There has been a lot of discussion on various real estate blogs regarding the relevence of the real estate brokerage as we know it. I have personally commented on these blogs but felt it was time to throw my own post out there and try to get all of my thoughts onto one page.
Let me start by saying that I come from the position of being an agent that worked for a local Coldwell Banker franchise for 6 years. During my time spent at that company I was totally sold on the idea that I was an “independent contractor” … My time was mine, I was free to market myself as I saw fit, I did not have to answer to anyone. Now, don’t get me wrong, the broker was available if there was a problem and there was a tight-knit family-oriented atmosphere that I enjoyed too. They did provide some basic training for new agents and they hosted other training and informational events when they could. They built a new, beautiful building with conference rooms, a nice homey-feeling lobby, private offices, the works BUT …
I was building my own business.
I generated my own leads. My direct phone number and self-branded e-mail were on all of my marketing. At a certain point in the growth of my practice I no longer needed to take floor time. I didn’t want to take any relocation business because it cost me more of my commission in referral fees to the relo department as well as a lower split with the company. My home office was better equipped than the brokerage office. I bought my own office supplies, signs, business cards, advertising, etc etc etc. In my mind, I was paying the brokerage for the privilege of doing business. I felt that the CB name and the reputation of the brokers were well worth the yearly cap I was paying. The brokerage mattered … to me. Not my clients, but to me.
And Then the Market Crashed!
Our market began to go South in 2005. I quickly realized I needed to get into the REO niche because between the huge and quick rise in house prices and the crappy loans that were being made I saw the writing on the wall. I began to focus on my new goal of winning REO accounts with some major banks and asset management companies. It took about a year of hard work but I began to build that business. In 2007, with an office of 100+ agents, there was about 4-5 of us that had the foresight to get into REO work and we were basically keeping the brokerage afloat for the other 95+ agents.
I told you that to tell you this …
I was so busy keeping up with the flood of REO properties I was dealing with that I failed to realize I was not getting my full commission check at a time when I knew I had closed enough business to cap out. When I spoke with the office about it I was told that due to some vague wording in my EMPLOYMENT contract (hey, I’m an independent contactor, aren’t I?) that REO was not paid at the same rate as traditional sales. All of a sudden my cost of business doubled – almost TRIPLED – overnight. I was floored. I felt like I had just been screwed by my own father. I took it personally … for about 10 minutes. The few of us that were producing realized about the same time that we were getting the shaft. We each went to the broker individually to see if we could negotiate a better deal. We weren’t successful.
My Eyes Were Opened!
As the market got worse a funny thing happened … I noticed that the brokers were scrutinizing what I was doing. They were trying to get me to give them access to our REO portals (a huge no-no with the sellers). Everytime we missed a call I’d get a barrage of e-mails and voice messages from the broker letting me know so-and-so was trying to get a hold of me. I felt like my business was being intruded upon. I felt like I was being treated like … an EMPLOYEE!
After getting over my initial reactions and a few Jacks later I realized something … I was never self-employed. I was always an employee of the brokerage. The freedom I was told that I had was only a sham cooked up to prevent the brokerage from having to deal with tax withholdings. I was actually representing the company – not myself – with every deal I did. “My” clients didn’t think that way, of course … I was their agent. The home buyer or seller does not understand the relationship because the agents don’t understand the relationship. What I hadn’t understood until now was that the goal of the brokerage was to recruit any and every agent they could to earn money off the mark-up on the franchise fees, E&O, signs, etc. The brokerage wasn’t in the real estate business they were in the agent business.
I had decided that I would get my broker’s license and try and use it as a bargaining chip to get a better split on my business. I also began to interview other brokerages to see how they did business. The more I thought about it the more I realized that I was already running my own brokerage – I just didn’t have the license. Why did I need to work for another broker? Why would I want to jump from one company to another just to find my self in the same situation?
Once I earned my broker’s license and had it in my hand I came to the realization that I now had all the tools necessary to truly be independent. Done. Decision made. I’m outta there!
The brokerage didn’t matter.
So From the Ashes We Rose.
Okay, so here I am. An independent brokerage. It is my wife and I along with the team that I built over the years working as we always had under the CB franchise. No change. Actually, there was a change … My overhead dropped. Significantly. When an escrow closes the check comes to me. No split. No franchise fee. No marked-up E&O payments. Wow, why didn’t I do this sooner? When the average home sale went from $220,000 down to $95,000 the instant payraise I just gave myself sure helps.
So now I need to decide how I want to grow my business. Here’s the problem … I could go the same route as the traditional brokerage and hire anyone with a license that can fog a mirror and charge them a desk fee. Some of them might even sell something. No. I want to continue to build my brand. I want the community to know that they can call my company and receive awesome service from anyone who they come into contact with in my firm.
I do not want to be a launchpad for other maverick agents to build their own business and then leave. I want to hire the best in the business and keep them in the firm until the day they retire. I’m still formulating how I will go about it, but I will do it. Or I’ll be a mom-and-pop until the day I die.
To my clients as well as my employees, I want my brokerage to matter.
{ 14 comments… read them below or add one }
James,
Great story and a good post. I think you are addressing the most challenging question in the industry and our future. My path was a little different, but a story for sure.
I owned the Sotheby's in Aspen, CO. I had offices, staff, marketing, the whole package. HUGE franchise fees….
I was always trying to figure how to get my company dollar up, which means less commission for the agents. It was very hard to make a profit with the overhead. Since I closed Aspen Sotheby's and have had my license with another firm, I find myself upset most of the time. Now I don't focus on day-to-day deals that much and that is another story. But, this brokerage didn't provide half of what I did and the splits were still the same as mine. Felt like they provided nothing, but a spot to sit and I was bitter in every commission check I received.
So, what is the future? Is it the best brokers have a home office, cell phone, a car, and hire outside marketing support? Why not? What else is really needed? There are many tweets and blog post lately that the brokerage doesn't matter. So, why not take it out of the equation.
I have not decided exactly how I would build a brokerage if I were to do it again. My thoughts tend to be 1,500 sq. foot office with conference rooms and staff support for supporting deal flow. Create a strong brand and consistent marketing for sellers, but use a outside marketing firm for the support. (no internal marketing staff) I really believe strongly in a brokerage providing a consistent marketing experience for selling their homes. Hire well.
No answers yet, but these are my thoughts.
Good luck.
I'm thinking that the KW team concept is basically a good outline for a small brokerage trying to build and maintain a brand. It's been awhile since I read the Millionaire Real Estate Agent, but maybe it's time to revisit it. When I was trying to decide whether or not to go independent I interviewed the local KW shop … After talking with them and getting some of their internal whitepapers I wondered why I'd want to form a company under another company and pay them for the privilege.
Didn't make sense to split the commission and then split it again with the agents under you. What decent buyer agent would want to make 50% of 70% minus the franchise fee for any length of time? However, take that team out from under the Ponzi Scheme and the model makes sense.
Yes, it it a difficult decision but it is a decision I only want to make once. I need to do it right up front. Your comments are appreciated and any ideas are welcome.
Basically an auto-biography of my journey from agent to broker. Any agent who works at a big box and is self-sustaining should be able to relate. If your brokerage doesn't matter find one that does … or open your own.
A cup is raised. A toast is made. In your honor. What you have described is the arguably the ill of the industry undergoing cure by smart business people who either leave these sham brokerages behind and start good little companies or by smart brokers who have been building better companies all along.
Maybe they are few. Far. And in between.
But there are there.
Everywhere.
And they matter.
Thanks for sharing this story James. I am looking forward to seeing what your company becomes in the years to come. Stay focused. On point. And it will be great, I'm sure.
Marc
Marc, thanks for stopping by and for your kind words. It has been a wonderful and timely conversation that you started with the posts on your blog. I've enjoyed our interactions on the various venues and hope to continue the discussion.
Your words have inspired me as well as gotten me to think more about the direction I wish to go and how I want to get there. Keep doing what you do, sir. You are one of the great ones.
Great post, James. I can give you a lot of insight into various "concepts" you might be considering. I've studied them all, in great detail. Call (248-789-4200) or email (MMcClure@ProfessionalOne.com) if you'd ever like to talk.
Thanks for the offer. I may take you up on that some time.
It is funny how branding works. I have had the privilege to work with the ownership from Windermere on a project. John Jacobi basically pioneered what is today considered the KW model minus the Ponzi scheme. They also have a very interesting approach to their franchise fees for the agents.
I have a ton of respect for the Jacobi's business. Probably why they have the most dominant market share I have every seen in any major market.
James,
Great article. I too have seen the blogs of late regarding Brokerages. I then reflect at how lucky I am with RE/MAX Northwest Realtors. If I choose to leave, what would I be leaving? I couldn't imagine giving up our IT Tech, who will come to your home office and fix your computer, or the on-site staff that gets you paid the same day as closing and updates your listings, or all the free leads and referrals through the office or our international headquarters (imagine that – no referral fees). I could go on and on, as the benefits are many. So I guess the importance of any brokerage is what the brokerage is "doing for you", which is our brokerage's motto. Choosing the right brokerage to work with is critical and the benefits vary greatly from office to office, even under the same brandname.
My recent post Snohomish County Average Home Prices Remain Stable For February 2010
I am in the mortgage industry and have been spreading the same message to the real estate agents I do business with for years. Not only don't the big agencies treat their agents like independent contractors, they promote their financial services at the expense of their clients best interests. Bravo for telling the truth. I'm going to post your blog to my Facebook and re-tweet.
My contention is that the brokerage should NOT be treating the agents as independent because they truly are not. The typical business model of most brokerages are to collect licensees, make money off of ancillary services and desk fees.
My ideal brokerage would be to have the agents on the payroll. Remove the false guise of their independence and have everyone working towards the common goal of building a strong company. Not a shell wrapped around several people trying to build up themselves as individuals.
This is not only better for the strength of the company, but I also believe it would be best for the client … But I'm reserving that for another post.
My recent post THE RISE AND FALL OF THE BIG-BOX BROKERAGE
James,
You are the Captain of your own ship. Great article.
I am and have been an Independent Broker for years and would never trade the good, bad, or the ugly, to belong to a "big box franchise", but I do know many people who are happy campers with that type of entity.
Just as buyers and sellers have needs and expectations, so do agents and brokers.
Have a great and successful life!
Kathy Howe aka SedonaKathy, how2arizona real estate
James, after spending 10 years with RE/MAX, I left them in 1997 to start my own brokerage in Indianapolis, Indiana. I was nervous because I was about to leave the safety of a big name brokerage operation to work from my home. It isn't that they were charging that much ($1,250 a month to work there at the time), I simply didn't want to pay every month only to build their brand. So, I opened my own brokerage.
That first year, working from my home with no company name recognition and one personal assistant, I increased my gross commission income by 1/3. I think I worked harder because I was scared that I’d fail. I’ve never looked back and am very happy to this day that I am not part of a big box brokerage.
What’s interesting is that I now have 40 agents at my Indianapolis real estate company and all of us work from home. Some of them found us on the internet and others came because they know someone already practicing real estate here.
I don’t make very much money when the agents find and close their own business because they get 100% of their commission (minus $50) and I get a monthly fee (not nearly as much as I paid back in 1997). That’s good for them. But, it is even better for me because about half of them work on my personal business that I generate from my websites. We split commission on those.
Mike Woods
msWoods Real Estate
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