Rethinking the impossible
People talk about raising the bar all the time and many, including myself, have placed that responsibility mostly on real estate brokers, and associations. The truth is, brokers are challenged with technological advances, shifting consumer demands, economical constraints, and growing pressure to provide more services and lower commission splits.
This seems like the normal challenges of any business in a modern economy, but the broker’s challenge has always been greater in that there is a leak in the model. The leak stems from the fact that their salesmen aren’t employees, they’re contracted labor. Ultimately, this means that many of the demands a normal employer would place on their employees, a broker cannot require without risk of qualifying the contractor as an employee, thus requiring the broker to provide benefits to the employee. This is obviously simplified, but that’s basically how it breaks down.
Loyalty between brokers and agents
Any Realtor in any city shows up to work when they feel like it, leaves when they feel like it, and can pretty much do what they feel like, including bailing on broker A for broker B at the drop of a hat. The loyalty factor seems low for brokers in general, in that there seems to be a broker in the wings ready to accept the influx agent to their team.
What’s the incentive to train or develop any agent when the loyalty factor is so low? And with an inability to place typical employer to employee demands on the agent, the writing is on the wall that brokers continue to be doormats. One agent I know has had three brokers in the past year, yet still there was a willing broker ready to sign them up.
The broker advantage
It’s not like the broker doesn’t have certain advantages, obviously they escape the need to present the contractor with the typical benefits an employee would receive, they don’t have to provide salary for under achievers, the door swings both ways and the loyalty factor to the contractor can remain low unless they’re a top producer.
The consumer disadvantage
What’s unfortunate about all of this is the consumer isn’t really left with much choice in the market place. If you pull the curtain back on this scene and consumers see the truth that there really isn’t much difference from brand to brand, the so-called real estate industry has a credibility problem.
The credibility problem is in the endorsement of the agent or the broker in either direction, neither really have a value proposition. The broker is not known for having the best agents in the business, nor are the agents with the best broker in the business, after all, the broker is expendable, right? So if you’re both expendable to the other, then ultimately your brands and services are expendable to consumer.
Folks can talk until they’re blue in the face about raising the bar, and it probably feels great to yell into the wind, but until someone patches the expendability issues between these two parasites, creating a true need for a symbiotic relationship, we will always have credibility issues with consumers.
One possible solution
One thought is the salary plus commission model that Redfin has in play. If you remove the discount from their model, and view solely their play in customer care and client care, you see that the model can work, they’re profitable and just turned five years old. The flexibility of the salary plus commission model allows the brokerage to expand and contract based on market conditions market to market, and in up periods, commissions expand with the market keeping salaried commissioned sales teams solidly in tact, as well as retracting allows the model to downsize just as any business would in a down cycle from market to market. Dead weight is shed off for the highest producing and strongest team players.
The value proposition within this model is brand loyalty from within, with team members working the phones and doing the business of the brokerage in shifts, executing proven sales systems with set expectations by the team managers.
Redfin is certainly not the first to look at this model, but they’re certainly the first to execute it, and they did it by raising capital. Their funding is what allows them to carry the costs that consumers do not understand is the value of the traditional broker. In a salary model, consumers would very quickly learn the value of the broker as they would now pay for this risk to be carried by the broker as a part of their service. Suddenly, the value of the commission in play is as plain as day in black and white. Certain states would have problems right up front as laws have been put in play to stop disintermediation of tradition, but these laws could quickly be reversed if the value for consumers is solidified by doing so.
How boutique brokerages would fare
Another added upside to this model is you would quickly see small boutique brokerages either fly or fail. Two things are in play, the top one percent of agents would certainly need a new broker as their business models depend on their ability to be independent, however, their income will not be enough to sustain a boutique as most top producers pay very little to hang their license anywhere.
The National Association of Realtors’ role
There has been some debate that turning to this model would begin to disintermediate the National Association of Realtors (NAR) from the membership at large and return it to a broker only club, but we suspect it would actually create newer and more exciting opportunities for NAR in terms of value to members.
Ultimately, turning freelance real estate professionals known as Realtors into productive salary plus commission employees satisfies a lot of what’s wrong with the so-called industry, but also creates new challenges and a new frontier. Until the broker and the agent see a real value in the other, you really cannot ever expect consumers to experience it.
Layoffs and a new value?
If a big box broker shifted to this model in the next five minutes, the first thing that would happen would be major layoffs of dead weight, keeping the brightest and best talent in house. A value would immediately be placed on the individuals left at the big box in terms of that base salary, and Monday morning, at 8am the brightest would show up for work ready to meet sales goals and expectations.