Is The Non-Corporate Branded Managed Real Estate Services Network A Flawed Business Model?

Is The Non-Corporate Owned Managed Real Estate Network A Failed Business Model?

by Forbes J. Rutherford, Rutherford International
The following is a re-print of an article I wrote in 2009 predicting the erosion of the independent broker “managed network” business model. The article questioned whether the ‘center’ of the business structure could sustain itself financially and culturally into 2014. I’m interested in your comments…….

A review of Lipsey’s Top 20 List of Industrial, Commercial and Investment Brokers has a number of organizations which characterize themselves as a managed network of independent brokers and property service companies. These companies claim an active global network, and are knitted together by a central organizing entity that generally holds the global brand. Its mission of course is to facilitate interaction between network members at a global scale, however some confuse their raison d’être with the selling of licenses or franchise rights versus the fostering of client-focused excellence.

Whenever I’m asked to conduct an executive search for a franchiser, I generally ask the CEO if he or she is in the business of selling franchises or product/service. Invariably fifty percent of the response is “franchise rights.” I would submit that this percentage is no different with that of managed networks of independent brokers. In fact, many talk a good game (and may be generally sincere), however an easy way to determine their interest in transnational transactions and advisory services is by asking how many corporate staff are tasked with the mandate of fostering interaction among its membership. Most have very few, and in this period of economic turmoil the majority have laid off a large percentage of their network managers.

Real estate is local, however many brokers operate in the belief they must be aligned with an international brand in order to have credibility with national or international clients. There is some truth to this belief although only a small percentage of professionals within these brokerage organizations have any significant interest in transacting outside of their regions. It’s this orientation to parochialism that is the fundamental flaw in the independent broker network’s utility as a global service provider.

Some may consider this viewpoint as a harsh criticism, however few members of independent networks will deny that a vast majority of their network peers are interested in receiving network leads, but only a limited number actually push leads into their networks. This failure to foster cross-network activity is the bane of an independent network manager’s existence. “How does one correct a licensee’s non-participative network behavior especially if they’re paying their fees?” If you’re in the business of selling licenses, you don’t really care; you simply increase your license fee and rely less on percentage splits through network transactions.

Most members are purchasing, and many international brands are supplying their network licensees with the appearance of size with little underlying substance. It’s the “Deluder” leading the “Delusional.” Granted, it’s more than just letterhead marketing; for a fee, one receives a central website, a transaction management system, specialty councils of peers, competitive intelligence, market overviews and macro economic prognostications but generally after the fact and invariably advice denuded of reality.

Considering that license fees are ever increasing; and with a network transaction fee that is often ten percent – five taken from each member, one might question the value proposition these structures truly offer. The model is broken, it offers little that can’t be purchased or accessed on the street for considerably less.

The future is rapidly changing their business model. The application of technology through the advent of social communities and crowd-sourcing is changing the business model for managed networks.

Within the next five years as the world economy recovers, I suspect technology will expose the weakness of globalized real estate service companies that are built around managed networks of independent licensees. The core of this business model has a mushy center; it offers little that a competent “affinity business network” can’t offer. Through an “ABN,” brokers and individual agents will be able to widen their personal sphere of influence by reaching across branded platforms. Regardless of affiliation, they will be able to seek out and choose the best service providers within a given market to handle a client’s account.

It’s with this expectation of the future that I foresee the advent of the “Un-managed Managed Network” where independent and forward thinking real estate brokers are able to breech the limitations of “closed ended” real estate networks; and interact or transact with peers of their choosing utilizing an amalgam of “best in class” web enabled tools.

“Top Tier” commercial real estate investment professionals (both intermediary and non-intermediary) will be able to interact cooperatively with each other in over 1000 different markets around the globe and publish their “Haves” and “Wants” within a closed cross-platform communications loop, or opt to list publicly to well over 100,000 transaction driven real estate professionals.

What does the future hold for a managed network of independent brokers?

One of eroding market coverage, a diminished client base, membership attrition and subjugation of their brands. I would submit that the owners of these organizations are not only whistling past the graveyard but also lack the foresight to even realize it.

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