Broker Profitability POD concept

by Victor Lund on December 20, 2012

Broker POD SystemThis may be the real future of real estate brokerage. You will need to endure a series of short product stories to understand the POD concept for real estate brokerage.

The coffee industry hit a home run with coffee pods. As it turns out, consumers would be happy to pay more for coffee if they do not need to deal with filters, scoops, and cans. The coffee pod industry was able to sell less coffee for a higher price by offering convenience.

The pod revolution did not end with coffee. The rather smart dudes and dudettes at P&G took one look at the coffee pods and deduced that they have powered stuff that consumers would like podded up too. They released dishwasher soap pods. The same effect took place. They found that consumers hated managing boxes of powder or gooey liquid soap. They put the soap into pods and were able to sell less soap at a higher price by offering convenience.

P&G was so overjoyed, that they sought out pods for everything. Next up on their list was Tide Detergent. If you have ever had to go to a laundry spot to wash your laundry, you know how painful it is to carry around that big box of Tide. P&G put Tide into pods and were able to sell less Tide for a higher price by offering convenience.

There is a pod thesis for real estate, but it has not been executed yet. It is a customer for life strategy where the real estate brokerage manages everything for the consumer. Imagine fractional ownership for homes, only you own the entire house. The consumer just writes a check every month. The broker handles everything including maintenance, mortgage, insurance, everything.

Atlantic & Pacific Real Estate is sort of on the path to do this. They buy bundles of homes, fix them up, and either sell them or lease them out. They run the brokerage like a factory, and provide all home services – maintenance, landscaping, mortgage, title, insurance, taxes, etc. It is nice to have a hedge fund supporting this. In many ways, I think that an innovator like Redfin could tackle something like this too. It could be easily pulled off by any of The Realty Alliance firms too. They have all of the pieces in place, especially those with large warehouse lines of credit.

For many large brokerages today, the path to developing a Pod program is achievable. I have not been able to figure out what the POD acronym would translate into, something like Property Owner Dealership. The dealership concept came to me because of my experience with car ownership. Nobody really owns a car anymore. They own a payment just like homeowners own a payment.  The reason why it is normally more cost effective to lease a car than it is to own a car has to do with the POD concept. Car manufacturers know that they make more money converting you into a new car every 36 to 48 months, and giving you the piece of mind (convenience) that you will not have car trouble.

For this to work, a brokerage would need to have the backing of banking and insurance. The laws of large numbers would need to be in place. Statisticians would need to calculate home ownership and maintenance costs like Automobile manufacturers do it. It does not really matter if you need to replace an engine for one out of every 5000 cars anymore than replace a roof for 1 in 5000 homes. The costs are spread out over the large numbers, so the cost per home is very low. Life Insurance and Home Warranty Insurance all work under this premise.

Property managers do this stuff all of the time, although there is usually an owner and a renter.

Here is a very futuristic notion. If the homeowner mortgage tax credit is repealed, the PODS program may emerge. Investors will have access to depreciation and other tax deductions that homeowners may not have – making it more affordable for consumers to get full service from a home service provider rather than buy and finance their home and cover expenses themselves. R.I.P. home ownership. Hello new business opportunity.

{ 1 comment… read it below or add one }

Jim Stager December 26, 2012 at 11:16 am

Interesting concept Victor. Keep me up-to-date on the progress.

Jim

Reply

Leave a Comment

Previous post:

Next post: