One of the great challenges of being on the “bleeding edge” of change in any industry is identifying the words to be used in discussing the new model. The real estate industry is, at more than a century old, steeped in history and culture. So it’s even more of a challenge to create a dialog that accurately captures the essence of a particular innovation and the characteristics that distinguish it from the old way of doing business. It’s hard to create new meanings for words that have long-standing and well-understood definitions.

One term used to describe real estate firms that are working to change the industry is “alternative.” But absent some definition, the term is meaningless. So what is, exactly, an “alternative brokerage”? And who would be an “alternative agent”?

Does use of the internet define Alternative Brokerage?

One possibility: A firm that leverages the internet to more efficiently provide client services, and passes at least some of the savings back to the consumer. The second clause is important. Every real estate broker by now has leveraged the internet, in particular by sharing their listings not just with other brokers but with the public via the internet (a change driven by anti-trust efforts of the Department of Justice). So simply using the internet cannot be considered alternative.

But passing the savings created by this efficiency back to the consumer? Now that’s new. On the other hand, though, there are lots of brokers out there now who will negotiate unique fees with their buyer clients and who will then rebate the balance of the seller-paid commission to the client at closing. These brokers recognize the fact that most buyers now do at least some of the home search themselves. Does that make their real estate firm an alternative brokerage?

No. If that’s the case, then the term “alternative” doesn’t begin to describe the many distinctions between the new business models that are emerging in the real estate industry and the traditional way of doing business. Agents (legally now called brokers, previously licensees) have been independent contractors, each largely responsible for their own real estate practice (independence is the hallmark of being an “independent contractor”). Every agent must be licensed through a managing broker, who remains responsible for the agent’s conduct. That agent then either pays a flat fee to the managing broker (i.e. a desk fee), or splits in some percentage with the managing broker (and firm) the commissions earned. One managing broker can be responsible for two hundred or more agents in the office. Each and every one of those 200+ agents is responsible for finding their own clients and generating their own income.

So the traditional model is defined in part by independence for the agents and limited oversight. If one agent in the office decides to charge a lower fee, does that make the whole office “alternative”? Clearly not.

It’s more than the internet. Modern business principles define an Alternative Brokerage

Therefore, the definition needs to be expanded. Here’s another possibility: A real estate firm that operates as a modern business and passes some of the savings realized by those modern efficiencies back to the consumer. This definition still captures “leveraging the internet,” clearly a hallmark of operating as a modern business. But what about the notion of branding and efficient marketing? In the 21st Century, there are more efficient means of advertising the firm’s services and acquiring new clients than making each agent responsible for their own business.

Finally, a modern business is more likely to value the brand and the resulting need to provide high quality service every time to every consumer. Many of the new real estate models employ their agents. This gives them a far greater degree of control over their agents’ conduct and the services they provide. While generalizations cannot be drawn about any particular agent, there is no dispute that the bar to entry into the profession is quite low. A modern business structure reduces the risk generally that a consumer will be poorly served by a real estate agent.

So operating as a modern business, and passing the savings realized by the resulting efficiencies back to the consumer, seems to define an alternative brokerage. Which begs the question: Can an alternative agent only work for an alternative brokerage? I think so. Otherwise, we once again define “alternative” way down, such that it’s only a shade off traditional. In today’s real estate industry, where there lots of alternative brokerages – as defined here – that definition just doesn’t convey reality.

What say you, RCG community? What is an “alternative brokerage“? Who is an “alternative broker”?