A Peek Inside One Real Estate Brokerage Model

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Disclosure: I need to be careful here and not get myself sued or slapped with a Code of Ethics violation. Hence the complete lack of individual and company names. Any exchanges that have taken place via email, Facebook, or smoke signal have been paraphrased. What follows is simply my thoughts on a prevalent real estate brokerage model. I’m not singling out anyone, so please don’t ask. Trust me when I say there are a LOT of real estate brokerages that utilize a business model similar to what I’m about to discuss. There are countless variations, but you’ll get the gist of it…

Also, let me make it perfectly clear from the get-go that Thompson’s Realty does not subscribe to this particular brokerage model.

The Hire Anyone With a License and a Pulse Model of Real Estate Brokerage

I was approached yesterday by someone I have never heard of. They are a multi-state “virtual” real estate brokerage considering expansion into Arizona. They were looking for help in “driving their name” within the area.

Why they were asking me, the owner of a small independent real estate brokerage, to help them increase their name recognition is beyond me. So I expressed my confusion to them. After all, why would I want to drive clients and real estate agents away from my brokerage and toward some other brokerage? That just does not compute. It’s been awhile since I was in college, but I’m pretty sure in Business 101 the professor said something about not handing your business over to someone else. Or maybe they didn’t say that outright because basic common sense would dictate that it is a bad idea to send your clients, potential customers and employees to a direct competitor.

Their response to my, “I’m completely confused” email made these points:

  • We are a virtual brokerage. (So? As are we. What this has to do with anything, I have no idea.)
  • We aren’t interested in clients.
  • We’re in the agent hiring business.
  • Our model isn’t based on agent production.

So what we have here is what I not-so-fondly refer to is the brokerage model of hiring anyone with a real estate sales license and a pulse. If you have a license and can fog a mirror, you can work there.

Sadly, this is nothing new. It’s been around for ages. Brokerages charge their agents monthly fees, regardless of whether they sell a home or not. In fact, I’ve had brokers that run their business like this tell me, “I prefer it if my agents don’t sell anything. It reduces my liability.”

Think about that.

A real estate brokerage that isn’t interested in clients, and doesn’t care about the productivity of their agents. In fact, they may prefer if their agent never sells anything.

If you are a real estate agent, why in the world would you want to hang your license there?

If you are a home buyer or seller, why in the world would you chose an agent from that brokerage? If you are currently using an agent, DOES your agent work for a brokerage like this — a brokerage that isn’t interested in you? Do you even know whether they do or not?

It boggles the mind. (Well, at least my mind.)

I understand the model. The math is simple. In this most recent exchange, the aspiring brokerage has a commission plan that charges their agents a flat fee of $200 per month. That’s $200/month whether they do five transactions, or zero.

$200/month times 100 agents = $20,000/month = $240,000 annually. Sure, there are some expenses, but as this is a virtual brokerage, they don’t have the single biggest expense traditional brokerages incur — office space and its associated overhead.

Hire 500 agents and you can gross a cool $1.2 million a year.

All without having an agent help a single home buyer or seller…

I understand it, I just don’t get it.

Maybe the reason it works, and is so prevalent, is that real estate buyers and sellers aren’t even aware of the practice. Or maybe they are aware and they just don’t care.

Not being aware makes sense. Real estate brokerage practices are often shrouded in mystery (maybe when a business person readily admits that they don’t care about clients, they would rather people not know that?). Not caring though, makes no sense. I’m firmly on the record saying that consumers pick agents, not brokerages. It is the agent that matters most to the home buyer or seller.

But the brokerage still plays a role in the real estate transaction. They (should) play a huge role in hiring good agents. One would think the typical home buyer / seller would rather have a good agent working in a good support system. That’s not to say that there aren’t some terrific agents found in License and a Pulse brokerages. Of course there are.

Which begs the question, why would an agent work in a brokerage that doesn’t care about clients, or their agents productivity. Why work in a brokerage that, “is in the agent hiring business”?

I suppose if one needs zero broker support, then all that matters to the agent is low out of pocket expense. But that only works if you place no value in working with a group of like-minded professionals and finding that can actually help improve your business.That works until consumers come to realize that maybe their agents brokerage affiliation does make a difference.

I’m just not sure that day will ever come.

Raising the Bar

I’m a member of a very active Facebook group that consists of real estate brokers and agents who would like to “raise the bar” in real estate. There are a lot of discussions in that group about licensing requirements, broker / agent actions and expectations, and other things that could be done within the real estate industrial complex to raise the bar in real estate. To change public perception of real estate agents. To ensure professionalism within our industry.

Sure, it’s stupidly simple to get a real estate license. If you live in Arizona, you can pay a “real estate school” for 90 hours of classes (some have 10 day licensing courses), take a couple of relatively┬ásimple exams, write more checks to Realtor associations, MLS’s, brokerages and the like and start a real estate career. Yep, 10 days and several hundred dollars from now you too can sell someone a home. In and of itself, the absurdly simple licensing requirements place “the bar” pretty damn low.

But raising the bar is going to take a whole heck of a lot more than making getting a license harder. It’s not easy, at all, to get a license to practice law or medicine. Or be a CPA. Of that, there is little debate.

My contention however is that the reason doctors, lawyers and CPA’s are considered professionals is not just because those licenses are difficult to obtain.

It’s what is done with those licenses that sets the bar. It’s what is done inside law firms, and hospitals, and accounting firms and offices that set the bar in those professions.

How many professional firms are out there that for all practical purposes proclaim in public that they aren’t interested in clients and don’t care if the doctors, lawyers and CPAs do any business? Is there a hospital out there that wants less liability and prefers if their doctors don’t see patients?

I think not. And if there was, I sure would want to know about them so I could ensure I never used their services.

If the bar is to be raised in real estate, it has to start with the brokers. Stop hiring anyone with a license and a pulse. Get out of the “agent hiring business.” Hire good, professional, ethical agents. There are plenty of agents out there that fit that criteria.

Sadly, I can’t see this happening in my lifetime. Hopefully I’m wrong, but I see no indication that I am.

 

Photo Credit: brykmantra on Flickr. CC Licensed.

 

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About the Author
Jay Thompson

I'm a real estate broker in Phoenix, Arizona and the publisher of the Phoenix Real Estate Guy blog. I tend to drive too fast and scream at the University of Texas and Denver Broncos football teams. My two kids are smarter than most adults I know and my wife is simply amazing.

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