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Predicting the Future of Residential Real Estate Brokerage

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100%

Okay, so they’re not really all “100%”.  Re/Max is now a maximum of a 95% split.  Further, most of the 100% companies have various other more traditional splits (IE: 70 – 30) for those who can’t pay the standard monthly bill.  But the overall trend for the industry is that most “mega agents” wind up at a 100% company and many of the major marque agents wind up eventually even leaving Re/Max to start their own company.  Re/Max was, at one time, the most agent-centric company in the business.  That has changed a bit.  Now at their national conventions the only “approved” business coach is Brian Buffini.  The others, who used to be quite visible ( Mike Ferry, Howard Brinton, to name a few) at those conventions are no longer welcome.  Only Buffini.  I am just guessing that someone named Brian Buffini pays a specific amount of what he can collect from Re/Max agents to Re/Max International.  That one is just a guess, but there was no guess work involved when Re/Max sued First American last April.  First American backed out of the deal and stopped payments.  The lawsuit from Re/Max prompted a probe from the Colorado Real Estate Department looking into the possibility of a HUD kickback violation

Actually, I don’t think they did actually violate the law.  But I have to say I loved their defense:  we were basically just selling a mailing list.  We have a lot of agents, let’s pimp them out.  This is from the company that revolutionized the residential brokerage business.  Not very revolutionary, is it?

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The 100% concept was started by a very remarkable man named Dale Rector.  He was a true visionary and he was the founder of Realty Executives.  He made Realty Executives into a very successful company that for many years was the top selling company in all of Arizona.  Prior to Re/Max, Dave Liniger worked for Dale Rector here in Phoenix and had been sent by Dale up to Denver to start a Realty Executives office there.  Instead, Dave started Re/Max.  A few years later he took it national.  He successfully accomplished what Realty Executives never did: massive expansion on a global level.  The real estate world would never be the same.  Agents who could produce did not have to “give the broker half”.  They would pay the broker to be there (a desk fee) and pay their own expenses and keep all of what they earned.  Dale Rector’s original dream had become a reality for agents all across the nation and eventually, most of the world.  But it was Dave Liniger who made that dream a reality.

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Anytime anyone discovers or develops anything that could be a meaningful advantage in business it does not take long until someone else comes along with a knock off version, usually for less money.  Real estate brokerage offices are no exception.  By the mid 70’s, when Re/Max was just getting going and Realty Executives was going strong a different kind of company started sprouting up all around the Phoenix area.  Realty Executives / Re/Max knock offs.  There were dozens and dozens of them.  Some were very well run, others were very poorly managed and went out of business.  The company I have been with for 31 years, John Hall & Associates was one of those “original knock offs”.  Less offered and less service to the agent but at a much lower price.  In the early 80’s came the knock off – knock offs.  West USA, was started by Clay Fouts.  Clay started at John Hall about the same time I did, in 1978.  He liked the idea of what John had done and saw that he could provide similar services for less.  Clay’s original value proposition was simply having a lower price per month for agents than John Hall.  When he started West USA he got several hundred of his original agents from John Hall.  He took some from Realty Executives too.  Eventually came the knock off of the knock off of the knock offs.  Companies that would charge the agents $25 – $50 a month to hang their license and take a few hundred dollars out of each closing.  These companies went on to pass West USA (West USA was the largest company in Arizona with about 2,000 agents) and there is now a company with well over 3,000 agents: HomeSmart.  This business model is scalable and can be started just about anywhere.

If HomeSmart doesn’t eventually open an office in your city don’t worry.  Someone like them or someone lifting their business model will eventually do just that.  How can a brokerage firm make any money at $25 – $50 a month?  Use your calculator to multiply that times, say 3,000.  Add in the fact that they are not providing office space, a desk, phones, etc. and you can start to get the picture.  Maybe they only have 200 – 300 agents they are collecting $200 a closing from and they are still quite profitable.

The competitive pressure these companies have put on “traditional brokers” with regard to commission splits has changed the landscape for all real estate companies here.  For example – a little known fact – the two largest national 100% companies, Re/Max and Keller Williams charge agents considerably less in the Phoenix area than they charge elsewhere.  For example a Re/Max agent here could pay around $600 a month without office space.  That same set up in the San Francisco area would be about $1,600 a month.  Watch that price drop once the knock off knock off knock offs are well known to the agents there.

The customers of the big brokers are not buyers and sellers.  Buyers and sellers are the customers of the agents.  The customer of the big broker is the agent.  The brokers are in the agent acquisition and retention business.  If successful, their expertise typically is limited and is solely in getting and keeping agents and avoiding lawsuits.  They seldom even know much about the little detail of getting and keeping buyers and sellers – as they never did it very much.  The skills required to be a successful agent and the skills required to be a successful broker are not the same skill set.  There are a select few who have both skill sets but that is quite rare from what I’ve seen.

There are specific communities and areas where a company is so good at getting business that they can hire all the agents they want and dictate the commission splits.  However, this is not the pattern in most areas.  The pattern is typically that the company doing the most business has the most top producing agents.  If those top producing agents left to go somewhere else their business would go right with them.  So what is a brokerage company not making enough money to do?  There are just a few choices: 1. cut back expenses, 2. close, 3. find a way to drive in business or 4. find a way to get more agents.

As almost all of the companies are completely inept at driving in business they are forced to choose options 1, 2 or 4.  Option 4 is achieved by having a company agents would really like to affiliate with – so to survive they have to be really really great or really really inexpensive.  The later is typically much easier to achieve.

Russell has been an Associate Broker with John Hall & Associates since 1978 and ranks in the top 1% of all agents in the U.S. Most recently The Wall Street Journal recognized the Top 200 Agents in America, awarding Russell # 25 for number of units sold. Russell has been featured in many books such as, "The Billion Dollar Agent" by Steve Kantor and "The Millionaire Real Estate Agent" by Gary Keller and has often been a featured speaker for national conventions and routinely speaks at various state and local association conventions. Visit him also at nohasslelisting.com and number1homeagent.com.

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8 Comments

8 Comments

  1. Cindy Knight

    December 16, 2008 at 12:42 pm

    Awesome post Russell and how true we started at Re/Max, opened our own office, in Feb opened a Realty Execs – plan to run like a HomeSmart and we’re working on option 4.

  2. Jim Whatley

    December 16, 2008 at 1:00 pm

    I all ways enjoy your articles. Real Estate co. are changing will change. I think for the better, the innovative hard working agent will all ways do well.

  3. Ken Brand

    December 16, 2008 at 2:59 pm

    I enjoy reading and thinking about your perspectives. For me, your next to the last few sentence is pure Platinum:

    “so to survive they have to be really really great or really really inexpensive”

    If you want to thrive you can’t limp around in the middle. For me, I’m going to work my ass of to be OMG fantastic and charge appropriately. The idea of beating feet down the dirt cheap path is not for me.

    Which ever trail taken, blessing to all hardworking agents who deliver on whatever promises are made.

    Keep the flash light shinning Russell! Thanks.

  4. Missy Caulk

    December 16, 2008 at 9:32 pm

    Good historical perspective. Having read Dave’s book it is point on.

    I was with RE/MAX for 12 years, went to KW last December along with 18 other agents, it had nothing to do with desk fees, just the wrong Brokers bought it from the original broker.

    KW had a reputation of young, inexperienced agents in Ann Arbor, no more. We have had amazing growth in 2008, and currently have the most market share now.

    A lot can happen in a year. IMO Gary tweaked the Remax concept and made it more affordable for new agents.

  5. Jonathan Dalton

    December 17, 2008 at 10:40 am

    When I moved, I opted for a split plan. The idea of writing the larger check wasn’t all that palatable. In fact, even the $225 I pay on the split didn’t feel good after years of $10 office fees (and less than favorable broker splits.)

    At the level I’m at now, there’s almost no financial difference between the 100% and the current split. When I hit the next level in the next year or two, then it will come time to make a decision.

  6. Sharon Simms, St Petersburg, Florida

    December 22, 2008 at 6:17 pm

    Russell – I think the reason many top agents leave RE/MAX is that RE/MAX hasn’t adapted well to teams, so the expenses are huge to stay with RE/MAX when you have a team.

  7. Linda Davis

    December 28, 2008 at 10:46 am

    Brian Buffini may be the only approved business coach at RE/MAX and your guess could be right about what he pays for that privilege but Brinton and others are certainly welcome at the annual convention. In fact, Brinton, Knox and a host of others will be speaking at the convention in March 2009, just as they have at most of the past conventions I’ve attended.

  8. Ramon

    July 10, 2016 at 9:54 pm

    Interesting stuff, I changed template on my website and after that the search rankings plummeted
    Added this on my wall, very interesting!

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Business Marketing

How a Facebook boycott ended up benefitting Snapchat and Pinterest

(MARKETING) Businesses are pulling ad spends from Facebook following “Stop Hate for Profit” social media campaign, and Snapchat and Pinterest are profiting from it.

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Phone in hand open to social media, coffee held in other hand.

In June, the “Stop Hate for Profit” campaign demanded social media companies be held accountable for hate speech on their platforms and prioritize people over profit. As part of the campaign, advertisers were called to boycott Facebook in July. More than 1,000 businesses, nonprofits, and other consumers supported the movement.

But, did this movement actually do any damage to Facebook, and who, if any, benefited from their missing revenue profits?

According to The Information, “what was likely crumbs falling from the table for Facebook appears to have been a feast for its smaller rivals, Snap and Pinterest.” They reported that data from Mediaocean, an ad-tech firm, showed Snap reaped the biggest benefit of the 2 social media platforms during the ad pause. Snapchat’s app saw advertisers spending more than double from July through September compared to the same time last year. And, although not as drastic, Pinterest also saw an increase of 40% in ad sales.

As a result, Facebook said its year-over-year ad revenue growth was only up 10 percent during the first 3 weeks of July. But, the company expects its ad revenue to continue that growth rate in Q3. And, some people think that Facebook is benefitting from the boycott. Claudia Page, senior vice president, product and operations at Vivendi-owned video platform Dailymotion said, “All the boycott did was open the marketplace so SMBs could spend more heavily. It freed-up inventory.”

Even CNBC reported that Wedbush analysts said in a note that Facebook will see “minimal financial impact from the boycotts.” They said about $100 million of “near term revenue is at risk.” And for Facebook, this represents less than 1% of the growth in Q3. However, despite what analysts say, there is still a chance for both Snapchat and Pinterest to hold their ground.

Yesterday, Snap reported their surprising Q3 results. Compared to the prior year, Snap’s revenue increased to $679 million, up 52% from 2019. Its net loss decreased from $227 million to $200 million compared to last year. Daily active users increased 18% year-over-year to 249 million. Also, Snap’s stock price soared more than 22% in after-hours trading. Take that Facebook!

In a prepared statement, Chief Business Officer Jeremi Gorman said, “As brands and other organizations used this period of uncertainty as an opportunity to evaluate their advertising spend, we saw many brands look to align their marketing efforts with platforms who share their corporate values.” As in, hint, hint, Facebook’s summer boycott did positively affect their amazing Q3 results.

So, Snapchat and Pinterest have benefited from the #StopHateForProfit campaign. Snapchat’s results show promising optimism that maybe Pinterest might fare as well. But, of course, Facebook doesn’t think they will benefit much longer. Back in July, CEO Mark Zuckerberg told his employees, “[his] guess is that all these advertisers will be back on the platform soon enough.”

Facebook isn’t worried, but I guess we will see soon enough. Pinterest is set to report its Q3 results on October 28th and Facebook on the 29th.

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Business Marketing

Cooler temps mean restaurants have to get creative to survive

(BUSINESS MARKETING) In the midst of a pandemic and with winter approaching, restaurants are starting to find creative and sustainable ways to keep customers coming in… and warm.

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Outdoor eating at restaurants grows in popularity.

Over the last decade we have seen a change in the approach to clientele experiences in the restaurant business. It’s no longer just about how good your food is, although that is still key. Now you have to give your customers an experience to remember. There are now restaurants that feed you in the dark, and others who require you to check all your clothes at the door. Each of these provides an experience to remember alongside food that ranges from good to exquisite, depending on your taste.

Now, however, the global pandemic has rearranged how we think about dining. We can no longer just shove people into a building and create a delectable meal. If you’ve relied mostly on people coming into your restaurant, you may struggle to survive now.

The new rules of keeping clients safe means setting things up outside is the easiest means of keeping large numbers of them from crowding inside. Because of this, weather has become a key influence in a company’s daily income. Tents that were a gimmick before, only needed by presumptuous millennials, are now a requirement to keep afloat. People are rushing to make their yards into lawns that bring some in some fancy feeling.

The ties to the sun in some areas are so strong that cloudy days have been shown to drop attendance as much as 14% for the day. This will become the more apparent the colder it gets. For me, I always mention hibernation weight in the winter, when all I want to do is curl up and eat at home. Down here in Texas we are already finding cooler weather, drops into the 70s even in August and September. We are all assuming a cold winter ahead. So, a bit of foresight is finding a means of keeping your guests warm for the winter ahead.

San Francisco restaurants have started with heat lamps during their cooler evenings. Fiberglass igloos have also been added to outdoor seating as a means of temperature control. A few places down in the Lonestar state keep roaring fires going for their outdoor activities. While others actually keep you running in between beverages by encouraging volleyball matches. This is the new future ahead of us, and being memorable is the way to go.

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Business Marketing

Healthcare during pandemic goes virtual, looks to stay that way

(BUSINESS NEWS) Employment-based health insurance has already been through the ringer with COVID-19, but company healthcare options are adapting for long term.

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Stethoscope with laptop, showing healthcare going virtual.

Changes in employment-based health insurance may end up costing employers more, but will provide crucial benefits to workers responding to the healthcare challenges presented by the COVID-19 pandemic.

According to a recent survey by the Business Group on Health, a member-driven advocacy organization that helps large employers navigate providing health insurance to their employees, businesses will increase access to telehealth, mental health resources, and on-site clinics in the upcoming year.

Besides the obvious impacts of the coronavirus itself, the effects of the COVID-19 pandemic have also rippled out to affect other aspects of public health and how we engage with medical care. With so many people staying home to reduce their in-person contacts, there has been a significant increase in the use of telehealth services such as virtual doctor’s visits. According to the survey from Business Group on Health, whose members include 74 Fortune 100 companies, more than half of large employers will offer more options for virtual healthcare in the upcoming year than in the past.

The pandemic, resulting economic fallout, and dramatic changes to our lives have inevitably exacerbated peoples’ anxieties and feelings of hopelessness. As we move into cold weather, with no end in sight to the need to socially distance, this promises to be a particularly dreary, lonely winter. Mental health support will be more necessary than ever. In 2019, 73% of large employers provided virtual mental health services. That number will increase to 91% next year, with 45% of large employers also expanding their mental health care provider networks, making it easier for employees to find the right the therapist or other mental health service provider, and making it easier to access those services from home, virtually.

In addition, there will be a 20% increase in employers offering virtual emotional well-being services. Altogether, 9 out of 10 of the employers surveyed will provide online mental health resources, which, besides virtual appointments, could also include apps, webinars, and educational videos.

There has also been a slight increase the availability of on-site clinics that provide coronavirus testing and other basic health services. This also included an expansion of resources for prenatal care, weight management, and chronic health problems such as diabetes and cardiovascular disease.

These improvement won’t come free of charge. While deductibles will remain about the same, premiums and out-of-pocket costs will increase about 5%. In most cases, employers will handle these costs, rather than passing them on to employees.

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