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Will Real Estate Ever Have a 900 Pound Gorilla?

Big Ape Realty

Some fantastic viewpoints lately about the future of the residential real estate business.  A few see our business becoming more “agent-centric”.  Others see it becoming almost exclusively “broker-centric”: the big broker brands will dominate by being consumer-centric. 

Really?  What big brand?  Is there even ONE big brand that has a name (a brand?) that means anything to anybody?  The only national “big brands” that the agent public or the general public even thinks of as representing much of anything is either a discount company or a “100% company”.  What one company is the most well known, most well thought of (by agents and the public)?  That would be Re/Max, a 100%, agent centric company.  What other company is going to pass them by?  If anyone can and ever does, it will be Keller Williams, an even more agent centric 100%company.  In a buyer’s market, there is no discount real estate company that is ever going to dominate any city or area, let alone, the country.

Take what is currently, factually, the really biggest real estate company in the world, Realogy: other than Sotheby’s what brand do they have that matters?  Try none for an answer.  What meaningful difference does the general public or even the agent public see between Century 21, ERA, Better Homes & Gardens, or Coldwell Banker (just to name a few)?  Which one of those is a “good brand”?  (yes, yes, I know, Coldwell Banker is supposed to be their “premier brand”)

Is Coldwell Banker a better brokerage firm to the public than Century 21?  Do people across the nation think to themselves, “It would be so great if we could buy our next home from a Coldwell Banker agent”?  Ever?  Does anyone, anywhere, ever think that?  How about, ERA?  Does anyone say,”I only want to do business with an ERA agent”?  If not, what are those “brands” worth?  Not much.  Why?  They don’t stand for anything.  To matter, a brand must mean something in the mind of the public and few national real estate firms have ever done that and then managed to hold on to their position.  Century 21 did it years ago, they were the number 1 company in the world.  Re/Max passed them and started claiming number 1 in their ads too.  They even went to court to get C21 to stop making the “We’re number 1” claim.  Re/Max won.  They kept their position by attracting more and more agents with their name (which does mean something to the agent public and the general public).  In terms of brands (which is what it would take for a company to “own” a market – have a brand that was perceived as desirable by the public) Re/Max probably has the “best brand” in the United States.  I don’t know of any cities or states where they “own the market”.  Why not?  Being “Number 1” isn’t enough.  The buyers and sellers will still choose to do business with that incompetent relative who just entered the business.  Over the years, those agents (they’re in, now they are out) – on the average – will sell three houses before they leave the business.  That is three sales I didn’t get.  You didn’t either and it isn’t going to matter much what scripts you use.  Their “brand” of I-know-you must be senior to someone being number 1.  Or any other number.

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What is the difference between ERA and Better Homes and Gardens?  Other then the logos and phone numbers, is there any meaningful difference that anyone would ever really care about?  By the way, this is the very same problem that General Motors achieved for themselves with their brands (why yes, as a matter of fact, they have also run their big company into the ground and are currently broke).  What is the real difference between a Buick, a Chevy, an Oldsmobile and a Cadillac?  Not much, it seems.  You can buy cheap Cadillacs, an expensive Chevy, an Olds that costs more than a Cadillac.  All mixed up.  All standing for nothing.  The only brand General Motors has where they name actually means anything is Corvette.  Corvette actually stands for something and is a “valuable brand”.  The others, not so much.  You can also see this nonsense at work from the executives at Volvo: Volvo = safe.  So, brand-wise it is beyond stupid for them to have a convertible or a “sports model” Volvo.  Currently, Volvo is trying to change Volvo = safe to Volvo = life.  It is a stupid strategy and will fail.  If they continue in that direction they will crap on their brands the way General Motors has crapped on theirs.

If we shift the discussion to a local one vs. a national one it can change completely.  Are there companies that dominate their local markets?  Or a segment of that market?  Absolutely.  But it is accomplished by representing something.  Something that is wanted and needed currently by that public in that area.  The same thing is true for an individual agent.

In some of the posts on various blogs and also on Inman there has been discussion of IDX vs. VOW and how perhaps a national MLS is needed and that some fantastic company using really wonderful technology is going to attract loads and loads of business, pay the agents less and sort of take over.  I contend that if such a thing were possible it would have already happened.  Zip or Redfin would be making a ton of money (instead of endlessly feeding their companies with investor capital that is not likely to ever come back to them).  I don’t think it makes any difference to any big company if only IDX or only VOW is used.  About the only people who it will ever make a significant difference to are those agents (not “companies”) who primarily work buyers.  They use other people’s listings (via IDX or VOW) as bait to attract buyers who aren’t working with any agent yet.

Desk-fee agents are not only not going away, they ARE the future of our industry.  Don’t believe it?  Look at the actual trends for the past decade.  Our industry is shifting from a totally broker-centric model to 100% companies.  Right now, in most parts of the country it is the big national 100% companies who dominate (in terms of numbers of agents).  Take a closer look at where 100% started (Phoenix) and you see a very different picture: most of the agents are with 100% companies and the “traditional” companies have changed their splits to the point that they may as well be 100% companies.  But it is the less well-known 100% companies that have the largest number of agents.  Hint: they charge less.  A lot less.  My prediction is that these companies and teams of agents (with a rainmaker, mentor) are the future of our business.  We will have fewer agents and I believe that is a good thing.  A very good thing.

Thanks to Michael Wurzer for his post which got me to write this one!  And to Al Ries for helping me to actually learn what branding really is.

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Written By

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.

17 Comments

17 Comments

  1. Todd

    December 12, 2008 at 8:16 am

    The NAR monopoly won’t survive the next administration. Lobbyists and cronyism will meet their fate sometime after January 20, 2009.

    Will the NAR gone, the vacuum will not be filled by just another bloated, corrupt operation – it will be filled with a million niches.

    State issued forms/contracts and listing data will be freely available as Open Source via the pure necessity of 2009’s massively scaled back economy.

    The real question is what technology, or “connective tissue” if you will will, will bind the million niches together?

  2. Thomas Johnson

    December 12, 2008 at 9:04 am

    Russell: At ERAHouston, we will sell your house or ERA will buy it. That is a difference.

  3. Jonathan Dalton

    December 12, 2008 at 10:58 am

    With all due respect, TJ, that’s not specific to ERA. There are non-ERA offices here that will make the same promise.

    The numbers are from RE/MAX International so do with them what you will, but nationally the company has around 6% of the agents and around 27% of the market share. One of the big differences between RE/MAX and other 100% shops is RE/MAX generally doesn’t pursue agents straight out of real estate school.

    End of commercial.

    I’ve said in other comments that the thing I look at now is whether my association with a company is a net gain or loss to my own bottom line. Thanks to no-strings floor calls that have led to a couple of transactions, I’m at a net positive for the year. Couldn’t say that where I was before where I made as much for the company as I took home myself.

    As long as there’s a financial net positive then I don’t have much of a reason to go indy.

  4. Michael Wurzer

    December 12, 2008 at 11:02 am

    Thanks for the reference, Russell. Here are a few questions I have:

    1. What do you think about the idea of a “white label” brand, which provides some basic infrastructure (e.g., technology) but not brand presence?

    2. When you say desk-fee agents are the future, do you see them building their own brands within the 100% companies or more likely to strike out on their own?

    3. Where do you think technology decisions will most likely be made, at the franchise/company level or at the team level?

    Okay, so those questions all kind of skirt around the same issue, and the last is most important to me (as a technology vendor). I see this issue as one of the core strategic questions facing both real estate sale professionals and technology professionals in the years to come.

  5. Jim Gatos

    December 12, 2008 at 11:57 am

    Thomas.

    How many homes exactly has ERA bought? Since they first started?

    How much do they pay? Do they pay the original asking price? Do they pay a discounted price? What exactly is it? I heard many stories.

  6. Matthew Hardy

    December 12, 2008 at 4:12 pm

    @ Todd “The real question is what technology, or “connective tissue” if you will, will bind the million niches together?”

    It will be niche-level interoperable systems – not top-down systems.

    @ Michael Wurzer “… white label brand… provides some basic infrastructure (e.g., technology)… do you think technology decisions will most likely be made, at the franchise/company level or at the team level?”

    Absolutely at the agent/team level. Many in real estate are wising up to the fact that most vendor-hosted systems are designed to keep agents captive. These large data repositories are amassed to serve the vendor, not the agent. I know regional managers at national real estate companies who use their own, private database systems even while the corporation they’re affiliated with push “approved” systems focused primarily on agent retention.

  7. Missy Caulk

    December 12, 2008 at 8:38 pm

    My husband and I were talking about this at dinner being from Michigan. What is the difference between a Buick, Chevy and Oldsmobile?

    I started at a traditional co in 1995, moved to Remax for 12 years and been at KW for one yr. Having been to both international conventions, and used both brands, their back end intranets etc…

    There is not a lot of difference, the desk fees were similiar. KW has better training for new agents, live training and Remax has RSN, which no one ever watched where I am from.

    Ok to the point…I have not done floor in 7 years, and I expect nothing from my Broker except to be there if I have a question. I run a team of 7 and we like to just do our thing. At this point I am apart of a big brand because I don’t want to run my own office, E&O, Journals etc…

    I have seen many agents in my area, going on there own the last couple of years. I could do that, but I just don’t want to and I have the best manager (TEAM leader) than I have ever had.

    But, I don’t depend on them for the leads.

    I have office space there for like a central gathering place and for our assistant but I HATE to go in. I am always pulled aside and asked how to blog, how to do FB, it is just too much.

    Like you said, most of the traditional companies in my area have moved away from the 50/50 split.

    Sorry this is so long. Interesting discussion.

  8. myrtle beach apartments

    December 13, 2008 at 12:37 am

    i don’t think so, it seems most people are not really concerned with a name brand any more

  9. John Kalinowski

    December 13, 2008 at 3:43 am

    Russell, in the Cleveland area, the RE/MAX offices seem to be going the opposite direction. It was a great concept when the market was booming, but in hard times the agents are making a lot less money, and many of them aren’t paying their monthly office bill (or “desk fee”). Some of these offices have their splits so high (95-99%), that they depend on the monthly fee and transaction fees to survive. Not to mention that their business plans depended on the agents pouring tons of deals into their in-house lending and title partners. Agents have their own relationships, and just don’t seem to use the broker’s partners, and the brokers have no power in pushing the agents to use them since they brought them in under the concept of doing business “your way”.

    Most of them are also sitting on expensive office leases, as they originally thought they were going to make a fortune renting desks and small offices to the agents. The fact is, most of those big offices are sitting empty, as the agents started cutting back and working from home. That revenue stream also dried up.

    All these things seem to be the “perfect storm” for RE/MAX that is putting many of them on the brink of going under, even though most of the agents are clueless. It’s a scary situation, and I wonder if other offices across the country are in the same boat, or is this just a Cleveland-area predicament.

    Jonathan said that RE/MAX “doesn’t pursue agents straight out of real estate school”. That’s the company line, and most of the agents drink the Kool-Aid, but I’ve seen just the opposite in the last three years. The corporate “planners” have saturated areas with too many RE/MAX franchises, to the point where they started competing with each other to see who could get the most bodies. It doesn’t seem like they have any real criteria for who they will take any more, and started signing up anyone who would join. They also seem to revel in stealing each other’s agents, which makes no sense to me, and just cheapens the brand.

    The “100%” concept has even started disappearing, with most of the offices going to 70/30 type plans, with a smaller monthly cash payment, in order to bring in more agents who couldn’t afford the larger monthly fixed payment that allowed them to be on the 95% plan that is offered by most offices. The 100% pretty much no longer exists, as most of the RE/MAX offices went to a 95% plan that supposedly sends 1% to corporate and 4% to the broker, as they simply weren’t surviving on the 100% concept.

    This is what I’ve found with RE/MAX: Once you subtract the RE/MAX monthly, annual and transaction fees, and the 1-4% taken off the top, then deduct the amounts you spend out of your pocket for advertising, signs, etc., that is normally paid by the lower split companies, you really end up at what amounts to about a 50-60% split. The 100% concept is all smoke-and-mirrors. No matter how you slice the pie, there’s a cost to doing business that has to be paid one way or another.

    I’m not sure where all this is leading, but unless the market starts booming again in the next 1-2 years, I personally see commission splits going the other way. High-split offices simply can’t survive on the low volume, when they need high volume to generate transaction fees and title & lender business to offset the higher split. Agents also can’t afford to pay the monthly “desk fee” (a real misnomer, since they really don’t get a desk, that costs extra) required with a high split. I think it will lead to agents willing to accept a lower split in order to get rid of monthly payments, particularly if their broker actually offers them something of value for the split they’re paying.

    Another little-noticed fact that came with the RE/MAX phenomenon was the downward pressure it put on commissions. Agents joined under the lure that they were now free to charge whatever commission rate they wanted, if they felt is was necessary to compete. Most of them came from offices that would not allow them to cut their commission from the typical 6-7% levels, especially without a call to their manager for permission. Suddenly they were free at RE/MAX to do whatever they wanted, and it was the RE/MAX agents who really started cutting commission in large numbers, even down to the 3-4% levels in ’05-’07. The funny part is, no one talked about it, and it seemed to be the “dirty little secret”, as everyone walked around pretending they were full-price agents. The fact that the average commission drifted down to the 5% levels in the last few years was caused, I think, by the rapid growth of RE/MAX across the country, and the ability for their agents to charge any rate they wanted, with no permission from their broker. Heck, most of the RE/MAX brokers never look at most of the listing contracts, or are even aware of what their agents are charging.

    Without a crystal ball, I guess we’ll just have to wait and see what the next few years bring.

  10. Roby Robertson

    December 13, 2008 at 11:54 am

    Very Interesting Article. I was a little confused by the last paragraph because in our Market ‘ Charlotte NC’, we have 100% companies that do not have desk fees and do not even have desks to pay for. They have community areas. One company in particular has close to 900 agents and is growing leaps and bounds with both productive and ‘part time’ agents that want little upfront cost and 100% + transaction fee. They basically have NO brand but the lure of $$ is bringing them in. I own a Real Living franchise that frees me to negotiate with agents on commissions. The brand is not nationally known yet but I believe it will be in the future. Our RE/MAX brokerages are losing agents because of the high desk fees even though the commissions is 95%. The brand is recognizable but maybe not worth 1600.00 monthly fees for some.

    Being a business owner I am not afraid to reinvent myself if it makes sense and is smart for the long term.

    Thanks for your thoughts.

  11. John Kalinowski

    December 13, 2008 at 5:01 pm

    Roby,

    Real Living just sold Realty One, which was the largest real estate company in Cleveland for years, to #2 Howard Hanna. Howard Hanna Immediately become the number one in our market, with about four times as many agents as the current number two, RE/MAX.

    Real Living/Realty One was the number one recognized brand in Northeast Ohio, and they were wiped off the map in one swoop. No one knows what or why, but rumor was they were struggling and close to bankruptcy, but of course that’s just a rumor.

    Up here RE/MAX charges you one fee for a “home office” and one that’s a little higher for an office in their retail space, plus a transaction fee, plus an E&O fee.

  12. Roby Robertson

    December 14, 2008 at 7:49 am

    John, we were told of the sale and it was obvously given a positive spin. I am sure the underlying reasons will stay with the executives.

    I still have very positive thoughts about the Real Living Brand.

    As for my market, in the last six years I have seen C21 and RE/MAX lose market share and agents. They are still big players but I was told 85% of the Real Estate companies in NC have 6 agents or less. That is a lot of small ‘mom and pop’ companies.

    Anyway, I research ways to grow all the time and I appreciate the thoughts given here.

  13. John Kalinowski

    December 14, 2008 at 8:43 am

    Roby, I do wish you the best of luck and agree that Real Living is a great brand. I think the Cleveland sale was a local event, and you’re right that we’ll never know the real reason why.

    Enjoy the holidays! – John

  14. Mark Brian

    December 15, 2008 at 7:10 pm

    I see people praising their own company, or their company’s business model. More or less shameless self promotion. But the industry is changing, and the change must be needed if the industry is being forced to change.

    Why any buyer would care which company the property is listed with is beyond me. The basics are still the same: price, condition, location, size, floorplan, amenities,etc, etc. Not which sign is in the yard.

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