Tech vendor contracts: the critical questions to ask to avoid pain and suffering

Technology has become critical to the modern brokerage. Consequently, the contracts brokers have with their vendors have become ever more vital to business health. It’s never been more important to develop clear contracts that specify how integrations, data and acquisitions can affect operations. T3 Sixty gives its recommendations in this article.
Authored by:
Travis Saxton
Published:
May 2021

In T3 Sixty’s T3 Tech Marketplace, there are 95 technology categories and over 1,020 technology companies and products. The sheer scale of choice, and thus confusion, is one of the big reasons the fractured residential real estate technology market is ripe for consolidation.

This fragmented market forces brokerages to get their technology from many sources. The average brokerage has over a dozen technology tools, according to T3 Sixty internal data. That also means the average broker has over 12 contracts and companies it must negotiate and integrate with. It can be overwhelming and exhausting to manage.

Vendor contracts are typically intended to reduce the friction of getting prospects to become clients; they are usually formed and drafted while companies are young and need to generate sales. In the real estate brokerage industry, they are generally not intended to be long-term arrangements but often end up being exactly that.

Because clear, fair and flexible contracts can prevent many headaches, T3 Sixty decided to outline some of the areas brokerages should pay close attention to when finalizing their contracts.

Commonly overlooked contractual areas include:

  • Integrations
  • Data
  • Security
  • System access, such as single sign-on
  • Customer service
  • System uptime
  • APIs and API integrations
  • Custom work and changes

Some of these are considered in more depth below.

Integrations

Integrations are an important necessity and standard for modern brokerages, but sometimes getting vendors to integrate can be tricky, which is why focusing on integrations in vendor contracts is valuable.

Consider a common scenario for brokers. A broker has an existing contract with Vendor A, a CRM. It is ready to sign a contract with Vendor B, in this example, a transaction management platform. Both vendors have open APIs and the broker thinks it is in luck – both vendors already have an integration and it's publicly listed on their websites (even better!)

What has not been made clear and is unlikely to list in the contract are things such as:

  • Who is in charge of the integration?
  • Who will build the integration if one has not already been established?
  • Who maintains the integration?
  • What if it integration doesn’t work as it is hoped it would?
  • What level of integration is being offered? (See call-out to four types of integrations below).
  • Is there a cost per user to have this integration activated or maintained?

These questions, and their answers, can make or break the perceived benefit of having two products a brokerage thinks are “fully integrated.”

Data

Data is quickly becoming currency, and brokerages should pay close attention to how data is approached in vendor contracts. Here are some questions brokerages should be asking that can help them navigate relationships with their vendors and negotiation of business terms related to their data.

  • Who owns the data that's put in the system?
  • Is the data shared, syndicated, or sent anywhere else, and what are the terms of that process?
  • What is the technology vendor allowed to do, or not do, with it?
  • How will future integrations using the data be handled (with new products or services not yet on the brokerage’s radar)?
  • How can the brokerage get its data out of the system should it chooses to leave?

Acquisitions and their impact on operations

Over the last 12 months, the number of acquisitions in real estate tech has risen to nearly 30, with T3 Sixty advising on more of them than any other consultancy.  

Some of these transactions benefit the broker customer, which streamlines operations for their customers and offers more functionality in one platform.  But what if a competitive brokerage or franchise acquires that technology company at a later stage? It is important that brokerages explore this potential move with their vendor beforehand.

Some questions brokerages should ask vendors related to acquisitions include:

  • Do you intend selling your company in the foreseeable future?
  • Does your company already have private equity backing? (Companies that have already been acquired are less likely to be sold to a brokerage or franchise competitor.)
  • Do you detail the data policies about how data is handled, especially competitor customer data?

For larger contracts, brokerages may want to ask about change of control provisions and options for earlier termination in the event a company is acquired by a competitor.

Develop a business requirements document

T3 Sixty recommends adding an important step when signing vendor relationships for key enterprise systems such as Enterprise Core Front Office (usually a combination of six or more top- and middle-of-the-funnel categories such as website, CRM, email marketing, etc.), Enterprise Back Office (usually a combination of accounting, commission calculations, reporting, agent roster management, etc.), and other core business technologies.

To supplement these larger vendor contracts, create a business requirements document detailing each of the business needs and how each will be addressed. This document should be signed by the vendor and incorporated into the contract as it will be an invaluable tool in the future. This is a great way to:

  1. Set expectations of what brokerages need, want and expect from their vendor
  2. Prevent missing functionality at the launch or when the system is up and running
  3. Avoid getting into a relationship where expectations and commitments are not fully aligned and disagreements arise

The time invested at the front end in creating this document can save brokerages many headaches later. The tech team at T3 Sixty has seen this hundreds of times.

Takeaway

When brokerages cannot create a full, detailed business requirements document, they should continue to ask questions as outlined in this article. Fully understanding the tech vendor’s contract and documenting is key and will create healthier and better long-term relationships with your vendors. Upfront transparency and understanding can save brokerages months of headache and thousands of dollars. If you’re looking for more customized help in negotiating vendor contracts, or have some general questions, reach out to Travis Saxton, senior vice president of technology at T3 Sixty, travis@t3sixty.com.

T3 Sixty – Trusted business advisors and management consultants.

Part of the T3 Sixty family of companies.

© T3 Sixty 2020. Enabling Intelligent Change.

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