MLM and Real Estate

I had the opportunity during my hiatus from Help-U-Sell (late ’05 – mid ’09) to work with a couple of well funded start-ups who were going to revolutionize the real estate business.  It’s true, both companies were thinking ‘out-of-the-box;’ it’s just that it was the wrong box.

Both saw a blending of Multi-Level-Marketing with traditional brokerage to be the wave of the future and built companies around the concept.  (By the way, nobody in MLM says ‘Multi-Level-Marketing’ anymore.  The term is tainted by too much bad history.  Today they call it ‘Network Marketing.’ ) 

Keller-Williams is often credited with starting this fad, though in truth, theirs is not a true MLM concept.  They have ‘profit sharing,’ where agents who bring other agents in can be compensated with a share of the company profits . . . which is laughable when you consider how nearly impossible it is for a traditional real estate company to turn a real profit.  I know, I know:  I’m  going to get blasted for that but the truth is:  very few KW agents are making enough on their profit sharing to replace their personal production.  Nobody is retiring to live on their residuals. 

The true MLM/Real Estate model is closer to Amway or HerbalLife than Keller-Williams.  In this world, I recruit you and you recruit her and she recruits him and him and so on and so  on and so on (just like that old Revlon commercial) and somewhere down the line somebody has a closing and everybody gets paid!  You don’t even have to be a good agent to be successful; you just need to be good at convincing others to join your ‘team.’ 

Here are my problems with this approach:

  • I don’t see how in good conscience a person six people removed from the agent who did the transaction,  who may not even know the agent involved, should be paid a dime.   This person probably had nothing to do with bringing buyer and seller together and may not even have known that a transaction was in process until his paycheck arrived.  If there’s enough commission in the transaction to pay an agent so far removed, then there’s just too much commission in the transaction! 
  • It’s all about recruiting, not about selling real estate.  The approach is:  recurit everyone breathing and eventually someone will luck out and sell their cousin a house and then we all get paid!  There is no attempt to find the right person for the job and little done to build the recruit’s skill. 
  • Finally:  THERE”S NOTHING IN IT FOR THE CONSUMER!  Sorry to scream, but this really bugs me.  Once again, it’s all about the agent.  It’s just the same messed up agent oriented business model, this time on steroids.  Really.  I had conversations with both of the companies I worked with about this and the attitude was that the consumer was the agent’s responsibility.  The agents would take care of the consumer.  The company’s role is to help the agent recruit.  In other words there is no consumer offering.  There’s nothing special or even distinguishing here for the consumer.  It’s not about them. (And how you build a business that’s not about the consumer is a mystery to me).

Will MLM be a factor in real estate? Probably.  The the idea of making money for nothing is way too appealing, especially in a market where everyone is working very hard and few are making a good living.  But is this something the consumer is going to choose going forward?  I don’t think so.  To the consumer it just looks like more of the same:  a new twist on an already tired model.

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