Productize to Survive

But before we go there…

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Productizing a Service: How Real Estate Agents Survive the Disruption in the Brokerage Market

Growth favors those who embrace disruption. 

Last month, I shared my thoughts on the disruption happening in the real estate brokerage market. 

A recent antitrust settlement against The National Association of Realtors is going to cause massive changes for home buyers and their agents. I think it could cut the TAM for real estate brokerages by as much as 40%. Hear why plus a few other predictions on the market, straight from a strategist slash real estate agent (a.k.a me).

As a student of disruption who moonlights as a real estate agent, here’s what I think will happen:

1. Brokerage market shrinkage of up to 40%.

2. Real estate platforms, like Zillow, will win when buyers turn to them over agents for information.

3. Smart brokerages will convert buyer’s agent services into products.

4. Brokerages will consolidate and agents will leave the business.

5. Private equity opportunities will emerge as the ecosystem seeks an economy of scale.

There’s a lot of apocalyptic talk happening among realtors, but pay attention to number 3. There are opportunities for those willing to adapt.

Brokerages – you can survive if you productize buyer’s agent services. 

But what does that mean? Let’s get into it. 

The Problem

First, let’s establish that agents provide a crucial service for many buyers. 

This includes: 

• Educating buyers on the buying process 

• Providing market knowledge and comparable pricing

• Communicating with various parties to organize home showings

• Advocating for buyers during negotiation

• Managing complex transaction processes and documents

The crazy part is they do this without assurance of getting paid.

Today, 100% of buy-side pay is at risk. Buyer’s agents are only paid if they close a deal where the seller pays the buyer's agent commission. 

Brokerages will tell you agents should ask buyers to sign agreements to pay them if sellers don’t offer commission. But buyers rarely agree.

The NAR settlement changes the standard. Long story short, sellers can no longer publish the commission they offer buyer’s agents on the NAR-controlled MLS (“Multiple Listing Service” – the databases that compile all listings in a market). Taking commissions privately will remove the incentive for sellers to offer them. 

Without sellers paying buyer’s agents, real estate brokerages and most agents lose a huge piece of their business. 

The solution for agents? Get paid by buyers.

How? Turn services into products.

What is a Productized Service? 

“Productized Service” sounds fancy, but it’s just consultant speak for a package of services with a set price.

You encounter productized services every day. For example: 

• Kumon turned custom tutoring into a standard learning product.

• Wedding venues offer tiered packages of catering, decor, and event management.

• OBGYNs offer a pregnancy’s worth of standard prenatal care visits for a fixed amount, with ‘upgrades’ billed if things go sideways.

They offer tangible benefits to businesses and their customers: 

• They are predictable, controlling time and cost.

• They are repeatable, improving efficiency and service quality over time.

• They are easy to understand, helping customers clearly see the value.

• They are priced on value, improving margins.

• They provide a competitive advantage when differentiated in the market.

Services can be packaged and priced in different ways to meet customers’ needs. Here are a few examples: 

How to Build a Productized Service for Real Estate Agents

This approach can be applied to real estate. 

But I get it – how you get there may seem daunting. A buyer’s agent’s job today is messy. They’ll tell you that no buyer, no deal, no property is the same. It’s difficult to conceive that you could standardize and repeat the same set of services.

But agents, you can. You can bring order to chaos.  Building a productized service model is something that product teams and consultants like me do all the time. 

Let’s look at how. The work falls into five steps:

• Step One: Define your target customer. Niche down to a group of customers with commonalities. Determine their pain points and desires in the buying process. 

• Step Two: Identify what they’ll pay you to solve. Build a list of all the services you can provide. Then, prioritize them in order of importance to target buyers. After that, identify those that solve problems that buyers can’t – or don’t want to – solve on their own. 

• Step Three: Quantify the value of your service package. This is the value your clients place on the problems solved – it’s not related to your costs, your rate, or the customary 3% paid today.

• Step Four: Choose the best pricing model based on your target customer’s buying behavior and financial situation. Then, set the price.

• Step Five: Position and sell it. Position your package as an easy and high-value solution from the customer’s perspective. Be clear about what’s included and excluded. If you’ve structured it correctly, it will sell. 

Let’s take a closer look. We’ll start by looking at the baseline buyer journey, then double-clicking into each step.

The Buyer Journey

The good news is that the real estate buyer journey is fairly standard. It differs a bit from state to state and the timeframe for each step can stretch or shrink.

However, with many small actions, stakeholders, legal documents, information asymmetry, and unknowns within each step, it feels complex. This is why agents exist – they act as navigators, coordinators, and advisors, leading buyers through the process.

Let’s pause and understand a few pitfalls about the journey. 

The level of complexity is not the same for every buyer.  Different buyers will find different parts of the process challenging. For example, a first-time buyer is going to have very different challenges than a time-constrained investor. 

The amount buyers will pay for services will vary.  Price will depend on what the buyer considers a problem and what they would pay to solve it. A first-time buyer may attend open houses if they can avoid paying for an agent to show homes privately. An investor may place a higher value on saving time and pay for an agent to preview properties on their behalf. 

We address both these concerns by identifying target customer groups with common needs and value assessments. Then, we’ll define packages based on these groupings.

Step One: Define Your Target Customer

Agents, you likely know who your target customer is. Brokerages, real estate training, and coaches place a lot of emphasis on this today. You should start with this group. 

But for our purposes, I’ll do a simple assessment. Then, we’ll use a group as an example through the next steps. 

This identifies three target buyer groups: 

• Group 1: Guide Me 

• Group 2: Digital DIY 

• Group 3: Concierge Buyer

Interestingly, Group 2: Digital DIY, includes inexperienced and experienced buyers. This is the group I believe will be the largest, and the group that online platforms like Zillow should target.

There are ancillary services that agents can provide this group, but be cautious. Since this group values DIY over agents’ services, targeting this group with a packaged service (unless very, very targeted) will be like chasing a garbage truck. You’ll get distracted, spend a lot of money and time chasing them, and eventually get nothing out of it except a pile of hot, stinking trash.  

We’ll use Concierge Buyer as our example. 

Step Two: Determine the Highest Value Services

Identify the services agents could provide our Concierge Buyer group. Assess each service’s importance to the Concierge Buyer asking, “Does it solve an important problem from the buyer’s perspective?”

Next, assess each service with a scale of “Will the buyer pay for the solution?” (1 - unwilling to pay; 5 - highly willing to pay). A buyer will not always pay for others to solve an important problem. It may be easy, or they may be willing to do the work to solve it themselves. Thus, it’s critical to identify the services a buyer will and will not pay for. 

Then, add each service’s total score and stack rank to reveal the top priorities for the target buyer. Pull out the highest-value services – these comprise your initial service package. 

Step Three: Understand the Value of Your Service Package

Now, let’s determine the package’s value. This is the amount the buyer is willing to pay to solve their problem. 

Important note – only your target buyer’s perception of value matters. It is NOT related to your cost, an hourly rate, or the legacy 3% commission. 

Assign a dollar value to each service in the package. This deserves to be studied, but assumptions illustrate the method. I assumed that the dollar value is related to the cost of the Concierge Buyer's time and the transaction size.

Add the total and gut check if it will make sense to the buyer and if the market will support it. Apply a discount to the total to make the value more obvious. 

Then, adjust your package to optimize for profit through cost controls and opportunities for margin upside.

Here’s how to control costs: 

• Should you remove services that cost more to deliver than the value they provide? 

• Can you limit quantities or set time bounds?

• What can a lower-cost provider, like a showing assistant, admin, or VA, take on?

And how you can increase margin:

• Can you add no/low-cost services to increase value? 

• Should you remove high-value services from the package and position them as an upsell or second tier?

• Can you offer mid-importance services as add-ons?

For our Concierge Buyer, I ended up with the following final package, which includes no/low-cost value adders.

Step Four: Choose the Pricing Model 

Price is different from a pricing model. The pricing model is how you charge, the price is how much you charge. 

The pricing model is important because it guides behavior. The way cash is exchanged creates financial incentives for a buyer, motivating them to take desired actions (or not). When chosen incorrectly, it can disincentivize action and break the profit structure. 

The way money changes hands has a psychological impact on the buyer, whether it’s good or bad. For example:

• “All-inclusive” packages can drive overconsumption.

• Paid-upfront “punch card” packages can enforce discretion on when to use a service.

• “Good, better, best” packages use the paradox of choice to drive upsell. 

• Add-ons make the price seem lower upfront, driving conversion.  

Choose the pricing model that best fits your target buyer’s financial situation and creates the right incentives. It’s the enforcement mechanism that maintains order (our buffer against economic entropy). 

Let’s look at the models again to assess options for real estate buyers.

For Concierge Buyers, I’d choose a hybrid. 

• A base offer (“Find Your Home”, how clever) provides a wide set of services for sixty days. 

• A monthly extension with recurring billing (“Keep Up Your Search”) continues to serve buyers who need ongoing support.

• Several add-on concierge services provide specialized services as needed, with a high margin. 

This group values ease, experience, and time saving more than cost. The simplicity of this model allows agents to provide a known set of services upfront to share information on the market and understand the buyer, then work ‘on demand’ if the search extends, giving the buyer flexibility and time. 

Pricing is transparent, simple, and recurring, making it easy to understand and administer boundaries on the service duration and protect quantity margin.

Some advice: Operating a packaged service model requires infrastructure and oversight. Brokerages should consider the ease and cost of collecting payments, tracking services used, and training new agents on the offer when selecting the model. 

Step Five: Position and Sell It

Now you have your package. You just have to sell it. 

Good news. If services, value, and pricing models are aligned with your target buyer’s pain points and value perception, it will create a pull for your services. It will also differentiate you from other agents, at least until they come to their senses and create packages too. 

Here’s my advice – keep it simple. The trick is to build a package with such obvious value that there’s no back and forth. I think agents will find that packaged services make conversations easier than their pitch today, which boils down to “like me, trust me, have someone else pay me.”

Clearly communicate value in the buyer’s own words. Focus on the problems your package solves. Look at the following heatmap to visualize where your new service packages add value to the Concierge Buyer’s journey. Ask questions about these areas and structure your pitch to show how you resolve them. 

Second, employ the paradox of choice. Offer “good, better, best” packages, regardless of the pricing model to your clients. Every tier comes with more value than the last, driving upsell. 

Let’s look at a tiered model for our Concierge Buyer, from basic to boujee. 

Third, protect margin and communicate boundaries. You’ve moved from a custom model – where anything goes – to a package, where services are included or not. This must be clearly communicated upfront and reiterated.

Upsells, add-ons, and the next service tiers should be available to offer options or reinforce choices. Protect your time by specifying office hours, when assistants will be used, and quantities of services included in your package.  

Are You Up For the Transformation?

My assessment and the examples provided are admittedly simplistic. 

The reality is this: creating a service package that converts requires a much deeper assessment of target buyer segmentation, needs, and value beliefs than what’s presented here. The behaviors linked to pricing model options should be studied. Tiered packages, add-on services, and margin calculations should be rigorously reviewed.  

The second reality is that productized services aren’t going to replace the current commission revenue. They can claw back some revenue, and with the right delivery structures, recapture a disproportionate amount of margin with operational changes. 

The third reality is that the NAR and state real estate commissions will need to change regulations and standards to enable greater scale through productized services. The extreme level of regulation in the real estate industry is a constraint on innovation, brokerage profit, and agent success. 

For brokerages, this is a critical issue. I invite a discussion about opportunities we see, methods to capitalize on them, and how our team can serve you. We have significant experience helping navigate the shift from custom to structured business models.

Remember, the path to success is paved with continuous learning and embracing fresh perspectives.

Let's stay connected, share ideas, and elevate your consulting business.

Stay curious, friends.

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