people would rather pay than put up with these hassles. The same is true for an agent working in your brokerage, but you may have to do the thinking for them. Quantify what kind of hassles an agent would experience by signing on with a low-cost broker and regularly articulate those pitfalls. Your agents may not be able to envision these hassles before they leave. Then, it’s too late.
2. Play up the “Risk Factor.” One of the big advantages of working with a well-established, well-funded, and respected company is the amount of risk a prominent company can shoulder compared with low-cost employers. Certainly, no one likes to be “scared into” working for a particular company, but make the point that many clients like to do business with not only trustworthy individuals, but also trustworthy, reputable companies.
3. Quantify the Value You’re Providing the Agent. You might want to consider making a list of all the tools, benefits, services and other tangible items that an agent receives by being part of your organization. Then, assign a reasonable cost to each item (the amount the agents would pay if they were to buy the items on their own).
Next, answer the following questions with complete honesty: Does the value equation make sense from the agent’s perspective? Are your agents using the services you’re providing?
For a particular agent, how does the (Total Commissions – Market Value of the Services an Agent Uses) compare to (Total Commissions – Company Dollar)? If you’re not on the right side of this value equation, you’ll have a tough time hanging onto agents.
Take on your competitors who offer ”free” as their primary marketing message. The most successful companies in the world, including Microsoft, Apple, IBM, and HP, all compete against “free,” and win. You can too!
Editor’s Note: This article was written by Ben Hess. Ben is the Founding Partner and Managing Director of Tidemark, Inc. and a regular contributor to WorkPuzzle. Comments or questions are welcome. If you’re an email subscriber, reply to this WorkPuzzle email. If you read the blog directly from the web, you can click the “comments” link below.
