The New Real Estate Model – Part 3.2: The Firm

A Real Estate Firm based on the legal model could have many looks, as do actual law firms.  But for a starting point I am going to lay out an achievable structure that will accommodate the greatest majority of agents.  The firm would consist of three distinct levels as well as an administrative staff.

1. In the top level are the named agents: let’s say Ms. Patrick, Mr. Dunne and Mr. Purcell. These are the founders of the firm and generally speaking they are all three tremendous rain makers. They have a large and active client base from which they receive a tremendous amount of referral business.  It is also quite likely that one or more of them has a strong presence in a niche area.  They are not only the face of the firm, but it is their style and personality that colors the firm’s corporate vision.
2. Under the named agents are the partner agents.  It is within this level that we see so much of the communal benefit that Mike Farmer has written about.  Similar to the named agents, partner agents bring in a lot of transactions.  They also may have areas (geographic, industrial, network, etc.) of specialty.  These agents have reached a level reminiscent of tenure.  They share ownership of the firm as well as decision making duties and have a say in its direction.
3. The associate level is where the greatest number of agents are found.  From fresh beginners to agents with years of experience.  The associate level is also the workhorse of the firm.  Associate agents are not only working hard to take care of clients assigned by the partners, but are at the same time trying to impress the partners with business they generate themselves.  The presumed goal of an associate agent is to be made partner.
4. Finally, there is an administrative staff which grows as the firm’s growth dictates.  It could be as simple as one administrator or as complex as a multiple level staff covering everything from answering the phones to creating the marketing to processing the transactions and more.  Staffing might be the one place where someone looking for part time work while deciding whether to make a career change into real estate could get some exposure.

Responsibilities and Remunerations

The Associate
The most significant accumulation and degree of change versus the outdated brokerage model can be seen at the associate level.  First and foremost, associates are employees and as such receive a salary.  There is no more winking at the independent contractor rule by the IRS and no more tax advantaged hiring practices.  Responsibility, accountability and liability for associates as employees rests with the firm.  The hiring process will by necessity be focused and purposeful.  Associates will have the luxury of choosing between competing firms with various personalities, numbers of employees, areas of focus and methods of billing clients.  Of course, top firms will be sought after by many and the competition may be great.  This competitive edge will improve the firms as well as the associates and serve the clients who benefit from that honing process.  No doubt there will be some associates who do not wish to participate in such a competitive market and there will be firms that cater to them as well.  Firms that practice real estate from a different perspective.  Such boutiques, as well as the career path of solo practitioner, allows for anyone to make the choice and enter the field of professional real estate agent.  How long they stay will be up to them.

The associate life at a large real estate firm is a tough one.  They are expected to put in 60 or more hours per week.  There may be training sessions or mentoring programs (as the individual firms decide), marketing duties and clients assigned by the partners.  They may be asked to assist partners or other associates with specific transactions.  On top of that the associate is working hard to generate their own client base as this is one of the primary talents evaluated when an associate is up for partner.  An agent at the associate level receives a great deal of on the job training and a wide variety of experiences.  They receive a salary and possibly benefits.  The firm is liable for their development and their actions; the associate is accountable to the firm.  In the parlance of law firms their job is measured in billable hours.  I suggest that real estate firms abandon the practice of billable hours and keep the focus on value added goals.  I can imagine some variations though: minimum required monthly marketing hours, home viewing hours and so forth.  The firm may use this as time management training and even require the associate to document their days the way a lawyer must.  The difference: the agent is not documenting in order to grow the clients’ billable hours but rather to assure they are doing the proper activities while on company time.

When all is said and done, not all associates will make partner.  In fact at some firms the percentage that make partner may be quite small.  Those that do not move up may be asked to stay on as associates with some type of defined pay structure or they may be asked to leave or they may resign and test their ability at another firm or out on their own.

The Partner
Partners are part owners.  Real estate firms may be set up as corporations, LLCs, LLPs or sole proprietorships.  The partners receive a percentage of the profits as owners and this has significant repercussions.  Again, the wink at independent contractor status is eliminated.  More importantly, the desire to create a firm with profits and the desire to be part of a firm with profits lead to better firms doing better business for their clients.  Generating enough profits to share means the firm is creating satisfied clients and doing so in an efficient, price conscious way.  Pricing will probably be based to a large degree on the firm’s reputation for results.  That reputation is created and nurtured by the partners.  The partners will most likely meet at regular intervals to make decisions on all matters firm related.  This relieves any one or two people from carrying all the weight or spending too much time on running the firm instead of generating business.  If you will remember, this is one of the main set-backs to the Super Team model.

Partners may be general or they may have areas of interest and specialty.  A small firm may take care of all manners of real estate or they may specialize in just a few areas or niches.  On the other hand, a larger real estate firm might have have specific divisions that handle residential, commercial or investment.  There could be divisions based on type of marketing (online, door to door, network, etc.) or they may have divisions broken into geographical areas.  It would depend on the nature and proficiency of the partners as well as the size and vision of the firm.  Partners would continue to generate business as rain makers and have the added benefit of associates to help them handle the leads.  As previously mentioned, partners would receive a percentage of the firm’s profits.  On top of this they may receive a salary, a percentage of the transactions they themselves bring to the firm or both.  Their share of profits may be a fixed percentage or based on the percentage of business they generated.  It might also be influenced by the responsibilities they take on over and above real estate transactions such as training associates or creating marketing strategies.  It might be any combination; the possibilities are almost limitless.

The Named Partner
The named partners will generally be the creators of the firm.  Being named a partner may also be a reward to an existing partner agent or a carrot used to entice a top producing partner from another firm.  The named partners, besides the cache, may receive a higher salary or percentage of profits.  Named partners, as such, also serve as the “face” of the firm.  They are the corporate personality as well as the impetus behind the vision for the firm.  This uniqueness based on the named partners (and to a lesser degree on the partners in general) serves to further differentiate firms from one another; providing clients as well as employees more choices and a greater fit for their individual needs.  A model such as this fosters diversity in the name of the marketplace rather than requiring it by inefficient mandate of law.  Perhaps of greatest benefit to the general public: named partners have a personally vested interest in the level of professionalism and the reputation of the firm.

The Others
Beside the three main levels of the firm there is most likely a support staff.  Given our current licensing laws much of the staff would probably need to be licensed themselves.  Some, if not most, staffing needs can be outsourced so as not to drain so much of the partners time.

There is one other position a larger firm may fill: that of managing partner.  This person is designated as the partner that handles much of the staffing and administration aspects of the firm.  They are not brought on due to their rain making ability so much as their organizational skills.  This would create even more opportunity for the named partners and all the partners in general to focus on business.  I am not a fan of our current licensing laws, but one requirement of our model is that it be achievable quickly.  As current law requires a brokers’ license, that need would also fit nicely in the arena of the managing partner.

In the final section on Wednesday, I will talk about one possible path for implementing our new model. (Editor’s Note: I have not gotten back to create the final section yet… but I will)

Filed under: DISBROKERATION or "The New Model"

The New Real Estate Model – Part 3.1: The Solution

This final post (Part 3) grew rather lengthy.  Considering the fact this has already stretched into a three-part series, I chose to extend the series to five rather than attempt a conclusion of  somnolent proportions.  If brevity is the soul of wit, creating a new model for real estate is witless.  So grab a cup of coffee or your favorite bagel and settle in.  Fairly warned be thee, says I…

The Preamble
In Part 1: Disbrokeration, I looked at the problems that exist within the current, brokerage-based real estate model.  The shift to a 2.0 world is making the traditional position of broker obsolete.  The tax advantaged laws that helped create this model now create a drain on the industry and the level of professionalism is widely perceived to be at an all time low.  This is a topic of some concern, as the most popular response to the current state of affairs is more legislation, more licensing and more efforts to validate capability through pernicious membership rather than actual results.  As Big Al said: “We cannot solve our problems with the same thinking we used when we created them.”

In Part 2: Super Teams, I looked at a natural progression that is already occurring in our industry: Real Estate Teams.  I took that notion further and looked at how a Super Team might be constructed.  There was also a link to some great writing on the concept by Mike Farmer.  There are some problems with the Super Teams though.  They do not go far enough in dealing with issues of independent contractor status, education, professionalism and image.  Their success depends upon either a self-less communal work effort or a strong, unique figurehead to hold all the pieces together.  The former is not realistic across an entire industry and the latter is too uncommon.

The Outline
It is time to outline a new model for the real estate industry.  I believe the following to be a reasonable list of minimum expectations:

• The new model should account for the natural desire in many people to achieve.  It might even embrace the concept that a great many people enter the sales profession because of the unlimited income potential.
• The model should recognize and reward agents who generate leads.  No matter how well a firm may treat their clients, in order to survive as a firm they must first have clients.  Our new model must center around these rain makers or RMs.
• While imparting no barrier for entry into the industry, the model should not indulge what I call the water cooler whiners either.  It should not accommodate, never mind encourage, part-timers as the current system does.  Serious professions deserving of respect are not, by and large, part-time.
• As a byproduct of its very design, the new model should encourage education, training, dedication and professionalism.
• In the interest of self-preservation, the new model should not rely on industry advantaged tax laws, specious employment relationships and Rotarian Socialism for its existence.  The idea of a churning work force must be the antithesis of our new model.
• Finally, and most important to universal portability, let’s create a model utilizing our existing skill set.  By which I mean it should be achievable relatively quickly; perhaps even a paradigm from another industry that already enjoys success and simply needs to be lifted, tweaked and laid in place.

The Solution
Working the list backwards, is there an existing industry made up of skilled professionals acting independently within the framework of a large firm?  Is there a model that possesses the benefits Mike Farmer talked about in his Team concept while adhering to our outline above?  And if so, is the model successful and easily copied?  The answer to all three questions is yes: the law firm.

Law firms provide a model that the real estate industry should adapt and copy.  Within that model are quite a few options, as not all law firms are organized the same way.  But that is a good thing.  If I were to add one thing to the outline of requirements listed above, it would be this: our model should allow for agents to work with as much free choice as possible.  They should be able to work completely alone if they choose, or within small boutiques or as part of a large firm.  I am not advocating a mandate, but rather suggesting a model to improve the industry as a whole, all the while based on a structure that can be widely accepted.  Now it is true that lawyers as individuals have been the butt of jokes going back at least five hundred years, but law firms themselves often command a great deal of respect.  So let’s take a closer look at the benefits.

The Benefits
By using the legal profession model as our model, we import some added benefits beyond ease of imitation and number of options.  The structure, which I will lay out more specifically in the next post, by its very nature creates a need for professionalism.  The reputation, and by extension success, of the firm is based on how it treats its clients.  Professional behavior, knowledgeable agents and ethics that are beyond reproach become paramount.

Within the firm there can be areas of specialty, the firm itself may specialize or the firm might be a “general practitioner”.   Whichever the case, the sum is greater than the whole of its parts and the best aspects of the Super Team are borne out minus the pitfalls of our current brokerage system.  The personalities of the firms differ and this creates diversity for agents and clients.  Accountability is clarified… and this may be one of the most important long term benefits of them all.  Dual agency is an embarrassment to our industry.  Can you imagine the same lawyer representing the plaintiff and the defendant!  A law firm very, very rarely represents opposing sides in the same case, even if different individual lawyers are doing the work.

Adopting the law firm model adds a competitive edge in client relations as well as hiring and that hones the skills of the entire industry.  It abandons the independent contractor model and requires no tax loopholes for its success.  Because salary comes into play now instead of pure commission, this model also creates some stability in an industry notorious for its roller coaster nature.

In the next section, posting later today, I will discuss how such a firm may be organized and clarify the specific positions which will lend support to the benefits I have outlined above.  This will be followed by the final section (I promise) where we look at some ideas on how to implement this plan.

Filed under: DISBROKERATION or "The New Model"

The New Real Estate Model – Part 2: Super Teams

In Part 1, I discussed the concept of Disbrokeration; some of its causes and effects. When I originally wrote about Disbrokeration I thought I had a pretty good idea what the next iteration of the industry would be: Super Teams.  This type of development is not new and successful Super Teams abound right now.  For me it seemed the logical next step in a 2.0 world where the Brokers have lost a great deal of their function.  Having said that, I see some flaws with Super Teams.  Especially in their ability to transcend a relatively common problem faced by many self-employed entrepreneurs.  My purpose here is to discover a model that will not just work, but work for the majority.  Let’s look at the pros and cons of the Super Teams and in Part 3 of this three-part series, I will share a model that I think may best serve the future of our industry.

Basic Real Estate Teams
Agents may have more than one reason to create a team in real estate. Some may do so for geographical reasons, some may do so to create multiple streams of income.  It can even be done simply for social reasons.  But the primary reason to create a team is economies of scale.  Simply put, a well managed team can be more efficient through intelligent design and effective division of labor.

Gary Keller, in arguably the best book ever written for real estate success: The Millionaire Real Estate Agent, discusses the team concept as a matter of course.  It is simply a requirement for reaching the millionaire level.  This is due to the economy of scale mentioned earlier.  Mr. Keller’s point is that one person alone cannot see enough clients, list enough homes and work with enough buyers to achieve a million dollars in income.  One simply cannot carry the work load necessary for such a goal.

Others have written on the benefits in creating teams.  Mike Farmer looked at it from the perspective of geographical and technological symbiosis rather than a purely profit driven necessity.  I think I do Mr. Farmer no disservice when I summarize his thoughts as: the sum is greater than the whole of its parts.  While I agree with the conclusion of Mr. Farmer’s thesis, I do not agree with its premise.  Bringing together various people to create a team for the betterment of everyone involved is lofty to be sure, but not realistic on a grand scale.  Communal enhancement is not the biological impetus upon which most of us base our actions.  There are a great many examples of people coming together to work as one group for a higher ideal, but there are even more examples of those same groups coming apart under the strain of a more basic drive: greed.

Greed
The point is, ladies and gentleman, that greed — for lack of a better word — is good.
Greed is right.
Greed works.
Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.
Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind.
Gordon Geckko in the movie Wall Street

Our Goal Model Defined
Yes, greed must be accounted for if we are to design a blueprint for the industry as a whole.  Even more importantly, we must acknowledge the premier ingredient in creating real estate success: lead generation.  The broker is no longer germane.  The ability to create leads is THE most important factor and defines the primary actors in the model that will take us forward.  But we are looking for more.  If we wish to create a model for the future, let’s charge it with an even higher level of responsibility.  Let’s create a model that also rids the industry of loafers and under performing “shoe salesmen“.  Let’s create a model that sustains its growth by success rather than law.  Let’s create a model that generates its own need and reward for education.  Let’s create a model that allows any to enter, but demands dedication and professionalism for success.  Let’s create a model without help from rigged tax laws and a “loose” interpretation of independent contractors.  Finally, and most important to universal portability, let’s create a model that is achievable now and with our current skill sets.  The Basic Real Estate Team model fails right from the beginning.  It takes into account almost none of our needs and few of our desires.  What about Super Teams?

Super Teams
They look like this: one or possibly two agents are the Team Leaders; they are the Rain Makers (RMs).  Beyond the RMs there may be nothing more than a part time administrator; or there may be multiple buyers’ agents, listing agents, lead coordinators, customer service managers, marketing directors and so on.  What makes them unique is the fact that they all work on the RMs’ team and directly for the RMs.  They may bring in some business of their own (and the splits on that business may be higher) but the primary responsibility of those that work on the Super Team is to benefit the RMs.  The entire team exists to enrich the RMs; to help them in their mayoral marketing – to help them become mayor for life.  Super Teams do allow for change.  If someone on the team decides they can be an RM too, they are free to start their own team (and well trained for it too).  But for a great many, the idea of enjoying the profession of real estate without all the messy marketing and concerns over a commission lifestyle makes the Super Team a cozy home.

This model certainly accounts for the greed aspect and literally defines the importance of lead generation.  It also quite adequately rids us of loafers and water cooler whiners (RM’s would have short patience for someone not pulling their weight).  After that though, this model begins to fall off.

The Problems
It rewards education, but only to the degree that the education benefits the RMs.  The Super Team model also suffers from our current “loose” interpretation of what an independent contractor is and continues to muddy the waters of accountability.  The Super Team is also easily susceptible to internecine battles and requires a tremendous figure head as RM to hold it together.  Which leads us to a problem usually overlooked until it is too late.  Often referred to as The Peter Principle, it is what can happen when someone moves from their position of success to a position of managing that at which they were successful.  Being an RM is a highly skilled and deservedly well paid achievement.  But reaching that lofty height in no way ensures you will be successful running a team.  The skill set is different.  In Mr. Keller’s book he suggests that you hire an administrator who will eventually oversee the employees, do the hiring and firing and basically run the business. This makes sense in a small, one man operation that is expanding.  But a well paid assistant is hardly the solution to running a large firm.

At its most basic level: a Rainmaker needs help in handling all of the leads they generate.  Yet by taking on the required help they must divert their time and some portion of their rainmaking to management.  This is, in the end, still a self-employed entrepreneur… but with a growing staff.   Either the model falls under its own weight or the RM morphs into something unintended and unproductive.  In either case success leads to more hours and less enjoyment for the Team Leaders that began as Rainmakers.  This is an unlikely proposition on which to create a new business philosophy and its success is most probably not exportable beyond a select group of people.

A Fix?
One possible solution for the Super Team model is to refer all of the leads out to other agents.  Maintain no overhead and no employees other than a coordinator to track the leads.  I submit, however, that the referral fees currently paid are not large enough to justify the work and expense.  On top of which, at this point you are a Rainmaker who is coming dangerously close to being simply a lead wholesaler.  Our goal was to create a model of success within the real estate industry going forward.

So, our problem continues.  The idea of a broker becomes archaic.  As information becomes more readily available there is a natural progression: middlemen (brokers) go from providers to gatekeepers to restrictors (chokepoints as Greg Swann calls them) and eventually they just become unnecessary.  Yet the sole entrepreneur atop a Super Team still suffers from many of the existing problems and struggles under the weight of their own success.  We need a new model.

Next time: An Old Tool for a New Problem

Filed under: DISBROKERATION or "The New Model"

The New Real Estate Model – Part 1: Disbrokeration

Ch-Ch-Ch-Changes
The Real Estate industry is going through some pretty rapid changes lately. We have everything from Apple’s iPhone to Zillow’s Zestimates. There is a lot of conflict too. Your local Board of Realtors is most likely still trying to throw a fence around listing information, while a wired world questions the nature and even purpose of a real estate agent. The RE.net is creating opportunities and shifting the nature of the game. The world is 2.0 and it communicates differently. A 2.0 world markets differently and rewards differently too. Throw in the most destructive credit crunch since the Great Depression and you have a recipe for… WHAT? Only one sure answer: change. But the question is this: change into what? What does the future of the real estate industry look like? Will there be agents? Will there be brokers? Will there be a real estate industry? This is the first of a three-part series that will attempt to answer some of these questions.

Back in March I wrote a post on Disbrokeration and the coming changes in the real estate industry. I suggested that Brokers, more than agents, were going to see their positions and their livelihood challenged. I still believe that to be true. In part two of this series I will run through the first evolution I saw for our industry: The Super Team. Not an uncommon idea, the Super Team already exists and the refinement of it is discussed in many areas. Mike Farmer has written about it in great fashion. I will discuss why it may work for some, but in general it simply does not solve enough problems. Worse yet, it adds new ones. In the final installment, part three, I suggest a new model for the real estate industry. A model that is easily copied, well developed and most suited to solving the issues in our industry. But first, we must understand why the current model will not last.

Disbrokeration: The End of the Current Model
The existing Broker model is actually a pretty old one, found in almost any industry that is focused around the act or process of sales. From large Wall Street securities firms to small water purifier companies going door to door, we see the same basic structure: a principal surrounded by representatives. It goes back to the earliest days of retail. One person has an idea, a store, or a product/service that they wish to sell: a shoe store for example. They can only see so many prospects at one time or in one day so to increase overall sales, the principal brings others on-board. For a reduction in profits per pair of shoes sold, the principal hopes to see a lot more shoes sold. In this sense a store clerk, a stock broker and a real estate agent all serve the same purpose: help sell something that belongs to someone else in return for a piece of the profits in wages or commission. (Important Note: to sell something that belongs to someone else in real estate has nothing to do with who owns a piece of property. Agents are selling a listing or purchasing service that belongs to the broker. The broker is the store owner and the agents are the clerks. They help the broker sell more shoes by assisting clients in finding the proper style and fit.)

This made good sense for a long time and even worked as an incentive within the industry: work hard as an agent and eventually, if you have the desire and the money and the wherewithal, you will create or purchase your own real estate shop.  You are then the Broker and you hire agents to represent you in dealing with clients who wish to buy or sell a home.  In many ways it was a grand retirement plan.  New agents counted on the Broker for everything from an office to phones; from training to accounting and from organization to guidance.  In return the broker kept a hefty portion of the commission.  It was rare for an agent to even reach 50% as it was the Broker who had taken all the risk, fronted all the bills and established him or herself as successful enough to own a brokerage in the first place.

Over time, the real estate industry expanded and grew, as any living organism will. Under the pressure of this growth, weaknesses are exposed and even exploited. The industry grew a very strong lobby and laws began to benefit the principals even more. Licensing standards were put in place, protection and confidence of the consumer being the objective. But the bar to entry was set so low as to be beyond meaningless. Some have argued it merely gives consumers a false sense of confidence. Tax laws were changed to minimize the cost of bringing a new agent on board. This may have made more sense at a time when there were substantial costs involved in hiring on a new agent, but times change. The internet has given agents unfettered access to buyers, sellers and available inventory.  The fluid nature of the business dictates that agents brand themselves now, making the need for a big name obsolete.  Pricing structures and commission splits have driven training out of the picture at most of the brokerages.  Few agents receive anything for free and those that do are likely “loss leaders”: top producing agents there not to make the brokerage money (quite the contrary), but rather serve as a beacon for recruitment and a marketing tool for the rest of the agents.  Most Brokers now engage the business philosophy of the lowest common denominator (also known as “putting butts in seats”). Thanks to the tax laws, the brokerage looks to profit on the one or two deals a new agent might stumble across from family and friends before the revolving door swings another agent through.  I am not judging this.  As long as everyone knows up front what they are getting it is a legitimate model of business… just not a very good one.

The Problem Defined
With the changes in tax laws and the power shift brought about by the internet, we have ended up with a very different kind of shoe store. The owner now hires as many clerks as possible (which is made easier by the low standards to entry) and puts them on the floor right away (which is not a liability due to the beneficial tax laws). The clerks want the lion’s share of the profits so the owner forsakes any type of training or mentoring. Why take the time and expense to move someone from apprentice to journeyman to master when the expectation is two to three sales of shoes to family and friends, followed by a quick exit and the next batch of shoe salesmen coming through? Of course, if the store is physically large enough or the brokerage has enough desks, the principal can just keep hiring without letting others go – why risk losing an extra sale they may trip over? In the end one finds three distinct levels within the store: those that have found true success through self-education, luck or experience from a previous job, those that are in the midst of their revolving door spin and finally, in those larger firms, those who “used to make a lot of good sales” (their family/friend stage) and are now filling seats, known simply as “water cooler whiners”.

The result is a number of detrimental outcomes:

• the knowledge and training possessed by the average agent is lower
• the collective wisdom of the industry is necessarily reduced
• professional standards are lowered, as is professionalism itself
• inclusion of the “water cooler whiners” in statistical studies lowers the perception of aptitude and success within the industry

The current brokerage system has devolved from a shoe store in which the principal hired on new representatives, trained them to know shoes as well as he did and increased profits by sharing profits and increasing revenue; to a shoe store that is overcrowded with underperforming reps. A store where the principal’s primary focus is making sure the lights come on, the plants are watered and there are enough desks to accommodate available butts

Next time: Super Teams: A Solution for the Few

Filed under: DISBROKERATION or "The New Model"

How Do You Find Real Estate Success in Disbrokeration?

The real estate industry is a never ending source of change and excitement.  I can remember only two years ago coaching agents on what disintermediation meant, how it was affecting the mortgage industry and how it (and the internet) would affect their success.  I was never too worried that the mortgage broker would be eliminated, but some agents were more than a little concerned about their future.  As it turns out, agents are embracing the internet; they are alive and well and thriving.  So, is there a problem?

No, disintermediation is not a problem: but disbrokeration is.  Teri Lussier, blogger extraordinaire, recently posted a thoughtful article on BloodhoundBlog.  I certainly found it thoughtful.  I have been gnawing on the state of the current real estate brokerage system like a hungry dog with his last bone.  I have speculated that the current Broker based system is outdated and weathered beyond its useful life.  I am quite sure I am not the only one to have said this.  But how do we play this out?  What happens, or what is happening, as this model fades away?

I believe the new model is in place, we are just not calling it that yet.  Going back at least twenty years to when I was first licensed, the existing Broker model seems to be based on a simple premise: work hard as an agent and eventually, if you have the desire and the money and the wherewithal, you will create or purchase your own real estate shop.  You are then the Broker and you hire agents to represent you in dealing with clients who wish to buy or sell a home.  In many ways it was a grand retirement plan.  New agents counted on the Broker for everything from an office to phones; from training to accounting and from organization to guidance.  In return the broker kept a hefty portion of the commission.  It was rare for an agent to even reach 50% as it was the Broker who had taken all the risk, fronted all the bills and established him or herself as successful enough to own a brokerage in the first place.

But times change and the intermediary that is now serving less and less of a function: the Broker.  The internet has given the agent unfettered access to the buyers, sellers and available inventory.  The fluid nature of the business dictates that agents brand themselves now, making the need for a big name obsolete.  Pricing structures and commission splits have driven training out of the picture at most of the brokerages.  As a matter of fact, very few agents receive anything for free and those that do are likely “loss leaders”: top producing agents that are there not to make the brokerage money (quite the contrary); they stand as a beacon for recruitment and a large marketing tool for the rest of the agents.  Brokers are now engaged in the lowest common denominator: “putting butts in seats” and profiting on the first few deals before the revolving door swings another agent through.  I am not judging this.  As long as everyone knows up front what they are getting it is a legitimate model of business… just not a very good one.

So what is the future model of the real estate industry?  I believe there is nothing future about it.  We already see it in just about every large brokerage now.  It is commonly called The Super Team.  It looks like this: one or two agents are the named agents.  Beyond the named agent(s) there may be nothing more than a part time administrator; or there may be multiple buyers’ agents, listing agents, lead coordinators, customer service managers, marketing directors and so on.  What makes them unique is the fact that they all work for the named agent(s).  They may bring in some business of their own (and the splits on that business may be higher) but the primary responsibilities of those that work on the Super Team are to benefit the team and the named agents(s).  For instance, the buyer’s agents are charged with handling the prospects that come to them on behalf of the team. They need not worry about marketing or creating business.  In return their splits are usually less than 50%.  A listing specialist may also be on a lowered commission due to the direct feed of clientele, or they may be on a straight salary.  Most of the other parts to the team are salaried (and possibly incentivized with bonuses).  The entire team operates to enrich the named agents; to help them in their mayoral marketing – to help them become mayor for life.

Sound familiar?  It sounds a lot like the brokerage model of old.  Only there is no longer need for a gatekeeper.  If someone on the team decides they are ready for their own team, away they go.  For those who excel at real estate but have no interest in the commission lifestyle, they have found a cozy home.  It is the brokerage business of yore, but made streamlined, agile and appropriate to the long tail markets in which agents must now thrive.

Here is the best part: the Super Team has no interest in the “putting butts in seats” model because they are already rainmakers.  The only butts they want in seats are people who can get the job done and build the team name.  This model is based on the purity of profits rather than the bloat of over-rides and middlemen.  This model embraces training because turnover costs the named agent(s) money in lost transactions.  This model embraces new forms of marketing and can move quickly to opportunities.  This model is an evolution that must always happen.  As information becomes more readily available there is a natural progression: middlemen go from providers to gatekeepers to restrictors (chokepoints as Greg Swann calls them) and eventually they just become unnecessary.

While this post has gone well beyond the recommended daily allowance of verbiage, I will add two more quick benefits of this model.  One, it provides for greater specification of work, which in a free economy usually leads to greater efficiency and better pricing.  Two, it requires a lot less agents to take care of the same number of clients.  Without the constant requirement to feed the revolving door, the education level, experience level and quality level of the real estate industry as a whole improves.  Are you ready for the Super Teams?  They’re coming to a neighborhood near you soon…

Filed under: DISBROKERATION or "The New Model", LIFE THAT POPs, MARKETING, REALTORS , Brokerage, Disbrokeration, Real Estate Future