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Brian Boero (@1000WattBrian) of 1000 Watt Consulting wrote a blog post recently entitled “Knuckleheads Beware.” This is how that post opens:

In real estate, stupid scales.

Excellence lives in small pockets.

That’s how it’s always been. And it will be this way until, someday soon, a rising tide of technology and consumer frustration reaches flood stage, breaches the levee, and sweeps forty years of toxic sediment out to sea.

Be still, my (#RT)Beating heart!

Brian summed up in five simple words – “In real estate, stupid scales” – a thought that I’ve been struggling to express through countless blog posts and literally thousands and tens of thousands of words. If brevity is the hallmark of intelligence – and many say that it is – then Brian, you are a GENIUS! Further, there is a lot of wisdom in that post beyond the little bit that I quoted here. Please take the time to read the post. It is excellent.

Here’s what I think of Brian’s post:

First, I had to write my own blog post in response, because these words need to be heard and considered by everyone in real estate.

Second, consider the source: Brian is not some #RTB activist with a hidden “anti-competitive” agenda. His firm – 1000 Watt Consulting – makes its living by providing consulting services to the real estate industry. Why would Brian write these words if he didn’t believe them to be true? I would argue that, if anything, people like Brian would be the ones doing all that they could do to PRESERVE the status quo in real estate, because every member of the real estate industry is a potential client. Why scatter the herd in such a situation?

Finally, and to my point: a…no, THE…common denominator underlying the vast majority of the real estate industry’s current woes can be summarized in this one point: bigger is NOT better. Bigger is WORSERER.

And here’s the logic for the remainder of this post: you cannot serve both QUALITY and QUANTITY at the same time. I can hear the howls of protest already, but my life experiences and simple common sense support this assertion. That is NOT to say that you cannot be both big and good – of course, there are exceptions to EVERY rule, and there are exceptional people and companies out there who are large and fantastic.

But for MOST PEOPLE and MOST COMPANIES, a choice must be made: do I want to be EXCELLENT, or do I want to be LARGE?

If you’re still with me, here’s why “bigger is worserer” in real estate: most of the existing infrastructure in the industry is predicated on a QUANTITY paradigm, not a QUALITY paradigm. To wit:

• Most of the “big box” brokers are QUANTITY DRIVEN: they require lots of agents – sometimes several hundred agents – for their financial models to work (and most of the large, established brands have always been built on a “build it BIG and they will come in numbers” philosophy). Why this is a bad idea:

• Malcolm Gladwell writes about the “Magic Number of 150″ is his New York Times bestseller “The Tipping Point.” Here is an excerpt from pages 182-183 of that book:

“…we have to keep groups below the 150 Tipping Point. Above that point, there begin to be structural impediments to the ability of the group to agree and act with one voice.” … “Crossing the 150 line is a small change that can make a big difference.”

• Continuing the prior point, I am of course talking about individual brokerage locations under common management and control (which is what Gladwell is referring to as well: individual locations, not entire organizations). Further, I would argue that Gladwell’s Rule of 150 is clearly intended to apply to “normal” group dynamics – like a traditional employer/employee-based company or a military unit. I would suggest that, given the way real estate works – where independent contractors work alone and not in a truly cooperative fashion – the number should be far smaller than 150, given the fragmented nature of the normal operations of a traditional real estate brokerage. But I’ll not confuse this commentary any further other than by simply mentioning this as something for you to think about…
• For those of you who may reflexively disagree with this logic, let’s forget about Gladwell altogether and let’s cut straight to the chase: how many quality agents (which I will define as “above average ethics + actual fiduciaries for their clients + above average production”) typically exist with an office that has, let’s say, 300 agents?
  • I worked in one of those offices (and it felt AWFUL, knowing that there were 250+ agents with the same logo on their business card who were doing nothing but lowering the perception of Realtors in general), and I can answer the question myself: about 20. And that was during the real estate bull market, well before the crash. That is a little under 7%. (And working in that “93/7″ franchise and seeing what was allowed and not managed or policed was my last experience in “traditional real estate” before I decided to start my own company, because I knew there HAD to be a better way.)
  • Even throwing ethics out the window to include ALL agents who were “producing,” only 44 agents out of around 300 made enough money to cover their desk cost during a year that was one of the best in history in my market. That’s a little under 15%.
  • I’ve discussed this issue with many people, and the most “positive” response is the old “80/20 rule.” Given the fact that only 27% of all Realtors earn the majority of their income from real estate, I would surmise that the percentages are now at all-time historic lows and probably more like 90/10 or even 95/5 (but that is conjecture on my part, which I freely admit).

• Most of the local real estate boards are QUANTITY DRIVEN: Most boards grew as their membership grew and now are struggling to survive in the wake of the decline in agent counts that has occurred in almost every market in America. They are exactly analogous to the guy who bought the big house he really couldn’t afford, because “everyone knows you can’t lost money in real estate” and “the good times will never end, right?” But what happens when your revenue drops by 30 or 40 or 50%? You discover that you were wrong and wrongerer. For Joe Sixpack, he becomes another grain of sand on Foreclosure Beach. For your local real estate board, I’m not sure. You’d probably have to ask them what they can do to bridge the gap to survive the downturn.

• NAR itself is QUANTITY DRIVEN: The exact same comment as per the prior point applies to NAR itself…

Concluding thought: there is real opposition to the #RTB (“raise the bar“) movement. Some of that opposition is well-intentioned and logically sound. And a lot of it is knee-jerk, reflexive, defensive and driven by nothing more than the need to preserve the status quo. And MOST of the status quo is based on the “bigger is better” philosophy that I would argue is the root cause for most of what ails the industry today.

I’ll finish exactly as I began: read Brian’s post, consider the source and consider his points objectively. I think he’s on to something…