I’ve always been interested in sustainable business models and have noticed that there are very few in the real estate industry. Except for that of the brokerage. The business model of the brokerage is not the same as that of the agent. Brokerages make money from agents, agents make their money from transacting real estate.
Before I made the decision to pursue real estate full time, I had considered getting into the mortgage business. What I found was just about anyone would ‘hire’ you on as a mortgage broker. Why? Because they would provide almost no support for you but take half of what was made on a loan. They knew that in most cases, a mortgage broker would come on, refinance their friend and family then wash out of the business. So they attempt to capture a larger share of the market with a networking through expansion method.
I can’t help but think many large real estate brokerages are doing the same. For example, I recently talked to an agent in a large brokerage who said that they shared an office with less than 20 desks with over 300 agents. This office represents a small area of Denver, so I would assume that there is alot of overlap between the agents. Most businesses in sales don’t have that many agents for a small area. It wouldn’t be fair to the salespeople. They would limit the number of agents so their agents would be as busy as they would like to be while still achieving saturation. But the truth about real estate is that brokerages make a lot of money off the agents themselves through various fees. They also know that the new agent will immediately go after their friends and family who might not otherwise use their company. So on top of the fees, there is perhaps another $10,000 to $20,000 to be made simply by bringing on another agent who may even be paying you to be there. Of course, most agents won’t be successful but the brokerage doesn’t really care. Most brokerages provide general training and services to make it appear that they want an agent to succeed but the truth is their business model is at odds with that premise.
To establish yourself in real estate requires time. If you’ve been in the business long enough, you have made the contacts and have the client base to pull from to sustain yourself. If you’re new to the business, you need to build your business in the face of a vast and entrenched competition. But the brokerages tell you you shouldn’t drop your commissions. They then proceed to charge you enough or split the commission in such a way that you agree, “There’s no way I could work for less.” There is no way that these agents that have no momentum will ever gain a foothold against the entrenched agents who are actively marketing in a neighborhood. So the new agents are left to help their friends and family (assuming there are not more agents in the family) then slowly fade away, back into the careers they came from.
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One Comment
Thanks for the topic and I could not agree with you more. The business model really kind of reminds me of the MLM method. Overall it is sad because of the possibilities to not only improve the industry by producing top notch agents, but also customer service and in turn consumer perception.
I like many others found this subject to be true life many years ago when I first got into the real estate business. The lack of support actually may have been a blessing in the long run for me because it directed me into appraising. With my own experience compiled with much time spent working with real estate sales people and their needs played much on the development of my business. Now a key element is the promotion that the real estate agent is a business. Because most brokers lack in promoting this fact and really are in the business of harvesting vast numbers of agents to generate a minimum or base line of sales my work is cut out for me.
One company that I have found to have a better support system is The Danberry Co. the 14th largest private held brokerage in the country based out of Toledo OH. The reason that I point this company out is because they promote not only the real estate aspect of the business but also the business aspect of being a small business.
In the mean time I have tried to make the best of making resources available to real estate agents though links placed on my website http://www.apella.org however I am always seeking additional links that may help agents in business management and sales.
The thing is that brokers need to take into mind is the long-term effect on the industry. Do these brokers want a fast food work force or professionals? For those that really do not care are the most damaging for all of us in the real estate business industries.
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