One year following the launch of Inman’s The Basics newsletter, our weekly dispatch of must-reads for new agents, we’ll spend the month of August digging deeper into what it takes to survive against the odds as a new agent in a tough market.
What if you could find a brokerage that worked for you instead of the other way around? A place where you’re surrounded by the genuine and earnest support you need to surpass your goals and provide for and actually spend time with your family while offering you an achievable path to building long-term wealth well into retirement and after.
In other words, what if you could find a brokerage where success and peace of mind aren’t mutually exclusive? The brokerage model is evolving at a quick pace, and here are a few thoughts about the evolution.
For years, decades even, one could walk into any real estate brokerage anywhere, and see the same thing:
A small conference room or two. An admin behind a desk. Around the corner sits a bullpen of cubicles or desks — the agent “offices.” Perhaps some community desktop computers, a hulking LaserJet printer.
Somewhere in the byzantine maze was the broker’s office, a small break area with a fridge and microwave, and maybe, if you were with a large broker, there would be a hall of walled offices — the domain of the “top producers,” complete with a shiny nameplate on each door. Fake plants and inexpensive knockoff art were placed strategically to pretty the place up.
Crack open the financial books of your traditional brokerage and you’ll find three major expense lines: commissions paid, salaries and overhead, the accounting term that covers the cost of the physical space and its accouterments.
As an agent, odds are you’re an independent contractor (IC), not a W-2 employee. While being an IC has some advantages, it also means that you don’t have a regular salary, health insurance, paid time off, maternity/paternity leave, retirement benefits or any of the advantages held by employees.
This limits what your “employer” (i.e., your broker) can offer to attract and retain you. In fact, under the traditional brokerage model, about all they can adjust and share is your commission.
Agents and brokers alike historically have been focused almost exclusively on commission splits. In their efforts to be perceived as valuable to agents they hope to recruit or retain, some brokers would add a marketing department, offer training and, perhaps, cover some agent marketing and operating expenses.
Speaking of recruiting …
Many agents may not be aware of the fact that it is not uncommon for a broker’s or manager’s compensation plan to include recruiting and retention bonuses. They get paid to increase agent count, and they get paid with your money.
Differentiation is an issue with traditional brokerage models. There aren’t enough levers to pull to separate what a brokerage can offer from the pack. Yes, there are “100 percent” commission brokerages, a gross misnomer, because no brokerage works for free. Desk fees, transaction fees, overcharging for E&O insurance — a brokerage is going to capture a share of your commission, no matter how it’s labeled.
Not that long ago, a brokerage that capped commissions was hard to find. Today, a cap is common, and over time, caps have trended lower. Caps are an easy thing for a brokerage to offer. Everyone wants one, but the simple fact is, most agents never cap.
Traditional brokerage models work well in many markets, no question. In fact, our Maui, Hawaii, and Fenwick Island, Delaware, teams intentionally chose to work with a traditional brokerage. It works for our teams and it’s proven to be the right strategy as they have been exceptional partners in helping us achieve tremendous success.
However, the traditional brokerage model doesn’t work in every market or for every team, and it’s no longer the only option. Brokerages have to make business decisions that ultimately work best for them. And of course, so do you.
New brokerage models are evolving
The last 10 years have brought a few changes to the traditional brokerage model. The boutique and virtual brokerages are two models that have gained traction in recent years as have revenue sharing and equity compensation opportunities.
With rare exceptions, brokerages are in it for the brokerage. Yes, they need you, the agent, to survive, but basic human nature holds that the brokers (or franchisors) are in it for themselves. The problem is you also need a brokerage, and brokers know that. This sort of symbiotic relationship is unusual in business.
Boutiques tend to offer “hip and trendy” space, be closely involved in their communities and are an attractive option for many agents. They are not, however, all that different from the traditional brokerage model, and they typically serve just one market.
“Virtual” brokerages, those with no brick-and-mortar physical office space, have recently made a bit of a stir. From the brokerage side, they make sense as they greatly reduce overhead expenses. Many agents, however, feel they need physical space to work in. This is the frequent argument against virtual brokerages.
However, if you walk into a brick-and-mortar brokerage on any given afternoon, what would you likely find? Something that resembles a ghost town, devoid of bodies except for the broker, admin, and maybe an on-duty agent. This raises the question: Is the physical space actually necessary or relevant for how today’s agent does business?
Profit or revenue sharing is gathering traction. One must be very careful to understand the difference between profit and revenue, as well as the details of the program. What happens when people you bring into the brokerage leave? What happens if you leave? Most likely, this turnover results in your residual income evaporating.
Gaining traction, albeit at a much slower place than anything else, is equity compensation, the ability to own stock in a brokerage, receive stock options, and buy discounted stock through a stock purchase plan.
Why is equity compensation slow to take hold? Because so few brokerages are publicly traded companies. According to the National Association of Realtors, there are approximately 106,000 real estate brokerages operating in the U.S. You can count the number of those that are publicly traded on two hands.
Offering ancillary services — primarily mortgage lending, and title/escrow services — seems to be the latest trend. These services, if adopted by enough brokerage agents, can greatly boost a brokerage’s bottom line.
The problem for agents is this: You provide the pipeline of clients for these services and typically receive zero compensation for it. These services may be convenient for your buyers and sellers, but convenience doesn’t pay your bills.
So, you stuff the brokerage’s pipeline, and your money goes to build fancy offices and headquarters, throw lavish parties and trips, and provide better splits for “top producers.” Shouldn’t at least part of that boost go to you?
Your differentiators are the things you can control
You know that your clients have hundreds of agents they can choose from in your market. So, as a real estate agent, how do you differentiate yourself? What do you say and do to make them choose you not just once but over and over again?
Your differentiators are the things you have control over. You can’t change the number or type of homes available on the market or mortgage rates or the paperwork.
However, what you can change is how you do your business. How you build and nurture meaningful relationships with your clients. How you listen, communicate, strategize, negotiate, problem-solve — in short, your differentiator is found in how you care for your clients. And what drives you — your values.
When your work is in line with your values, all your cylinders are firing. You create peace of mind for your clients, which helps strengthen trust and loyalty. It’s what makes clients go from saying, “I need to call a real estate agent” to “I need to call my real estate agent.” (Just look at online agent reviews and you’ll see exactly what clients value most in their agents.)
Here’s the kicker: All the things clients value in an agent are the things agents value in a brokerage.
Chris Speicher is co-founder of The Speicher Group, an award-winning real estate firm based in Montgomery County, Maryland.
