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Tuesday, February 7, 2012

Why am I Starting SmithAdams in This Economy?

Posted by nithi.vivatrat on March 10, 2009

When talking to people about SmithAdams, the first question I frequently get is this: “You’re starting a real estate business in this economy?  What are you thinking?”

Paul Graham, essayist, partner at Y Combinator, and all-around renaissance man, explains, in much more eloquent language than I can muster, that this is the perfect time to start a new company.  This point is especially relevant for SmithAdams:

“That doesn’t mean you can ignore the economy. Both customers and investors will be feeling pinched. It’s not necessarily a problem if customers feel pinched: you may even be able to benefit from it, by making things that save money. Startups often make things cheaper, so in that respect they’re better positioned to prosper in a recession than big companies.”

That’s precisely what I’m setting out to do.  SmithAdams fee-for-service model can save consumers money.  In this housing market, I think any of us would benefit from real estate transactions being more efficient and less costly.

To this point, I believe potential customers are more likely to be open to new ways of doing business in times like these. During the recent flush years when real estate property values were skyrocketing and homes were sold in a weekend, few questioned the wisdom of paying a 3% (one-sided) commission on property transactions — a commission that often translated into thousands of dollars.  With the realty market in disarray, the SmithAdams value proposition has resonated strongly with almost everyone to whom I have spoken about our company.

Now is the time to apply the simplicity and straightforwardness of a fee-for-service model, similar to other professional services industries, to the business of real estate.  Despite new technology and other changes in the real estate marketplace, the commission-based fee model has not evolved in decades.  The bursting of the housing bubble presents an ideal time to reevaluate current real estate practices.  Now is the time to start SmithAdams.

I welcome your comments and feedback.

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  • Sid
    Having recently sold my company, and having had two types of firms working with me who epitomize the difference between a commission model and a fee model of payment, I can well appreciate the advantages of a fee-based system.

    Banker/Advisory firms typically charge a commission for a sale of a business.

    Legal/Advisory firms typically charge for their time and services.

    Both firms were professional, knowledgeable, and ultimately capable partners in helping to drive a successful sale transaction.

    While both models can be abused by unscrupulous providers (a fee based provider might charge for services that are unneeded to achieve a sales, and a commission based provider might try to minimize the work performed so as to maximize their earned commission as a % of the work they perform) on balance with a quality provider of services - I truly believe you get more for your dollar when you agree to fee based model.

    As to starting in a recession - there's no better time - you can find great people, good office space, you can scrimp and save with your business (when even the big guys are scrimping and saving) and not worry about appearing outspent by the competition. Most importantly - you can build a reputation, earn your stripes, and ultimately emerge as a known, trusted entity before the economy and market heats up, so that when you really need to grow fast you have the trust, the experience, and the momentum to be wildly successful.

    Cheers and good fortune!!!
  • Cris
    As someone who started a business knowing full well where the economy was headed, I couldn't agree more. I think there are two interesting trends in a typical recession--commitment anxiety and a willingness to challenge the conventional wisdom to get ahead. While this recession insists on being anything but typical, some truths are foundational to the free expression of the human spirit itself.

    Commitment anxiety is king in uncertain times.. do I really want to get myself into a long-term representation agreement if I'm not even sure I want to buy or sell yet? Do I know how much of an agent's time I even need? We may find our first offer accepted, but I agreed to the terms up front. Let me decide how much, or how little, to lean on my broker.

    Likewise, the savvy consumer knows that conventional wisdom may well be what got us into this mess. She is willing to take a chance on a fresh idea to get a competitive advantage. She's willing to take a risk when the downside is minimal and the upside is significant.

    Both trends ultimately come down to money and uncertainty--the fear of giving away too much up-front and the willingness to take an up-front chance for savings in the end.

    Forcing this anti-competitive industry to change was due generations ago. Government has been either unable or unwilling to fix it--in many cases both. But in the end, the free market always wins. It may take it a little bit of time, like 50 years and a recession, but it will always produce a SmithAdams. It is a beautiful thing to see.
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