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What will it take for brokerages to survive in the future?

Scorpio

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#1
What will it take for brokerages to survive in the future?

Profitability at real estate brokerages is declining, and this downward trend will continue indefinitely; to survive, brokerages must stay hyper-focused on recruiting, recruiting and recruiting. In successfully recruiting the right agents, culture, technology and marketing support trump commission splits.

The national real estate picture continues to improve, and brokerage owners who have suffered through the past nine years and, more importantly, the ones who have survived, should be ready to rejoice.

Many of the brokerages who have gone through the downturn and have come out the other side in one piece are reporting record sales volume.

Interest rates are at near historic lows, the stock market is near record highs, and sale prices are increasing in many national markets. However, there are no sounds of champagne popping in the owners’ offices.

The celebratory cheers have been replaced with the looming fear of the inevitable disaster just around the corner. If everything looks so rosy, what could be wrong?

It turns out that the one metric that matters — profitability — is in free fall. Although this hasn’t affected all brokerages yet, nobody is safe from what’s ahead.

There are many factors that figure into this disappearing act of profitability, but all of the major (permanent) problems are summed up in three words: splits, commissions and aggregators.

Splits

Who remembers the time when agents were all at 50-50 splits? And perks? What were they? That was the past.

The future is here, and the game has been changed. Competition for agents has gotten so fierce that agent splits are growing faster and faster.

As splits get closer to 100 percent, brokerages are adding perks such as marketing budgets, personal assistants and even personal drivers to recruit and retain agents, further decreasing company profit per agent.

Commissions

Before, 6 percent was the standard commission. Every market, every brokerage — 6 percent. In many markets now, brokers are fighting just to get 5 percent.

If your market rate is typically still around 6 percent, it’s just a matter of time before you join the rest of reality. Fierce competition and a free market have worked exactly how they should by providing better pricing for consumers, even if the result is sometimes worse service.

Aggregators

Aggregators are not necessarily evil, and consumers seem to love their products. With over 50 percent of all consumer searching done on aggregator sites, it’s impossible not to give them credit for what they have accomplished while the broker/owner’s guard was down and the National Association of Realtors was more focused on its revenue than it was on member advocacy.

Many brokerages have even inked high-priced marketing agreements with aggregators, promising huge flows of qualified leads. The problem is not that aggregators can’t deliver leads to brokers; the problem is profitability.

No matter how many consumers conduct their searching on aggregator sites, the aggregators don’t increase the market size. If 6 million homes sell in a year, those 6 million homes would have sold with or without the aggregators.

The current residential real estate industry generates approximately $60 billion in gross commission income annually. Aggregators do nothing to increase this number but generate hundreds of millions of dollars of revenue out of this pot.

Singularly, none of these obstacles deliver the deathblow to the traditional brokerage. Combined, these three trends will forever change the face of the current brokerage model.

Upward pressure on splits, downward pressure on commissions and new hands in the same-sized pot equals consolidation of epic proportions and an industry with little to no resemblance of its former self.

If there is a silver lining, the sales agents seem to be safe in the short term from the turmoil in the brokerage world. Many sales agents will benefit from the increase in their demand from brokerages, but I will get to their obstacles and long-term concerns in future articles.

So does this doomsday scenario mean that owners should close up shop or sell their company and become full-time agents for someone else? That may be smart for some broker/owners, but I don’t believe that this is the case for the savvy entrepreneur who should be able to navigate through these challenges and use this as an opportunity to outpace the competition.

To do this, they need to stay laser focused on the one factor that they can control — growth. The only way to offset shrinking profit margins is to grow top line revenue.

Coaching and mentoring your existing agents is a good place to start, but it can never on its own add consistent and sustainable increases in revenue. There are three words that will separate the winners from the losers: recruiting, recruiting, recruiting. The companies that are not effective at recruiting will die — with no exceptions.

As the game changes, so does the strategy to recruit. Most brokerages used commission splits as their main lure to recruit. However, with splits at record highs and several models already offering near 100 percent, there is little room to offer increased splits large enough on their own to motivate a recruit to make a move.

Successful brokerages will need to think way beyond the offer package when they recruit and focus on the three factors below (in this order) if they want to be around in five years:

  1. Culture
  2. Technology
  3. Marketing
In the next article, I’ll break down each of these factors to detail how the right culture, technology platform and marketing support services will attract the right recruits and retain your existing agents. The resulting increase in revenue should be enough to offset the unstoppable decline in margins.

Due to the mass consolidation that will take place in the not too distant future, the brokers who get this right will be stronger in five years than they are today because there will be fewer companies left standing.



This article was written by Glenn Felson from Inman News and was legally licensed through the NewsCred publisher network.

http://www.pncrealestatenewsfeed.com/what-will-it-take-for-brokerages-to-survive-i
 

edsl48

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#2
MOst realtors I know are unethical liars and deserve to be put out of work. One of the best things they could do though to fix the system is to prevent them for buying and selling into their own or relatives accounts. It really galls me when I see a realtor that picks up a below market priced house based upon their advice to the seller then they turn around and sell it at an inflated price based upon their advice to the buyer.
 

Scorpio

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#3
A great many realtors are deadbeats, no question,

Lazy as hell. They kill for a listing then sit on their asses and wait for someone else to do the work.

One of these brain surgeons was trying to rationalize himself to me when queried on his marketing strategy,
A point he brought up was he would use internet based advertising and it was expensive.

So I thought to go look a bit. For less than a grand total, you can have your listing plastered across the net, excepting the thieves at mls, which are becoming more and more obsolete anyway. Expensive??? Naww, not at all.

Most of them never earn the commission by actually hitting the pavement and using their contacts.
 

Howdy

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I think 5% of agents/brokers sell 80% of the listings. The rest, like my ex-girlfriend, don't have the people-skills and communication-skills to make things happen.
The internet is a factor that hasn't figured in as it should. I can get on the net and look at hundreds of properties a day, viewing topo and aerial maps, finding out who owns the neighboring properties, checking that it isn't right next to a highline or microwave tower, how deep the well is and how many gallons per minute, how far from the interstate highway, etc etc.
Because of the net, I find I, as a buyer, use up about 3 or 4 hours of the agent's time per transaction and it seems they must average ten grand an hour.
But they don't because the vast majority of buyers are not methodical. What are the brokers doing about it besides wearing out their vehicles showing them properties they don't want? What could/should they do to benefit by the net, reducing the hours and miles they spend per transaction? A whole lot!!

They could link prospective buyers to county appraisal district websites, interactive aerial topo resources and coach them on methodology, i.e. offer them a list of criteria/distinctions for their search like how many acres, how many square feet of living space, what type of terrain and on and on and on, using that information to narrow down places to look at.
I have some property listed and I find that agents bring people here that don't want it for reasons they could have discovered on the net beforehand.
 

Scorpio

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Yep Howdy,

With ya on that. Put in some interest or pinged a realtor on one of his listings I found online. Asked a few questions. He didn't even answer them, and on only 1 did he provide a link to somewhere else to get the info.

I sent him back a email that stated, don't bother any longer, as I will get someone else that is willing to do the job. He was the listing agent ie would have had double commission in/out.
 

Howdy

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#6
If the number of agents was cut in half and the commission was cut in half, the remaining agents would make the same money as before.
 

southfork

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I sold RE in Jersey, in the 70s and 80s part time, probably 90% of the realtors I knew in various offices that I worked with and dealt with were out for themselves, there was no such thing to most as having the sellers interest at heart, some people concentrated on listings, the offices called it farming, never bothered with that myself, I had a strong circle of influence and most of my leads came from that, I did have to do desk duty 1/2 days a week and listened to many a pissed of seller wanting to know why no one was looking at their house, a lot of agents let the buyer set the price and then would try to beat them up for price reductions, its a dirty business. I had multiple buyers call me over the years I had previously sold to and were happy with the service I gave and gave me more business and referrals. The old saying though buyers are liars is quite true, I saw many an agent run with any buyer all over the world for months on months and not make a sale, I asked them all up front how long have you been looking for a home, if over 2 months I wouldn't give them the time of day, many were looking for over a year, but I did sell to almost all buyers I selected .
 

Scorpio

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south,

that is the thing, honesty in and out. I take great pains to make it clear to a realtor what my expectations are when selling. Whether or not a sign can be there, what price willing, whether or not owner financing, etc. If they then try to get me to change my rules down the road, I simply tell them to not waste my time.
 

Howdy

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a lot of agents let the buyer set the price and then would try to beat them up for price reductions, its a dirty business.
The listing agents trick is to help the seller set a high price, that way they get the listing. The listing agent knows that a seller who interviews more than one listing agent will almost automatically go with the highest sales price mentioned. He also knows that when it doesn't sell, lowball offers will be considered. Main thing, get the listing, then let others work out the details.
I have a low opinion of listing agents. In some regions, brokers have set up a listing fee. For a set price, $250 to $500, they list your property, 3% going to the selling agent. I sold a home that way in 1999. I paid the $250 fee, an inexperienced gal came out and took pics, stabbed a sign and had me sign the agreement. Then a drive by saw the sign called her and she sold it, splitting the 3% on $331K with her broker for a few hours work. This was after I tried to sell it without a broker for several weeks.
 

GOLDZILLA

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#10
smarter criminals.
 

goldielox1

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#11
On this day and age, why would anyone use a "broker"? MLS, internet, etc. Take half of the commission off the price you wanted and you'll sell it a lot quicker.
 

Ensoniq

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in our area the agents are getting ground down a bit.

You can find 5, and 6% agencies but in my opinion like with most else you get what you pay for. The idea is to sell quickly before people see the time on the market growing and think they can lowball. Or start rationalizing that something must be wrong with the property because no one is buying it.

For 6% you get advance broker open house (pre market showing to brokers only). You get staging and you get frequent open houses. You get better collaterals

For 5% you get multiple list and less motivated buyer's agents (which house do you take your client to ? The sub market commission or the premium commission)

Standard in my area on the 6% deal. The listing agent side gets 3.6 and the buyers agent gets 2.4. The agency in each side gets 30% of that. Them the agent has to pay the homages (for the the agent in charge, the compliance officer etc)

I just saw a million dollar sale @6% where the buyers agent got 13k before taxes. You've got to sell a lot of houses to make a good living these days.
 

Howdy

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#13
On this day and age, why would anyone use a "broker"? MLS, internet, etc. Take half of the commission off the price you wanted and you'll sell it a lot quicker.
Theoretically yes. Sometimes I sell real estate myself and sometimes I use a broker. A couple times I tried to sell homes myself unsuccessfully and eventually listed with a broker.
Raw land is easier to sell without a broker than homes. Also, land often goes owner carry.
You don't reach as many home buyers if you're not in the MLS. If MLS was open to FSBO's, it would really put the hurt on brokers. Another factor is that home loans are almost always financed through lending institutions rather than owner carry. Brokers tend to be much more savvy about the tricks to getting financing than FSBO's.
 

Scorpio

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I just saw a million dollar sale @6% where the buyers agent got 13k before taxes
Not sure that is the right way to look at it.

What is the avg Joe being paid these days? 50-60K? So 4 of those per year and you have your avg income for being very average. Or 1 per 3 months/qtr. While the other guy making the same is going to work everyday, 8 hrs a day at least, and slugging it out the whole time.

How much effort did he put into the guy? How much time was involved? How much did he have in true costs?

All questions that would need to be answered in order to form a opinion on whether 13K was over or underpaid IMO.

But the point is valid, being a realtor on the low end of the totem pole, has a whole bunch of people in line before the check hits your desk.
 

FunnyMoney

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#15
Obviously an agent that does real work for you can be an advantage and for big money types or RE moguls, a really good agent can work out.

But for most people, who only sell one or maybe 2 homes in their entire lives, they're sucked into the agent scene simply because they don't realize how easy it is to sell the house by owner. A good escrow company will walk you through the entire process for no extra charge.
 

southfork

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Some agents work for you most don't, from experience the last house I would show was the one with the lowest commissions, commissions are negotiable contrary to what they say. On occasion I had home in hard to sell areas and I would suggest the buyer offer an extra 1/2 % or so to the selling agent and that would generate more travel, homes close to highways with noise issues, in sight of cemetaries ect were hard to move. Your biggest advantage to listing your home with a broker is it being placed in the Multiple listing service that lists all homes for sales by brokers , end of story, most homes are not sold by the listing office but another agency.
 

luckabuck

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The most successful agents in my city are Ketchum and Robbum, Inc.
 

Ensoniq

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What comic combined the two root words "broke" and "rage" to create brokerage