“Real estate franchising in North America is totally broken,” says David Tedesco, owner and CEO of Realty Executives International.
Speaking to me between meetings at Tedesco’s 100,000-square-foot campus in North Scottsdale, he tells me that the real estate industry is in the very early stages of a major shift that’ll leave it looking quite different than what it is today.
Tedesco is not your average CEO. The technology entrepreneur got his start at just 15 years old, founding a software company when most kids his age were playing video games or out getting into trouble. Also the CEO and founding partner of True North Companies, Tedesco, now 42, has spent the last 20 years building the firm into a conglomerate that encompasses numerous healthcare, aerospace and entertainment brands. Tedesco was one of the early, pre-IPO investors in brands like GoPro and Tesla, so “business as usual” is clearly not his plan for the future.
After watching and researching the real estate franchise business for some time, Tedesco acquired Realty Executives International—the master franchisor of the Realty Executives brand—in April 2014.
Tedesco sat down with me to discuss what he sees as the future of real estate:
Paige Tepping: Why do you think the real estate franchising industry is broken?
David Tedesco: The real estate franchising industry in North America is terribly outdated. Over 30 years ago, brokers controlled the market through access to the MLS, and they generated leads by aggregating dollars and investing in traditional advertising channels on behalf of their agents. Today, almost every listing is available to the consumer via Zillow, Trulia and realtor.com®. Leads are generated directly by agents using social media, SEM (Search Engine Marketing) and through the big listing aggregators. The power in residential real estate is with strong agents and, increasingly, with teams. From my point of view, everyone who isn’t rebuilding their model around teams and away from big franchisor GCI (Gross Commission Income) fees is a dinosaur.
PT: If this is the case, why isn’t everyone adapting their business models accordingly?
DT: In my opinion, when it comes to the big franchisors, many simply can’t. Somewhere around 250,000 agents go to work at models where they send a substantial portion of their earnings on to the franchisor of their brand. Most of those franchisors are public companies with hundreds of millions—or billions—of dollars of debt. They have a quarterly number they have to hit in order to keep Wall Street happy, keep their jobs, and earn a profit on their stock options. Being a public company makes transitioning to a different, lower cost revenue model nearly impossible.
Take Blockbuster for example. Why did they go bankrupt instead of becoming Netflix? Because Netflix was going to be a fundamentally worse business financially than Blockbuster’s retail model for a rather long time, even though it was clearly going to be the winning long-term model. So they kept the money flowing at the expense of leading the next generation of innovation. It’s the classic innovator’s dilemma.
I think the same thing is true for …read more
From:: Real Estate News