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Is the End in Sight for Brick and Mortar Companies?

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Commentary by James A. Crumbaugh III

RISMEDIA, Jan. 7, 2008-A year and a half ago at the very height of the real estate boom I sold my six office, 200 Realtor, 2,000 closings per year, $300 million gross sales revenue per year, real estate company. Then, at only 54 years of age, I tried to retire. However, I got extremely bored. And then, when I found myself mopping my garage floor twice a week, I really knew I was in trouble.

So, when total boredom set in, I decided I needed to start a business again. And, since real estate is the only business I’ve known since I was 19, I decided to open a real estate company again. My first obstacle was that I had a “non-compete clause” in the entire southern half of Florida as part of the agreement when I sold my real estate company. So how was I going to open an office and not violate my non-compete clause?

I started thinking about the business and realized that to start another real estate company using the old formula was really crazy, since it’s becoming almost impossible for an owner/broker to make a profit anymore, let alone in the slow market of 2007. I spent a lot of time analyzing how the industry had changed from when I got into it 35+ years ago, and we all know there has been meteoric change.

Remember when it was a 50/50 split between the Realtor and the broker, and the Realtor would spend the entire year trying to sell enough to get up to a 75% split (which he or she would usually reach in December and then on January 1st, it would roll back to a 50/50 split)? Then the industry started changing and the Realtors wanted more, so it became the mantra for brokers that they needed to retain 35% in order to make a profit. Now even those days are long gone.

A Time for Change

When I owned my brick and mortar office, I was always upset with the Realtors because they wanted more and more and never even cared if I made a profit. However, I realized there were several factors involved in this evolution. The Internet is obviously the big one. Realtors no longer count on their broker to drive the business to them. You can “Google” any area in the country, and several Realtor’s Web sites will come up before the brokerage Web site. So the Internet has given the individual Realtors the marketing power they use to rely on their brokerage to provide for them.

IRS changes regarding home offices have also been evolving. The IRS now recognizes the fact that more and more Americans are working out of their homes. This will continue to be the case in the future.

There are several other expenses that the Realtor, not the broker, now has on his or her shoulders. Brokers now require Realtors to buy their own signs, postage, cards, and do their own advertising-where in the past, these were the responsibilities of the broker. The brokers have had to do this in order to make a profit in today’s market.

So where does this leave the old model of brick & mortar offices? For years all my peers have been saying the industry has to change. So the question is this: how is it going to change?

Most Realtors now spend more of their time working out of their homes than going into the office. The old concept of floor time just doesn’t seem to work anymore. Since almost all Realtors have their name and phone number on their signs, calls from buyers no longer go to the office. So agents currently work out of their homes, pay for their Web sites, pay for their advertising, pay for their cards and a host of other expenses. So why should they pay 15% to 40% to their broker?

Since you can now conduct office meetings online, scan and review contracts with a click of a button and, quite honestly, allow the broker to supervise as well or better than trying to run down Realtors in the hallway of a brick and mortar office, why do they need a brick & mortar office?

What the Future Holds

I see in the future Realtors paying a small fee to a broker for placing their license under a broker’s license and then making their home a “branch office” where municipalities allow it. Where it isn’t allowed, most cities now have “virtual office buildings” where a Realtor can rent space very inexpensively for when they need to meet a client.

There are a percentage of Realtors that need the interaction of an office, but more and more, the productive Realtors avoid the office environment of gossip and donuts. I believe in the very near future we will see a “National Franchise Real Estate Company” based on the concept that I have provided here today.

James A. Crumbaugh III is CEO of Allison James Estates and Homes Inc.

For more information, visit http://www.allisonjamesinc.com/.

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