The First Economic Wave - The Broker-Centric Era of the Real Estate Industry
Changes in all aspects of the economy have occurred since we entered the era of digital technology. Inevitably, this also has an impact on property. Since the real estate industry is the primary service provider used by consumers to buy and sell property, an examination and understanding of the economic history of this industry is not only fascinating, it is paramount to the development of a consumer-centric business strategy that is model perfect.
The evolution and development of the real estate industry’s business model can be divided into three distinct economic waves or eras, each with its own feature-set, culture and ROI potential.
First Economic Wave: The Broker-Centric Era (1776-1976)
Second Economic Wave: The Agent-Centric Era (1976-1994)
Third Economic Wave: The Consumer-Centric Era (1994-Today)
These three economic waves overlap a great deal so that the fading trends in one era give rise to the new characteristics of the next era. As the industry took on new business models, the new models supplanted the old over time.
The Broker-Centric Era of the real estate industry was two centuries in the making and until the late 70s and early 80s was the dominant business model in the historical timeline. At its apex, the cultural and business model characteristics of the Broker-Centric Era were truly amazing.
A Broker-Centric Mechanism
Through the mechanism known as the local Board of Realtors the primary or "Designated Broker" of a real estate company exercised enormous control over literally all property information. Real estate agents themselves had no access to property information unless such access was approved by the Broker via membership. And finally, the consumer had no access to property information without making a physical appearance at the broker’s office where, in the presence of a local real estate agent, such information would be dispensed.
Local Boards of Realtors compiled all of the property information for the properties offered for sale by the Brokers and then printed Multiple Listing Service Books that were distributed weekly to only the "Members" of the local Board. These books became the property archives.
The MLS book was the holy bible of the Brokerage industry and its information guaranteed that consumers who sought property information in a given locale had to talk to a member of the local Board of Realtors in that locale. The mantra of the Broker-Centric Era might be "brokers, boards, books and buildings."
Without the local brokers who were, by the way, the actual owners of the Multiple Listing Service property information, there could be no board and without the board there could be no book containing the precious property information sought by consumers who were required to show up at the building.
I do not wish to convey that throughout the entire 200-year Broker-Centric Era that brokers, boards, books and buildings were controlling all of the market information. Such an assertion would be inaccurate.
Nationalizing the Broker-Centric Model
The Board of Realtors model did not come into play until 1908, with the founding of the National Association of Real Estate Exchanges (later N.A.R.) on May 12, 1908 at the YMCA Auditorium in Chicago, IL. The Association began with 120 founding members, 19 Boards, and one State Association. The objective of the association will demonstrate clearly the intention of what would later become NAR:
“to unite the real estate men of America for the purpose of effectively exerting a combined influence upon matters affecting real estate interests”, which is code talk for controlling access to property information.
To give you an idea of how powerful NAR has become, the association has grown from 20 associations and 1646 members in 1908 to a high of 2,026 associations in 1985 and a 2005 membership roster of nearly 1,300,000 members.
NAR played a central role in the Second Economic Wave, known as the Agent-Centric Era. In the Agent-Centric Era three important developments would begin to challenge the first economic model the real estate industry:
Franchising of real estate companies
Computerization of the local MLS
Use of the personal computer by real estate agents.