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Chris Heller is a household name at this point, at least in real estate circles.
Heller has run his own real estate companies, served as the CEO of Keller Williams and today is the chief real estate officer at OJO.
So as the housing market has spiraled into a new chapter, with spring seasonality running headlong into a hard preceding year, Inman wanted to know what Heller was thinking might happen next. And in an ensuing conversation, Heller argued that this is a pivotal moment not just for real estate generally, but for one of recent years’ key trends: Teams.
Indeed, Heller told Inman that teams have been getting — and will likely continue to get — bigger and bigger. And he described a convergence between the team and brokerage concepts, suggesting real estate entities that want to succeed going forward will need the agility and nimbleness that has lately been a defining feature of teams.
What follows is a version of that conversation that has been edited for length and clarity.
Inman: The market has shifted lately, so talk to me about the way the growth of teams is now intersecting with that trend.
Chris Heller: There has been a 20-year evolution of teams. And one of the things we’ve seen happen in recent years is that the size of teams has continued to grow. So we’re getting this blurred line between teams and brokerages, where you have brokerages that are now looking and acting like teams. There’s a phrase that has been thrown around in the last year or two, ‘team-rage,’ or the smashing of a team and a brokerage together.
There’s a lot of margin compression going on. And there’s a lot of increasing expenses and decreasing revenue from either downward pressure on commissions, or fewer transactions obviously this year compared to the past couple of years. Brokerages take the brunt of that. Good teams typically operate pretty efficiently and effectively and profitably. Whereas a brokerage, their profit margins are so small, so when there’s a change they feel it and they feel it hard.
I think the role of the brokerage is going to continue to change and morph, and the ones that are able to will act like a team. On a team, there are specific processes. There are specific sources of lead generation, and there’s accountability and disbursement of those leads.
One of the changes I’ve seen is that it was all about commission splits for a while. All the brokerages were competing on commission splits.
But now, and we see this from the number of agents joining teams, there are agents willing to work on lower splits in exchange for business opportunities and relationships and introductions. And so that trend is going to continue. There’s no doubt in my mind.
We’re going to see more teams. Bigger teams. We’re going to see more brokerages operate that way because they’ll have to be profitable. And then we’re going to see teams acting more like brokerages in some ways.
You mention the idea of teams getting larger and larger, but there are still a lot of small teams out there. Is there still a place for those teams in the near-term future?
There is. It’s very possible to have a small, efficient and effective team. And a profitable team. It just really depends on the goals. For the larger teams, they have to grow. And they have to keep adding.
There’s going to be room for individual agents too. But I think where we’ll see the biggest change is in the size of some of these large teams. Five years ago it was very rare to see a team of 40 or 50 or at least more rare than it is now. But now there are teams with 100 agents.
The other thing we’ve seen happening over the last six or seven years is the teams operate in multiple locations. Whether it’s multiple cities or multiple states. A lot of teams tried that early on and a lot failed because they didn’t understand what they were getting themselves into. But now there are some very large successful teams in multiple states, in multiple cities, that have all the components to make that work.
I’m curious about the financials for agents working on teams. As you mentioned, they’re sometimes willing to accept lower splits, and that makes me wonder if they’re making as much money as they were 10 years ago not working on teams.
If you look at NAR’s average income per agent, then my answer would be yes. But if we look at the good agents, the above-average ones that were working individually versus the ones joining teams now, 10 years ago there were more opportunities. And it has gotten increasingly difficult for new agents to get started. And that’s why we’re seeing more and more new agents starting with teams, because the competition is so much greater.
When I started it was a level playing field. And there was a very finite amount of things I or anyone could do to get business. There was no internet. But now, not only do you have teams and some brokerages that have significant budgets to capture business, you now have a lot of companies capturing business. We’re one of them, OJO. There are the Zillows and the Rocket Homes that at the top of the funnel are siphoning off business that would have filtered down to agents. It’s still getting to agents, but it’s traveling a different route and it is getting taxed via referral fees or platform fees.
So we are seeing and will continue to see more and more agents choosing to be team members. Or choosing to be in a brokerage that operates like a team.
This conversation began with market dynamics. If the market had continued the way it was going in 2020 and 2021, would we be having a different conversation right now?
I think so. The biggest change that has happened because of the market change, impacting the whole ecosystem, is profitability. You have expenses that continue to rise and now you have revenue dropping. That’s a recipe for a lack of profitability. So when the market was screaming up, people weren’t as worried about their expenses or anything else because there was more revenue coming in. This is sort of human nature, how people operate when they’re more flush with cash.
So I think the conversation would be different. What I don’t think would be different is the trend and evolution and how teams are evolving.
So what would you advise agents to do at this point?
It’s advantageous to get into the business when it’s a more challenging market. Which is counterintuitive. But my advice to agents getting in now, or any agent, is, they need to look at themselves and ask, ‘am I a good team player?’ Because not everyone is a good fit for a team. And not every person who is a good fit for a team is going to do well on their own.
So the first thing they need to do is a realistic self-assessment. I used to always ask agents who were coming to me, ‘growing up, did you play team sports or did you play individual sports? And which do you enjoy more? Which do you excel at?’
So, the first step is looking in the mirror.
The definition of the right team and the right brokerage is one that has systems and processes in place for new people. You could have two teams or two brokerages and they look the same and are the same size, but if one doesn’t have the support for a new agent, they’re just going to be thrown into the deep end of the pool with people who are experienced and they’re going to struggle.
Correction: Chris Heller served as the CEO of Keller Williams. This post originally misstated his title at the company.
