Real Estate Business Models and Value Propositions...

With all of the consumer choice for real estate services, why would you, hire you, to sell real estate you own?

What is the business model of your "real estate practice of the future" and how do you explain or substantiate your services and your fees?

To begin to answer these questions, it is helpful and constructive to create a detailed list of your current services, a "menu" of the services you provide to consumers.

That list should be divided into what I refer to as the 5 phases of the real estate transaction. The 5 phases are:

1) Educate

2) Locate/Market

3) Negotiate

4) Administrate

5) Communicate

To build your "Menu of Services", list each of the above on a separate sheet of paper. Now go through your last 6 transactions where you represented the seller and list everything you can think of that you did in the transaction.

Leave nothing out, no matter how small or insignificant you may think it is. From putting the sign and lock box on the property, to advertising, to having a carpet shampooed at the last minute to satisfy a buyer whose expectations were that the property would be in better condition than the condition it was left in by the seller ??

Do the same for the last 6 transactions in which you represented the buyer.

You now have a "Menu of Services" for both buyers and sellers. Determining the value of each of these tasks and/or services will depend upon the time, skill and training level required to accomplish each. A task that requires a real estate license may be of more value than one that doesn't require a license.

Most real estate companies today offer their "Menu of Services" bundled in a "one size fits all" pricing model. A few, such as the Real Estate Café, offer services ala Carte. Some package services together. The future holds more choice for the consumer.

How will you determine what services you will offer to the new Internet empowered consumer and how much will you charge for those services? That is probably yet to be determined but it all starts with defining the services and the value the "agent" brings to the future transaction.

Phase 1: Educate

What valuable services do real estate professionals provide the consumer of real estate services in this phase of the Cycle? Here is a start:

Buyers:

• Teach them about the home buying process:
• How to select an agent - agency and representation
• Financing alternatives
• Understanding the contract
• Earnest money deposit
• Contingencies and how they work
• Liquidated damages provisions and how they work
• Arbitration and mediation provisions
• Inspection provisions
• Disclosure requirements
• Neighborhood information
• How value is determined

Sellers:

• How to select an agent - agency and representation
• Current market status and pricing
• How to prepare the house for marketing
• Disclosure requirements
• Explanation of listing contract
• Explanation of purchase agreement

The intent is to create a list of services (and value) you provide...whether you charge under the current "one size fits all" method or decide to price your services individually.

Going through an exercise such as this will help you, the agent, see the value you bring to the transaction beyond placing a property in the MLS, and it will help you establish a value for your services.

The next phase is to Locate if you are working with a buyer and Market if you are working with a seller.

Phase 2: Locate

• Develop a client’s needs profile
• Screen inventory for buyer, filter those who do not match buyers profile
• Provide transportation to properties offered for sale
• Provide access to properties (lock box)/arrange for showings
• Provide information about each specific property shown (MLS)
• Find properties offered other than through the MLS (pocket listings/New Homes/FSBOs)
• Provide information about general areas
• Geological
• Community
• Tax and local fees
• Transportation
• Show buyers how to search on the Internet
• Market
• Advertise
• Standard advertising
• Classified ads
• Display ads
• Local advertising
• Internet Advertising
• Realtor.com
• 80 major web sites
• Newspaper Web site
• MLS Website
• Broker Web site
• Franchise Web site
• Personal Web Site
• AutoResponders of "Hot Properties"
• Prepare property for showing
• Broker open house
• Open houses
• Promote through e-mail distribution lists you have created

Phase 3. NEGOTIATE

• What are some of the things agents perform in this phase?
• You represent the buyer or seller as their Agent (a case can be made for lots of value here) - negotiate in their best interest
• Assist in determining the contract price
• Prepare the written offer
• Present offer (lots of value in the first presentation)
• Write counter offer
• Deliver counter offers
• Work with counter offers - negotiate
• Continue with the disclosure process
• Handle earnest money deposits

Phase 4. ADMINISTRATE

• Open escrow
• Deliver escrow instructions
• Explain the escrow process and instructions
• Review preliminary title report, explain to parties if required
• Coordinate buyer and lender
• Communicate with applicable parties
• Pest Control
• Appraiser
• Vendors
• Attorney
• Negotiate and communicate potential amendments during the closing process
• Review closing statement

Phase 5. Communicate

The last Phase of the Real Estate Selling Cycle comes after the closing, it is the continuation of the relationship and communication you created during the first 4 phases. Remember, you want to be your clients "real estate professional for life."

• Continue to be a "value-added" professional by providing information after the sale. In my financial planning and securities business, I have what is referred to as a "book of business." This client base brings me added revenue each year and has a value (based on a revenue stream that I could sell should I decide not to be in that business any longer). I consider my company’s property management revenue stream and the clients that provide it a "book of business" as well...Build your "book of business"
• Communicate with the buyer or seller at least 4 times per year. Bring them up to date on what is going on in the real estate world and in the tax and financial world as it relates to real estate.
• Start to build your e-mail address book and begin to do an electronic newsletter. Respond to e-mail promptly.
• Ask for referrals at every opportunity
• Be there when your clients have a real estate question

Conclusion

The Real Estate Professionals and companies that survive the major changes taking place in this industry are those that can quantify what they do and how they earn their money to the ever more educated and empowered consumer.

What would you add to this list?