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What the future of real estate brokerage will look like

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The AG Flash Poll prompts this response.  Will the future have more “independent brokerages”?  Yes!  But that isn’t the whole story.  I believe what has happened in the Greater Phoenix Area over the past 30 years is exactly what will eventually happen in every major real estate market in the next 15 – 20 years.  Every last one of them – just like it happened here.  I’ll tell you why, why it happened here first – and you can forecast for yourself how long it will take to happen in your area.  Will independent “one man shops” or little boutique shops continue to sprout up?  Absolutely.  Will they ever make much difference or have much of an impact overall?  No, no really.  Impact comes from having LOTS of agents.  Not the number of “top producers” – simply the number of agents who are there, active in the real estate business.  The main obvious stat to measure the health of a real estate brokerage is: number of active agents.  There are many who believe differently.  Internal studies by large brokerages (franchises and independent) show that those beliefs are wrong.  Just like the “health” of an agent can be accurately forecasted  by the number of active listings – the future “health” of a brokerage can be seen by the number of active agents.

So what happened in Phoenix in 1965 that started “the change” I’m predicting across the land?

Realty Executives happened.  The visionary, Dale Rector had an idea: the 100% commission concept.  This was a real game changer of an idea for the industry.  Although Realty Executives dominated the Phoenix market for several decades it was an associate of Dale’s – the now very famous, Dave Liniger was sent to Denver by Dale to start a Realty Executives office there.  This was in 1973.  Dave decided he didn’t need to start an operation there for Dale – but decided to start one for himself, RE/Max.  Not only did RE/Max take the 100% commission concept across North America, they went on to take it across the world.  They even went on to pass Realty Executives in sales right here in their own backyard.

Although the big name, franchise companies are the only major players on a national scale when it comes to number of agents – here in the Phoenix area – all the big name companies are utterly dwarfed by the 100% knock-off brands.  Once it was obvious to those individuals who wanted to start real estate companies that the easiest way to attract agents was offer a higher commission split – the game was on.  By the late 70’s Phoenix had so many new low cost (less than $100 a month desk fee, with $150 coming out of your first closing each month) 100% companies that it was hard to keep track of them.  Like any industry, there were some companies that would thrive and prosper and others that would meet an early (broke) demise.

For the past 15 years the vast majority of Realtors in the Phoenix area have been with 100% companies.  Low cost 100% companies.  Over the years, almost all residential brokerage companies here have had to raise their commission splits or change to some version of the 100% concept, just to compete at all.  The company I have been with for 32 years, John Hall & Associates, was started in the late 70’s based on minimum broker expense, maximum commission to the agents.  Fees are higher today and much more in the area of broker support.  Currently with around 600 agents it is not a “large” 100% company – the “large” 100% companies here each have THOUSANDS of agents and the really big one has over 3,000 agents.  The Phoenix real estate brokerage market is now heavily populated by companies that charge as low as $25 a month (total monthly agent expense!) and they will take $200 – $300 out of each closing.

Even big national companies like RE/Max and Keller Williams charge agents much lower fees in the Phoenix market than they do in all of the other markets. 

Knowing what I have written above, it is not much of a stretch to predict that this will start (slowly, at first) to happen across the country.  The Los Angles area already has a few of the knock-offs – currently these offices can charge $400 – $500 a month to the agents.  My prediction?  Not for long.  In the future, any broker will have to either provide real, meaningful help and support to their agents or they will be in a commission price war (which they will lose) with a small army of one of the many low cost, low service (really really low service) new era brokerage firms.

Here is to what I believe will be a GREAT 2011.  Hope I haven’t upset anybody!

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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14 Comments

14 Comments

  1. Fred Romano

    January 20, 2011 at 1:30 pm

    Great post Russel! I agree with you that the agent fee model will take over the brokerage industry. I am considering adopting this fee structure to recruit agents here in the CT market. I think it may work well in combination with our Flat Fee “Full Service” alternate business model (still in the development stages).

  2. John Kalinowski

    January 20, 2011 at 2:54 pm

    Hi Russell! It’s hard to say where it’s going in the Cleveland area. The largest in our MLS is Howard Hanna with 2000+ agents, and they continue to be a 50/50 split type of company, with some agents getting better splits based on production, etc. They seem to be stuck with lots of low to no-producing agents and a few super-producers who likely have sweetheart deals. Keller Williams and ReMax have taken most of their mid to better-producers. They have lots of offices and I would imagine a lot of overhead to cover.

    The next largest is now Keller Williams with 800+ and they too are a split company with various programs, typically 70/30 or some similar variation that’s capped, plus other monthly fees charged to the agent. ReMax has fallen to third with 600+ agents. The funny thing about ReMax is that they have largely gone away from the 100% type of setup in our market. Depending who you talk to, they are typically either 95% plus some sort of monthly desk fee, usually around $1,000/month, or they have gone to some variation of a fee/split arrangement. One agent I spoke with had a 60/40 so it sounds like they’re going back to the old model since some just can’t make a profit under the high-split model, and the agents aren’t selling enough to cover a monthly fee.

    ReMax was the first serious contender to do the 100% concept in our area, but it hasn’t worked for all of them. My old ReMax went under last year and the owners were indited for supposedly stealing the Children’s Miracle Network money. They grew too fast, built out three expensive offices, and couldn’t cover the overhead. Another three-office ReMax is apparently in trouble now and being taken over by a different ReMax, so I really don’t know if the 100% concept is working here. Our average sale price is way lower than Phoenix, at less than $150k and our average commission is lower too. Man, I should move!

    I do agree with your statement that future brokerages will either have to provide more services or be stuck competing on commission splits. We’re in the more services category. Our splits are lower (we list them right on our site) but we do a lot for our agents, including free custom yard signs and websites, and we take their listing photos. The flip side is we charge no fees at all, just the splits. We don’t have retail offices, which keeps our overhead low, and of course it’s not the right setup for everyone, but we’re starting to grow so we’ll see how it goes in 2011.

    The part I can’t figure is if anyone’s actually making any money in our market any more. Our sales are down so much, along with average prices and commission, that when I do back-of-napkin calculations I often can’t figure out how most of the big brokers are even paying their rent. It will be interesting to see how things shake out in the next couple years.

  3. Ruthmarie Hicks

    January 20, 2011 at 7:28 pm

    I’m at Keller – which makes me an oddball. Most agents are mired in the world of 50:50 PLUS a franchise fee until a “Certain level” of production is met – that most will never come close to meeting.

    The brokerages talk a good game of misinformation. “You have to pay Keller $35k before you see any money!” Ah…..no…..It’s $35k to the office before you CAP. “They don’t give you leads!” Neither do they. Some of these brokerages have a really sweet deal where they put everything up on their site and if the 50:50 agent is lucky enough to get a referral – they want another 35%. Its extortionary but agents are putting up with it. The area has been very resistant to new models.

  4. Ken Brand

    January 20, 2011 at 7:57 pm

    It’s fascinating history. Taking the time to pause and ponder how things have evolved over the decades is super smart, thanks for sharing your take with us.

    When I look back, I see it as you do. I also agree with your take :

    “In the future, any broker will have to either provide real, meaningful help and support to their agents or they will be in a commission price war (which they will lose) with a small army of one of the many low cost, low service (really really low service) new era brokerage firms.”

    What’s in it for me, where is my true value and I have plenty of choice, is the way our culture operates these days, and it effects all business and services (including what each of us as real estate agents offers). Expectations are higher than EVER; anyone and any tribe that offers value as defined by their target clients will thrive. Crappy low-low fee + 100% will die, and so will crappy commission split brokerages who promise platinum support and services and deliver Paper Mache. Doesn’t matter which model you believe in or who you are, you better shine brighter, or bye-bye.

    Thanks for sharing.

  5. JIm Gatos

    January 20, 2011 at 11:29 pm

    “In the future, any broker will have to either provide real, meaningful help and support to their agents or they will be in a commission price war (which they will lose) with a small army of one of the many low cost, low service (really really low service) new era brokerage firms.”

    THAT’S exactly why I’m at Keller Williams Realty! They’re the ONLY company I’ve ever seen or been part of that TRULY provide any value at all, in the form of advice, education, and smart, sensible tools! Keller Williams Realty is the first national franchise company I know of that offers a complete, full blown CRM solution with electronic digital signature capability, on a national scale, through a new addition; “Eedge”!

    In another article you wrote Keller Williams Realty was on of the highest “agent centric:” companies you knew of. I totally agree.

  6. Russell Shaw

    January 22, 2011 at 5:39 pm

    I meant NO slight – of any kind – towards KW. Never have, never will. I have always seen them as the most agent centric national company to have ever existed.

    My point wasn’t to slight any company or business model but to point out that the 100% concept IS the future, regardless of the brand. It hasn’t happened everywhere yet and it might take another 20 years (Realtors can be really really slow on some stuff:-) but it will happen.

  7. JIm Gatos

    January 22, 2011 at 9:43 pm

    Never said you did.. I was AGREEING with your post.. according to your own words, I was trying to convey that KW IS in fact, one of the real estate companies that is “in the future”, today.. In my opinion, they GIVE value for the fees they charge their agents.. Putting your listings on the internet and relocation services are no longer great motivators or strong enough reasons for many good agents to be or stay with their old fashioned agencies. 100% and variants is the way of the future. So sorry my comment obviously came across the wrong way..

  8. BawldGuy

    January 23, 2011 at 3:46 pm

    Wonder where all those smallish indie brokers are, howling about how they’re gonna bring down goliath? 🙂

    Listings + Integrity + Consistent RESULTS always win.

    You write too seldom, Russell.

  9. John Kalinowski

    January 23, 2011 at 4:42 pm

    @Bawlguy – Kind of surprised to see you make such a back-handed comment toward the small brokerages. Don’t you write for one of those indie’s blogs? Funny that you should use the word “howling” since that’s what the blog you write for is built around. Why attack the little guy just because they are aggressive and want to go after the Goliaths? Just don’t get it. Every big brokerage started at one point as a small independent, and eventually did conquer the big guys. Remax and Keller Williams weren’t always giants. They started small, with big dreams, and thankfully didn’t listen to guys like you who put them down for wanting to take on the world!

  10. BawldGuy

    January 23, 2011 at 5:21 pm

    Hey John — First of all, you’re not even comparing apples and oranges, you’re comparing football and scotch. 🙂 Not sure where to start.

    1) “Don’t you write for one of those indie’s blogs?” Yes, in fact I do. What does that fact of life even mean? Nothing as it relates to my comment. It’s what I write that matters.

    2) “Funny that you should use the word “howling” since that’s what the blog you write for is built around.” Really? My blog talks of real estate investment strategies, and RE inv topics exclusively, with the rare as hen’s teeth exception of sports or something personal. I NEVER talk about brokerage models, even indirectly. “Howl?” Hardly, though every now and again I’ll go on a rant about something. My blog is built around knowledge, expertise, experience, and solid content. With all that, howling simply isn’t accurate, by anyone’s objective measure.

    3) “Why attack the little guy just because they are aggressive and want to go after the Goliaths? Just don’t get it.” No kiddin’ you don’t get it. 🙂 I’m not attacking ‘the little guy’, cuz after all, as you so correctly pointed out, I are one. I was alluding to those little indies who’ve been yappin’ like a bunch of genetically challenged poodles about how they, AS SMALL INDIES, were gonna drive BigBox brokerages outa business. They were supposedly gonna make that happen by way of their superior model. It hasn’t happened, and as Russell writes, it won’t any time soon. My comment was in no way a generic attack on small indies.

    4) “They started small, with big dreams, and thankfully didn’t listen to guys like you who put them down for wanting to take on the world!” Are you being intentionally obtuse? I LOVE small indies. What I can’t stomach are the ones who, in their self-made universe of superiority, declare the ultimate demise of the huge brokerages will come due to their ‘cutting edge’ efforts. As Russell points out so well, the scoreboard isn’t reflecting well upon their boasts.

    For Heaven’s sake man, Dad was the biggest volume per agent brokerage in San Diego County for just over half of the 1960’s till he retired. He started out as a one-horse, single office company in a blue collar part of town. Why on earth, with that heritage, would I be biased against small indies who wanna become huge indies? The answer, obviously, is that I wouldn’t. I love those success stories.

    Read my words, as I’m a firm believer in the axiom, ‘words mean things’. I write what I mean, and I mean what I write. I expressly directed my words to those indies who have and still are ‘howling’ about how they’re gonna be the ones providing the mortal wound to their BigBox competitors.

    So, when you read my words, you shouldn’t be surprised, unless that is, you wish to add your own interpretation to what I wrote.

  11. John Kalinowski

    January 23, 2011 at 6:34 pm

    Never mind Bawldguy, you missed my point, or I didn’t explain it properly. Time now to watch Pittsburgh lose. I hope!

  12. BawldGuy

    January 23, 2011 at 6:39 pm

    John — that may be mutually true. I’m laughin’, as I’m in the Steelers’ corner. 🙂

  13. stephanie crawford

    February 2, 2011 at 1:08 am

    My local boutique brokerage offers the best services around IMHO. Professional Photography for every listing, Automated Showing/Feedback center, free color printing, in-house flyer design, free website with IDX, Realtor.com enhancements, listing syndication, regular training, MS Exchange Server with smartphone connect, free tech support, and more. For this I keep 80% and pay about $145 a month in desk/tech/MLS fees. I can’t imagine doing business without these services.

  14. Joshua Jarvis - GA Realtor

    December 7, 2011 at 8:50 am

    Reading this for the first time at the end of 2011 and the statement about a few high-service support brokerages vs the no service brokerages seems to be accurate. It's funny though, I don't see top producing agents (outside a few REO agents) at these no-service company.

    One word: Leadership.

    There's not much leadership or the the things that go with it at these no-service companies (I had my license at one for 2 years).

    Great discussion from what looked a like a promotional article for John Hall.

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Economic News

How small businesses can keep up with the changing workforce

(ECONOMIC) Trade schools are booming as career outlook grows. College enrollment is down. The workforce is changing. How can small business keep up?

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Trade employees in the workforce

College enrollment has dropped off by three million in the last decade, with a drop-off of one million due in the last several years as a direct side effect of the Covid-19 pandemic. This phenomenon clearly does not bode well for the future of the United States’ economy and workforce, with students who attend low-income schools and come from low-income families being the most affected. These changes are disproportionately affecting students from low-income schools and families, the very people who need higher education the most, and are erasing much of the work done in the last decade to help close the income and race gap between students, colleges, and socioeconomic backgrounds.

Enrollment in trade schools is skyrocketing.

Recently, trade schools have seen a 40% bump in enrollment across the board. Many students are enticed by the fact that trade schools are affordable and offer a quick turnaround, with students paying $16,000 or less for their program, and their training taking a year or less to complete. Beyond that, those who complete trade school is all but guaranteed a job on graduation day. Their earning potential is often two or even three times higher than the initial cost of attending the program. As many have found, the same cannot always be said about those who pursue a college education.

While the average cost of college at an in-state and public institution hovers at around $28,775 per year (according to Forbes) and takes an average of four years to complete means that trade students have a cheaper educational cost, (between $16,000 to $33,000 for the entire program, or about equal to just one year of a public college tuition) can get work in their field more quickly, and can usually make more than their educational costs in their first year on the job. Tradespeople make an average of $54,000 fresh out of trade school, which rivals the role average college student’s first salary of $55,000. It’s no wonder so many people are choosing to forgo a formal education for trade school!

The almost insurmountable cost of college combined with ever-growing inflation and a lengthy list of requirements just to get a post-college job, all for a low salary and with students having hefty loans to pay back, also play a key role in the downturn in the popularity of college.

The implication of fewer college-educated people, however, means that over time, the United States as a whole could face an economic downturn, as it gives rise to many more blue-collar workers. This can irrevocably alter the makeup of the workforce. Despite current unemployment rates being among the lowest they’ve ever been, the American people are already starting to see a shift in the labor market.

Already, we see a strain in the labor market when 25% of skilled workers in the U.S. exited the workforce following the Covid-19 pandemic. The economy has become so highly specialized that if the U.S. were to keep up the trend of losing college-educated workers, there could irreversible damage to the United States’ economy, deepening the ever-growing divide between the middle class and the working class, further reducing the ability to affect the global economy, knocking the United States out of the classification of a “global superpower.” To make matters worse, much of the United States labor pool is outsourced, and we are seeing the rise of artificial intelligence and robotics taking over many jobs, especially minimum wage jobs. While none of these factors alone vastly affect the U.S. labor market, this is only the tip of the iceberg.

So what can employers do when the makeup of the workforce starts to shift?

Employers could shift the focus on the years of experience rather than the type of education the potential employees have, as well as offering more extensive on-the-job training, which is already commonplace in some industries. Even for those with a college education, the requirements for entry-level jobs seldom match the salary, with many employers requiring a four-year degree, two or more years of experience, and fluency in different programs which vary from company to company. Employers, if possible, need to offer higher salaries with fewer requirements, as many young people are finding the pursuit of college, plus the various other requirements just to be considered for a barely above minimum wage job, while they’re drowning in student debt fruitless, so they forgo college altogether.

A post-pandemic society looks vastly different, and employers must adapt to keep up.

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Economic News

Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

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Older man pictured in cafe with laptop nearby representing boomers retirement discrimination.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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