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Downfall of the middleman

In the Industrial age, it was normal to have a “jobber” running around the world cutting deals with manufacturers on products.

Subsequently, he would move them by the trainload to a wholesaler. That wholesaler would then use regional distribution systems to move the products to a retailer.

All that has largely changed with the advent of the Internet.

Not all industries have adapted to changing demands however.

Having been involved in real estate for approximately 20 years I am more than familiar with the cry of the consumer that realtors gets paid more than their value.

But do they really?

Let me try to explain why your real estate fees are very varied, but also, to some of you, perceived to be high.

Many people may have owned shares in Cendant Corporation, a large organization based in the New York area and owned, among others, by the real estate company known as Coldwell Banker.

Typically, shareholders have a desire for one or perhaps two things:

  • asset appreciation (shareholder value)
  • cash flow (dividends).

The AGM is the place where the shareholders can express their opinion and demand better performance.

Cendant split into four organizations (to serve its shareholders better and reduce conflict), several years ago and the resulting real estate focused corporation, Realogy, now owns several real estate companies, including Coldwell Banker, Century 21 and Sotheby’s. 

If we simply look at Coldwell Banker Real Estate LLC, it is a parent corporation whose shareholder is Realogy. Of course, that shareholder wants to see a profit, so at the AGM, who is shouting the loudest? Realogy of course. They, rightfully, demand performance in terms of shareholder value.

Coldwell Banker Real Estate hence is required to make a profit and so in Canada, we have Coldwell Banker Canada Operations ULC. It is likely mostly owned by Coldwell Banker Real Estate LLC and is essentially required to make a profit or improve its shareholder value to its parent, Coldwell Banker Real Estate LLC.

Now, we already have three required layers of margin… Coldwell Banker in Canada, Coldwell Banker Parent Corporation and Realogy, a public corporation that you may be a shareholder in.

But it does not stop there…

You can, if you choose, buy a franchise in Coldwell Banker Canada (or any of the other real estate offices that Realogy owns for that matter) and start to make profit for yourself. Not forgetting that you owe a sizeable portion of that profit to the Canadian HQ of your chosen brand.

OK, We are up to four. Now the devious and greedy realtors gets involved. 

If there is any concern that realtors are gouging for their services, it is simply a facet of the way the system is set up. If you don’t understand that, read the article again.

If ever you complain about real estate commissions, you had better make sure you don’t own stock in any company that has a real estate corporation as one of its assets because you are in fact a perpetrator.

Additionally, while we are on the subject, if you own shares in an oil company, don’t ever complain to me about the price of gas at the pumps etc., etc.

I know it is confusing, but give the realtors a break. Probably 70 per cent of their efforts are going to making other shareholders money in this archaic consolidation. 

To make matters worse, guess who is on the hook when the shareholders demand that money needs to be saved? The realtors, who will typically get less service for their fees. 

Why write about this today?

Because I think the economic target for 2018 is antiquated layered systems of corporate margin that only serve to provide a service that is burdened with top down fees.

In 2018, one of the biggest things I am excited about is blockchain technology. It may be the solution to monopolistic industries that are protectionist of their systems and services.

If you don’t know what block chain is, I would encourage you to at least do a Google search and get a basic understanding. It will have some impact on the real estate community, but other industries are a much bigger target for blockchain.

While blockchain may not reinvent real estate services it certainly will impact the way we do business and who no longer will make fees along the way.

Happy New Year.

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About the Author

Mark has been an entrepreneur for over forty years. His experience spans many commercial sectors and aspects of business. He was one of the youngest people to be appointed as a Fellow of the prestigious Institute of Sales and Marketing Management before he left the UK in 1988.

His column focuses on ways we can improve on success in our lives. Whether it is business, relationships, or health, Mark has a well-rounded perspective on how to stay focused for growth and development.

His influences come from the various travels he undertakes as an adventurer, philanthropist and keynote speaker. More information can be found on Mark at his website www.markjenningsbates.com

He is a Venture Partner with www.DutchOracle.com a global Alternative Investment company.

Mark Jennings-Bates:
[email protected]
 

Photo credit: www.SteveAustin.ca 



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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