Peter Flint Interview and The Significant Misconception

I didn’t realize earlier that the great interviews Dustin Luther got with Marty Frame and Alex Chang that I commented on here and here were of a series. Coz, I’m a RE.net newbie. They’re all worth a read. His latest is no exception. He got some great answers from Peter Flint, CEO of Trulia.com (total aside: Pete looks a little like a more masculine version of this guy, doesn’t he?).

There’s little question that Pete “gets it” about the future of real estate. However, I noticed that he — like many others in our industry — suffers from a cognitive dissonace, that I hereby name, The Significant Misconception.

Among his answers is this passage:

I don’t think it is a stretch to say that the big brokerages are only just beginning to use their websites to create a compelling consumer experience that competes with REALTOR.com. Why do you think it has taken the national brokerages so long to complete on this front?

Building a great site is REALLY tough and it is hard for large brokerage to attract the engineering and design talent to do all this effectively. Brokers should be building strong online experiences, but they shouldn’t be distracted from their strengths and core competency— selling homes!

Now, dozens of executives at large brokerages would heartily agree with Pete. Literally thousands of agents would nod their heads and say, “Preach on, Brotha Petah”.

They all suffer from The Significant Misconception.

(Before you go start making the effigy for the apparent arrogance of yours truly, do bear with me a moment.)

The Significant Misconception is the idea that selling homes is the strength and core competency of large brokerages. I humbly (or not so humbly, depending on your definition of humility) disagree.

The strength and core competency of large brokerages is branding. For that matter, the strength and core competency of any sized brokerage is branding. Why?

These brokerages actually sell nothing. Their independent contractors, aka, agents, do all the actual selling. If you look at the business model of a typical brokerage company, you might actually confuse them with a mall operator, or a temp agency.

Their costs are mostly fixed — building, overhead, etc. — and they have desk costs that have to be met on a per-agent basis before they turn a profit on associating a particular agent to their operations. They take a percentage of the earnings of the independent contractor in exchange for the support services, infrastructure (such as the broker license and liability insurance), and most importantly, brand recognition. In some cases, the broker’s actual customers are his agents, not the people buying and selling homes. Brokerages that charge a fee for broker leads to agents most definitely fit this description, and many a brokerage company will charge an agent for various ancillary services, technology, and other support.

A shopping mall operator might write a lease agreement that is substantially similar. Retailer shall pay X% of sales to the mall, in exchange for space, heat, lighting, security, whatever. Temp agencies almost certainly work this way: we got you the gig (although you had to go on the interview and convince them to hire you), so we’ll take a percentage of your pay, the rate for which, by the way, we’ve set. Structurally, it’s not that different in real estate.

If you look at the major brands, most of them aren’t even brokerages but franchisors. Certainly none of the Realogy brands are brokerages — NRT is the Realogy brokerage operation. That’s an entirely different business model whose core competency has nothing whatsoever to do with selling homes.

As long as the basic structure of the industry is the independent contractor, there is no way this can be any different. And this is the reality for every brokerage company of any size.

In Hoboken, where we used to live, there’s a small local brokerage called Hudson Place Realty. They’ve been around forever. No one has heard of them outside of Hoboken, probably, but within that little one-mile-square strip of Earth, Hudson Place is a well-known name. For whatever reason, Hoboken has the highest concentration of bars per capita. I swear, the number of real estate brokerages per capita can’t be far behind. Hudson Place competes with all of the major national and regional brands, like Coldwell Banker and Weichert, as well as numerous local players, like Gold Coast Realty and so forth.

Its brand within this small market is absolutely key to HPR’s survival and success. If I view your brand as insignificant or not trustworthy, then nothing can make me want to do business with one of your independent contractors. There are companies in Hoboken that I will not even entertain simply because their brand is utterly unknown to me. If consumers stop viewing HPR’s brand as a viable alternative, its independent contractors will most certainly leave for greener pastures. They’re not employees, they have no particular loyalty to that company or that office. They’re all in business for themselves, aren’t they? If HPR’s brand weakens to a point where leads are no longer being driven to the agents, they will find some other company with a stronger brand.

This is no different for the local Weichert office. Nor the local Coldwell Banker office.

Misunderstanding this, misunderstanding what business you’re actually in, is the Significant Misconception in real estate.

The core competency of a real estate agent is selling homes. The core competency of a real estate brokerage is marketing and branding.

If you take this view, then this passage from the interview ought to give you pause as well:

Who do you view as your main competition and how do you differentiate yourself?

Other real estate sites that are supported by advertising dollars are our most obvious competition. Ultimately we think there will be a couple of big sites with a comprehensive set of tools that compete for traffic and advertising dollars. Competition is healthy which is spurring innovation that in the end will help both consumers and home buyers and sellers.

At Trulia, we think that to be successful you have to both attract a large audience of consumers by providing useful tools delivered in a great user experience and be a trusted and cost effective marketing partner for the real estate industry. Our strategy from the start was to do both. Other sites have either alienated the consumers by not delivering a great online experience, or they have alienated the real estate industry by attempting to marginalize their role. Establishing personal relationships on a broker and agent level helps us understand their needs. We are always listening. You’re seeing the big sites wake up now and change their strategies. (Emphasis mine.)

Other real estate sites supported by ad dollars are Trulia’s most obvious competitors. The less obvious competitors are the big brokerage brand sites. The least obvious competitors are the individual brokerage sites.

Indeed, take a gander at these interesting data points:

This is a graph of Trulia’s monthly visitors vs. Realtor.com’s monthly visitors. See any correlation? No? Me neither.

Now here’s Trulia.com vs. Century21.com:

Hmmm….

Maybe it’s just my eyes, but right around May 2007, I’m seeing a wee bit of the ole correlation, y’know what I’m sayin?

I think Trulia has put in enough time and work to have earned a level of trust from the real estate agent community. I know if I were an agent, I’d be all over everything Trulia offers me.

But Peter, I think you still got some ways to go to make the brokers and the brands your partners and not your competitors. Taking data feeds from them is not a true partnership, unless you’re sharing ad revenues.

I doubt it’s even intentional on Trulia’s part, but there’s a real danger that Trulia (along with the other online real estate plays) will disintermediate the brokers and the brands.  If that is not their intent, then I do think they need to start putting forth some initiatives and right soon to help the brands and the brokers see that Trulia has their best interests at heart as well.

And were folks not inflicted with The Significant Misconception, I think they’d see it too.

-rsh