Economic News
What the future of real estate brokerage will look like
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!
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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).
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.
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.
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.
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.
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.
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..
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.
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!
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.
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!
BawldGuy
January 23, 2011 at 6:39 pm
John — that may be mutually true. I’m laughin’, as I’m in the Steelers’ corner. 🙂
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.
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.