It’s obvious that the real estate industry is changing. And it’s changing more rapidly than ever before. But where is it going? And where does it need to go?
I touched upon things such as Barrier To Entry, Oversight and Enforcement in part one and Technology and Marketing in part two of this three part series. In part three, we deal with the brokerage firm business model.
Past and Current
The current brokerage firm business model has been around since the 1970’s. It’s focus is on,
- high commission splits
- tons of junk fees
- brick-and-mortar offices
- branding the brokerage, not the agent
- little support or supervision
- little to no real sales, business or technology training
- having a large number of agents regardless of quality
Despite changes to the real estate industry and the way business is conducted, brokerage firms are doing whatever they can to hold on to their old ways of doing business.
There’s a problem with that philosophy…it’s not working anymore.
Ashfaq Munshi from Inman said it well:
“Quit what doesn’t work and start reinventing things that do.
Seth Godin covers this practice extensively in his book, “The Dip,” and nowhere can it be more appropriately applied than to today’s brokerage model, which is running full steam on yesterday’s expense engine. Brokers are struggling to stay on top of their business, as the cost of maintaining failing operations add insult to the injury of the declining economy and stagnant housing market. Many brokers are in need of a new direction to help them through the remainder of this housing recession.”
Brokerages gouging agents for every penny possible in the form of commission splits, desk fees, processing fees, “communication” fees, “consortium” fees and other junk fees are over. Brokerages that force their agents to charge consumer transaction fees, on top of commissions to support top and middle heavy company structures are dinosaurs and will become extinct.
The future brokerage involves a flat “per transaction” fee only. It also involves ownership opportunities in the brokerage itself (and I’m not talking about multi-level marketing). Future brokerages will have very few, if any offices at all, with agents working out of their home office.
Costs are not the only reason why things must change. Consumers are focusing more on what the individual agent has to offer, not which brokerage firm they’re with. Consumers are looking for individual real estate experts more so today than ever before. This is why to be truly successful, brokerage firms must shift their focus from just having the greatest number of agents to having the highest quality and type of agents. Here are some of the benefits of focusing on quality versus quantity:
- High quality agents will most likely have a higher than average number of transactions.
- High quality agents will be less likely to quit real estate in the near to mid-term future despite a weak real estate market.
- Having high quality agents be a part of the brokerage will lead to more high quality agents joining the brokerage firm (birds of a feather…)
- Whether the individual agent is a real estate expert is much more important to consumers than whether the brokerage firm’s office has “X” amount of agents or how many signs in the ground the brokerage firm office has as a whole.
- The word on the street will be that your brokerage firm focuses on high quality agents and higher level of service than competitors. This will be heard and noticed by consumers as well as new potentially high quality agents coming into the business.
- High quality agents tend to spend little time in the office and many work from home reducing your overhead and need for office space.
- High quality agents tend to be less of a liability and cost to a brokerage firm.
Notice that I also said “type” of agents. What I mean by that is that being a “top producer” does not make you a high quality agent. Being a “top producer” just means that your sales volume is high. Being a high quality agent means that you have more production than the average agent plus you’re ethical, involved in your community, continuously educating yourself, helping others and you’re not just a “hard sell” salesperson, etc.
The future brokerage model consists of “co-opetition” versus competition amongst their agents and brokers. It has a heavy focus on relevant and up-to-date training. It holds the agent to a higher standard. It’s focus is on high quality agents, not top producers. And it has zero tolerance for those who are unethical.
Marc Davison of 1000Watt Blog summed it up extremely well in one of the best posts I’ve ever read regarding the future of brokerage firms.
What’s it called?
“White Label Brokerage” – and it’s a paradigm shift in real estate brokerage. It has an agent-centric versus broker-centric focus and a fee structure that does not interfere with an agent’s business focus. It allows agents to brand themselves, the team to brand their team, and the small brokerage office brand their own company name.
It’s not about the big broker and the brokerage firm’s name and ego. It’s about the agents that do all the work and deserve the recognition. After all…without the agents, there would be no brokerage firm.
Agents who are or intend to be the best professionals in the industry will recognize the financial advantages of this new model as well as the freedom and control it will give them. The freedom that the current brokerage model refuses to embrace is the basis of the future “White Label Brokerage” model.
Someone once told me, “Business has room for both ego and income, but the more you have of one, the less you can have of the other.” Brokerage firms of the future will be focused on branding and truly supporting their agents (income) rather than branding themselves (ego) and gouging them for junk fees while offering them crappy training and little support.
December 1, 2008 at 9:44 am
Hmmmmm….I sorta agree. I think the future is not necessarily agent or broker centric…the future is consumer centric.
What does the consumer what? Honesty, deliver what you promise, results, value, expertise? There’s reams of surveys to figure it out, plus personal experience.
The tools, training, support, leadership, evolution, revolution will naturally progress (albeit glacially for most). Smart brokers will provide the agents with what they need to deliver a consumer centric experience….not an agent centric (I’m number one, blah, blah), not a broker centric (we’re number one, blah, blah). Of course to attract agents who can and will deliver what “consumers” want will require a broker to fairly compensate agents, equip them exceptionally and actually lead, not follow, or do it like they’ve always done it. A tall order.
The real challenge is getting both agents and brokers to focus on the consumer instead of themselves….no easy feat. In these stressed times people generally flinch and revert to their core comfort zone of safety and do more of what brung’em, even when it works poorly.
Great series of articles…rock on Icon.
December 1, 2008 at 11:42 am
Ken – I agree that being consumer-centric is key, but that’s where the agents come in. The brokerage firm should be focused on the agent and helping them become consumer-centric through training, support and helping create a consumer-centric mentality and philosophy.
And thank you! Appreciate you reading them and sharing your thoughts!
December 1, 2008 at 2:38 pm
I like it! Are you starting such a firm?
December 1, 2008 at 3:59 pm
The term “agent centric” is certainly not new, I’ve been hearing the term for a couple of decades. Actually, the existing busines models for most brokerage companies are just that – agent centric. The fact is the consumers don’t care whether the company or agent is agent centric, broker centric or multi-level, all they care about is whether they are getting as much for their money as possible. The agent is required to take the broker’s brand by state law, so to try to brand themselves as something different usually only succeeds in confusing the consumer.
I believe the better way of accomplishing differentiation is by the agent creating their own identity within the brand. If you are not proud of your brand, get a new one, that’s easy to do. Next, use your brand to help you create your own identity within that brand. Find a point of differentiation and then market it like crazy.
Whatever your differentiation is, if it’s not consumer oriented and consumer centric don’t bother.
December 1, 2008 at 4:34 pm
Candy – No, I haven’t started one. But I’m a part of one.
Neal – I would disagree with you that the current brokerage firm model is agent or consumer-centric.
If your brokerage firm requires that 2/3 of your yard sign be made up of the brokerage firm’s name or symbol, how is that anything but broker-centric? The law states that your firm’s logo by on adverstising and marketing material, but it doesn’t state that it has comprise at least 2/3 of the sign of be plastered all over the material. That’s the brokerage firm’s requirement.
I agree with creating your own brand and identity within your brokerage firm, but none of the big brokerage firms look kindly upon that (I know first hand). And it has nothing to do with “confusing the consumer” – the consumer is much smarter than most brokerage firms lead their agents to believe.
December 1, 2008 at 4:36 pm
Btw…sorry for the typos.
December 1, 2008 at 8:08 pm
I believe my broker is a good example of the broker of the future. They’ve been recognized nationally as being on the forefront of innovation. They are VERY good at training – even have a separate full-time training facility. They have high standards for us and A LOT of services for our clients.
Oh, BTW, many of us work from our homes because it’s so easy with our broker’s intranet. And if we do need to meet clients in an office, we can go to any of the local bricks-n-mortar offices all around town that are convenient for our clients. I couldn’t imagine hanging my license for a lesser broker.
December 1, 2008 at 8:46 pm
Just a short comment on one line you wrote re: the multi-level marketing model (not being what you advocate.
In Florida there are a disturbing number of variations being tried right now that are close to straight multi-level marketing models. I will not name names in your space, but I hope our legislature and or the FREC takes steps to stop this trend. RE folks are already fighting an uphill battle regarding the public’s perception of them, mutli-level (schemes?) will not help!
December 2, 2008 at 3:18 pm
“There’s a problem with that philosophy…it’s not working anymore.”
Except that it is, else these companies would cease to exist. And they don’t.
December 2, 2008 at 4:17 pm
Elaine – Glad your broker “gets it” and that you’re working with them!
Steve – Most agents and brokers know who those firms are.
Jonathan – Some are ceasing to exist and many are faltering. Big brokerage firms are closing offices across the DC metro area, managing brokers are losing their positions because of it, some firms are increasing agent’s fees, etc.
You seriously think that the brokerage firm model that’s been around since the 1970’s will never change? I respect your opinion (and have followed you for a long time), but I stronly disagree with you on this one.
In fact, I believe that it’s the “it won’t change” (or sometimes “we don’t want to let it change”) mentality that’s gotten us where we are. It’s one of the main reasons why the RE industry is way behind most industries in innovation and efficiency.
January 29, 2009 at 10:33 am
I’m looking to get started as a RE agent. I’ve worked in homebuilding for years and want to make the move to RE. What advice can any of you give me as far as education (where to go or not to go) or any other tidbits you’d like to share?
January 29, 2009 at 5:38 pm
Jill – Not sure about where you are, but in VA, you basically need a pulse and a few hundred dollars to get your RE license. And the classes you take don’t teach you anything that you really need to know about being a succesful RE agent/RE consultant.
To do that, I recommend finding a good broker and/or a mentor that will advise you and help you. Some recommend getting designations such as ABR and GRI that will teach you things you that will help you succeed.
And never be afraid to ask a question – it will help you succeed and keep you out of trouble with your clients, your state RE board and keep you out of court.
Other than that, surround yourself with successful agents that are humble and willing to give you advice should you choose to ask for it.