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I was thinking, is it that easy to make money from real estate?
Come to think of it, the real estate agency practice had been tarnished by many who are "hit and run" operators. What it means is you sell only once in a long time for this client, so you do NOT really matter whether he is screwed or not.
In selling or letting a property, you take great care of the owner/landlord. You really do NOT care much about your buyer or tenant. They will have to submit to your whim and fancy or that of your principal. They can offer whatever amount but it is still your right to take that offer to your principal and be accepted. If you never take that offer to your principal, he won't probably know as well.
Therefore, as a tradition, all agency firms work on the seller/landlord end and neglected the purchaser/tenant side.
Over the years, it had been good times as property is a scarce commodity. You can have a proud landlord who says I will rent to the best tenant I can select. I will discriminate so and so types of tenants. It is my right as owner, I decide.
Well, over time the property supply overwhelmed the demand. Or put it in another perspective, as people have choices to buy or rent, the table is turned to the other side.
Therefore, agency firms can be listing tens and hundreds of property for sale and let, but nobody is taking them.
This has become the disconnect between the agency firm and the public. Why? Because public do not trust the agent (broker especially) and when you ask about how many potential buyer or tenant a firm has? No firm can give you any figure. They can give you figure of how many listing of landlords and sellers, but they cannot give you who are the buyers or tenants.
This is intrinsic of the estate agency practice as buyers and tenants do NOT pay fees. At least, not in the local setting in Malaysia.
I wrote so much about this before I answer the issue of MLM (multi-level marketing) agency structure above in real estate practice. There is a few reasons. Firstly, to let you understand the defective strategy of agency work in our local setting all this while. Secondly, to let you appreciate what I am going to point out below about MLM agency structure and its flaws.
Traditional RENs and Agents are not tuned to MLM system, so they hope that MLM system as in Cosway etc will bring more clients to the agency for its products. Theoretically, by garnering more network of field force, you will have better reach to the public. Furthermore, the most significant different from conventional selling is MLM scheme sells to its members, as well as pays them for successful referrals. It might be more convincing doing the mouth to mouth selling than selling in Mudah.my, for example.
Hence, MLM scheme recruit members as users and sales force.
On the surface, this might be so and is a successful factor in MLM for smaller townships. Why? Because auntie and uncles believe more in coffee table gossips than going to the bank and find out from the bank officer what is today's exchange rate.
Property in bigger cities (where agency firms are present) is not a toothpaste that can be sold just over a coffee table. So, this strategy won't work in Real Estate Business. And, MLM works on products which are easily replaceable or substituted. Like instead of toothpaste A, now use toothpaste B.
Due to its complexity, property market would not grow like a fast moving consumable good (FMCG), therefore the various level of MLM pay out will not be achievable in a short term. Owing to this inherent nature of the business, and worsened by the recent slow down of the entire industry, MLM scheme will not work on property.
You will see people being recruited and paying membership joining fee in significant sum, yet the business will just stagnate and eventually increase to a temporary hype, thereafter plateau and might plummet to another new low.
This is because initially when the recruitment drive is on, people are in high spirit. As more crowd join in the sales force, some newbies might eventually buy some properties themselves - as users. Thereafter, those who cannot afford to buy might close some sales. In general, there cannot be any repeat sales among members! Next, they will suffer a period of anticipation of downline making them rich... which never really happened. Finally, when no more new sales are made, they will eventually leave the firm.
Imagine, have you ever think that such MLM scheme be used for insurance scheme? It is of course, prohibited as well by Bank Negara Malaysia ruling in the first place. But, if ever MLM is used for insurance scheme, it would not be possible as over time, many will abundant their insurance and join a new insurance scheme like buying toothpaste B replacing toothpaste A. Would that be able to sustain? The whole financial system will not be able to sustain it.
When is MLM best used? When there is element of speculation, or in its root word - greed. Notwithstanding, only when a commodity is without price - like propagating a gospel for religious purpose - valueless/no value, then MLM is without flaw. By word of mouth religion has been the most successful MLM scheme of all times.
So, property is something with value. Thus, MLM system for property will only work when there is no referral fee and everyone is doing it for the good of education. But, would you teach someone when he benefits from you and you do NOT make anything out of it?
Well, it is very rare that this could happen. Nonetheless, I can do it for close to free.