When real estate markets get hot there are three things you can count happening:
- There will be downward pressure on the professional fees sellers are will to pay Realtors to sell their home.
- The number of licensed real estate agents swells to epic numbers because outsiders see what they perceive as a chance to make some “easy money.”
- 100-percent brokerages appear on the landscape courting agents with dreams of a business with all profit and no expense.
What is a 100-percent brokerage?
According to CommissionTrac, RE/MAX was the first to launch the 100-percent model decades ago, which allows agents to keep 100 percent of their commission rather than your typical split where the brokerage takes some portion of the agent’s commission.
If seller commission expectations and a worsening “listing-inventory-to-agent-count” ratio have you thinking about moving to a 100-percent brokerage with the idea that change would lead to higher net income, here are some things that you ought to be considering.
Too good to be true?
First remember the adage “If it sounds too good to be true …” No business survives by spending 100 percent of revenue on wages or labor costs.
The 100-percent commission brokerage has a plan for profiting off your efforts, it’s just not as obvious a traditional split brokerage model.
To know what that plan is you have to ask the right questions:
- If you paying me the entire gross commission, how do you make a profit?
- Are you going to charge me a desk fee?
- Will you charge my customers a transaction fee? How much? What if they refuse to pay it?
- Do you charge me for E&O (errors and omissions) insurance? How? How much?
Give and take
Second, if the 100 percent brokerage is running on the razor thin margins, they would want you to believe they are they simply might not be able to provide some of the things that your current broker does that support your business.
Consider asking these questions:
- Do you have a physical office for me to work out of? Where is located?
- What is your broker- or manager-to-agent ratio?
- Will I have broker access evenings and weekends?
- What kind of training do you offer?
What will you lose?
You may also be enjoying other benefits from your current broker that you will lose access to, and you will need to replace them with something else that ultimately you will have to pay for.
- What kind of marketing tools do you offer for me? What is the cost?
- Do you give me an agent website?
- Do you give me a customer relationship management platform (CRM)?
- Are you part of a relocation or other referral network?
‘Guilt by association’
There’s another adage to remember in addition to the following:
- Brand matters: My friend Dean Foerster, at Better Homes and Gardens Real Estate – All Seasons once told me: “I live in an upscale neighborhood and almost none of the listings here have a 90 percent-plus commission model name on the sign. My neighbors don’t want the other neighbors to think that they hired the cheapest company to sell their home. When you go to one of those companies, you are likely to miss out on some of the highest paying listings in the industry. Ironically, I see the 100-percent commission company’s listing in the lower priced markets.”
- Experience matters: If you are meeting your customers at local doughnut shop and writing contracts on the hood of your car because your broker does not have credible office or it is located in another market that is an experience, that reflects on you.
- Your colleagues matter: You might never see them, but you are judged by your associations. Your reputation is only as good as the worst agent at your brokerage. As with any brokerage, if a consumer has a bad experience with an agent at “Thrifty Realty,” the consumer now believes that every agent at the company is bad. So, it’s fair to ask the 100-percent broker a few more questions:
- How many of your agents are in the top 25 percent in my market?
- How many agents do you have?
- What was the average gross sales volume of your agents in my market in the past 12 months?
- How many agents have been associated with your firm for more than a year?
- How many agents left your company last year?
The largest 100-percent company with agents in my local market has 35 agents, according to Broker Metrics, only two have sold over $1 million in real estate in the past 12 months, only six have sold at least $500,000, and nearly half have no sales at all.
What that tells us is that the majority of the agents attracted to that model are inexperienced, part-time or otherwise unsuccessful real estate agents.
Again, Foerster put best when he said: “You can’t usually save your way to prosperity.”
When the market inevitably softens, that will all change again.
- Homeowners frightened by declining home values realize homes don’t just sell themselves, and they rediscover the importance of hiring a skilled, experienced real estate professional and a brand they recognize to represent them.
- The herds of fast money seeking amateurs retreat to their hourly wage jobs and leaving many brokerages looking like abandoned boom towns after a gold rush.
- For the agents who remain, there is flight to safety back to brokerage models who support agents with more than just high splits.
There is something to be said for stability and survival in all market conditions. Remember, the grass is not always greener.
Kendall Caputo is broker-owner of Flagler Beach, Florida-based Better Homes and Gardens Real Estate Synergy. Connect with him on Facebook or follow him on Twitter.
