Rather than take a defensive stance, or an offensive stance for that matter, against the discount model, I prefer to take an objective look at it. Can it work? Is it limited? Can it sustain itself nationally? Worldwide? What are its weaknesses? What are its strengths? There are hundreds of questions, but I want to look at only a few of my major concerns.
First, I am skeptical the model can work on a broad scale for a sustained period of time. I base this partly on case studies done on People Express, the discount airline in the 80s, and its failure. Peter Senge, in his book, The Fifth Discipline, describes People Express’ downward spiral due to poor service quality and the stubborn idea that people will overlook service to get a low-price flight. Their customer base eroded, and they went down baffled and whirling.
That doesn’t mean discount brokers are doomed to the same fate, but it brings up a serious concern regarding the viability of their model. If they do realize customer service is vital to longevity, then they will have to balance the service demands of consumers with price. I recently read in a Seattle paper that customers are demanding home tours from the local discounter and that they are providing this on a limited basis. How committed are salaried agents to show homes because demand is forcing them to do it on a limited basis? Just like our clients and customers demand more from us and want to pay less, discounter’s customers will demand higher and higher levels of service, but they will want the same sweet deal discounters offer.
Discounters will be forced to choose between service and price, or they will come up with creative ideas to balance the two that is successful. The problem I see is that with buyers demanding home showings, agents will be taken away from the office and computer. If they limit the homes they show, then customers who want to see more will be frustrated and go to traditional agents. If they decide to provide more effort in showing homes then they will have to hire home-showing agents, in addition to their in-house computer agents. This will raise costs and cause agents to wonder why they are not with a traditional broker where they can get higher pay for their time and effort. Perhaps they will get compensated through a bonus based on customer satisfaction, as one discounter advertises.
In order to satisfy a buyer, once you have set the wheels in motion, you will have to either provide good service, or be so charismatic that the consumer doesn’t notice. If they are drawing their agents from a pool of people who are primarily interested in online computer work, I doubt these computer-agents will be happy if they have to go out and show houses, or meet clients in the office (which the Seattle paper also said was a demand the discounter has begun to give in to). Knowing types of personalities is vital to the job you expect them to do.
What I foresee is the discounter having to recruit traditional agents to show homes and do some of the traditional real estate work that will be demanded, demanded primarily out of necessity. Now you have a situation where two levels of agents are competing for limited amounts of bonus money, and a situation where the discounter has a huge payroll.
The discounter will most likely have to cut costs somewhere, or increase revenue. If the discounter cuts cost it will most likely negatively effect service, since this is a service industry and all costs are connected somehow to service if all extraneous and ineffective costs have already been squeezed out of the system. If the discounter decides to recruit agents who can juggle it all with proficiency they will have to attract them with large salaries and healthy bonus schemes to equal what they can get in the traditional commission structure.
If they begin increasing revenue by charging more to the consumer they erode their model and move closer to a distinction without a difference. Their claims of a model that will save sellers and buyers millions will be suspect.
I suspect that with their original mindset, and the fact they have based their model on price, they will sacrifice service. This will limit their customer base to price-conscious consumers, and even this base will erode if service gets too bad and value is almost non-existent. These consumers will decide to do it all by themselves.
These are just a few concerns. I can think of more, but I am tired of typing.