1. One factor that wasn’t mentioned in changing profitability (at least not in the main post) was the impact of company-generated leads. If a company invests in developing unemcumbered leads from its website, outreach to highly targeted markets, etc. and charges, say, a 20% referral fee to the agent after qualifying that business, it changes the effective split and adds value to the agent who doesn’t have to prospect for that NEW business.

2. Brokers are seeing more profitabilty from related businesses (mortgage, title, insurance) than brokerage…kind of like making money on the film rather than the Polaroid camera. Oops, bad analogy…are they still in business?? Yet agents sometimes refuse to use those company services because they don’t want the broker making more money…how silly is that if it helps invest in things like more company leads? Great article in Jan 09 Real Estate (RIS Media) magazine about why agents need to re-think this and see the value.

Lastly, not all tools provided by brokers are a waste…that implies that agents are so smart they don’t need any help. I hear brokers bemoaning the fact that if agents used some of those tools, they would become more productive. Given that the average annual transaction count is something like 7 or 8 per agent, just adding 2 a year would be significant.

This whole broker versus agent thing is needs to go away, along with the sentiment that the agent does everything and the broker adds no value. As critical as the agent is (he/she IS the brand and the consumer’s touchpoint), the broker’s risk versus reward in the current model – as you point out, Rob -is something most agents wouldn’t tolerate.

We’re all in this together. A great (and short read) book, Silos, Politics & Turf Wars shows how focusing on a common goal…how both the company and the agent can add value to the CONSUMER in this case….is win-win in the long run. –pjoc

1. One factor that wasn’t mentioned in changing profitability (at least not in the main post) was the impact of company-generated leads. If a company invests in developing unemcumbered leads from its website, outreach to highly targeted markets, etc. and charges, say, a 20% referral fee to the agent after qualifying that business, it changes the effective split and adds value to the agent who doesn’t have to prospect for that NEW business.

2. Brokers are seeing more profitabilty from related businesses (mortgage, title, insurance) than brokerage…kind of like making money on the film rather than the Polaroid camera. Oops, bad analogy…are they still in business?? Yet agents sometimes refuse to use those company services because they don’t want the broker making more money…how silly is that if it helps invest in things like more company leads? Great article in Jan 09 Real Estate (RIS Media) magazine about why agents need to re-think this and see the value.

Lastly, not all tools provided by brokers are a waste…that implies that agents are so smart they don’t need any help. I hear brokers bemoaning the fact that if agents used some of those tools, they would become more productive. Given that the average annual transaction count is something like 7 or 8 per agent, just adding 2 a year would be significant.

This whole broker versus agent thing is needs to go away, along with the sentiment that the agent does everything and the broker adds no value. As critical as the agent is (he/she IS the brand and the consumer’s touchpoint), the broker’s risk versus reward in the current model – as you point out, Rob -is something most agents wouldn’t tolerate.

We’re all in this together. A great (and short read) book, Silos, Politics & Turf Wars shows how focusing on a common goal…how both the company and the agent can add value to the CONSUMER in this case….is win-win in the long run. –pjoc

Until the agent is an employee and not a 1099er, this is a pipe dream. A trader at Goldman Sachs is an employee of the firm and represents a standard of performance represented by the brand. The low bar to entry, 50 sets of state regulation make our business unique. Although given the financial crisis, perhaps 50 sets of regulation may be less corruptible than the Federal Securities regime.

With this real estate cycle we will see a big shake out. The big vs little debate may be rendered moot as politicians throw blame and rewrite regulations. I doubt however, that the states will cede sovereignty to the Feds without a fight. Big real estate has lobbying (bribe) money, the little guys can dance on the head of a pin.

This conflict is mythic. We know that David won. We also know that all 300 did not survive the Hot Gates (I have to keep Greek out of this), nor did the Light Brigade. While we all like to be the underdog, the money is on the money.

I wish all a prosperous 2009.

Until the agent is an employee and not a 1099er, this is a pipe dream. A trader at Goldman Sachs is an employee of the firm and represents a standard of performance represented by the brand. The low bar to entry, 50 sets of state regulation make our business unique. Although given the financial crisis, perhaps 50 sets of regulation may be less corruptible than the Federal Securities regime.

With this real estate cycle we will see a big shake out. The big vs little debate may be rendered moot as politicians throw blame and rewrite regulations. I doubt however, that the states will cede sovereignty to the Feds without a fight. Big real estate has lobbying (bribe) money, the little guys can dance on the head of a pin.

This conflict is mythic. We know that David won. We also know that all 300 did not survive the Hot Gates (I have to keep Greek out of this), nor did the Light Brigade. While we all like to be the underdog, the money is on the money.

I wish all a prosperous 2009.

As I’ve mentioned in my response to Kris, first and foremost, THANK YOU. I know your time can be spent doing more remunerative things than comment on a blog, and I can’t tell you how much I appreciate it.

I think the first place we should begin is in agreeing that Big Brokerage needs to get its act together. But honestly, that particular problem is not something only brokers face. Every large company I have been part of has the same problem. It’s just what happens when you go from 10 people to 100 then to 1,000 and so forth.

There is no doubt that an enterprise with 3,500 agents cannot move with the same speed and nimbleness than a brokerage with 35 agents can. And the 35 person brokerage cannot move as quickly as a 5 agent brokerage can.

Having said that, it is important to recognize that while Big Brokerage may not be as nimble as independents, they have one major advantage: they can go Big. They can tackle big investments into truly cutting edge, custom technology that sets them apart. Microsoft and even Google no longer has to be all about innovation and nimbleness; they can just buy out (or muscle out) companies that are.

I have little doubt that Kris is 12 months ahead of Big Brokerage. But then, Kris can’t deploy fully integrated CRM with a team of database marketers. Big Brokerage can (and should). Someday, some technology company will come along and offer that level of power to independents, and make a fortune. That has always been the story of technology. But by that time, Big Brokerage needs to have moved onto the next productivity enhancing technology.

The key thing here is that Big Brokerage may have already lost the battle for best website — although, if those third party companies can’t achieve profitability, then they may not be around long enough to win the war. They cannot let that happen to core technology: CRM, document production, transaction management, client retention, etc. If they do, then given the structure of our industry, they will become irrelevant. For too many agents, and too many consumers, they already are. (FWIW, I happen to believe that even on the website front, the Big Brokerages can’t really be said to have lost the battle as much as they simply haven’t started to fight. Some of the best websites in our industry belong to Big Brokerages.)

With respect to the profit margin, yes, that is excluding salaries and overhead. But every dollar paid to the CEO is a dollar that can’t be reinvested into the business. So from this standpoint, my essential point remains: brokers have to somehow get from 3% to 10% profit margins in order to have a sustainable business. Unless the reason why the margins are at 3% is because of heavy investment into technology… every other expense is basically mortgaging the future of the business.

Finally, I loved the story about your client talking to your local business paper. That exemplifies on the one hand what makes you guys successful.

At the same time, if you were the local owner of a national franchise, or the CEO of the national franchise… wouldn’t you think that your client’s comments are a wakeup call? “I don’t hire the brokerage, I hire the agent” is precisely a symptom of failure on the part of Big Brokerage. You almost never hear that when it comes to investment advisors or bankers. In fact, I don’t think it’s too much of a stretch to say that having consumers say, “I hire the brokerage, I don’t hire the agent” is the whole raison d’etre of brokerage/brands in the first place.

-rsh

As I’ve mentioned in my response to Kris, first and foremost, THANK YOU. I know your time can be spent doing more remunerative things than comment on a blog, and I can’t tell you how much I appreciate it.

I think the first place we should begin is in agreeing that Big Brokerage needs to get its act together. But honestly, that particular problem is not something only brokers face. Every large company I have been part of has the same problem. It’s just what happens when you go from 10 people to 100 then to 1,000 and so forth.

There is no doubt that an enterprise with 3,500 agents cannot move with the same speed and nimbleness than a brokerage with 35 agents can. And the 35 person brokerage cannot move as quickly as a 5 agent brokerage can.

Having said that, it is important to recognize that while Big Brokerage may not be as nimble as independents, they have one major advantage: they can go Big. They can tackle big investments into truly cutting edge, custom technology that sets them apart. Microsoft and even Google no longer has to be all about innovation and nimbleness; they can just buy out (or muscle out) companies that are.

I have little doubt that Kris is 12 months ahead of Big Brokerage. But then, Kris can’t deploy fully integrated CRM with a team of database marketers. Big Brokerage can (and should). Someday, some technology company will come along and offer that level of power to independents, and make a fortune. That has always been the story of technology. But by that time, Big Brokerage needs to have moved onto the next productivity enhancing technology.

The key thing here is that Big Brokerage may have already lost the battle for best website — although, if those third party companies can’t achieve profitability, then they may not be around long enough to win the war. They cannot let that happen to core technology: CRM, document production, transaction management, client retention, etc. If they do, then given the structure of our industry, they will become irrelevant. For too many agents, and too many consumers, they already are. (FWIW, I happen to believe that even on the website front, the Big Brokerages can’t really be said to have lost the battle as much as they simply haven’t started to fight. Some of the best websites in our industry belong to Big Brokerages.)

With respect to the profit margin, yes, that is excluding salaries and overhead. But every dollar paid to the CEO is a dollar that can’t be reinvested into the business. So from this standpoint, my essential point remains: brokers have to somehow get from 3% to 10% profit margins in order to have a sustainable business. Unless the reason why the margins are at 3% is because of heavy investment into technology… every other expense is basically mortgaging the future of the business.

Finally, I loved the story about your client talking to your local business paper. That exemplifies on the one hand what makes you guys successful.

At the same time, if you were the local owner of a national franchise, or the CEO of the national franchise… wouldn’t you think that your client’s comments are a wakeup call? “I don’t hire the brokerage, I hire the agent” is precisely a symptom of failure on the part of Big Brokerage. You almost never hear that when it comes to investment advisors or bankers. In fact, I don’t think it’s too much of a stretch to say that having consumers say, “I hire the brokerage, I don’t hire the agent” is the whole raison d’etre of brokerage/brands in the first place.

-rsh

Kris just made me aware of this great discussion so I apologize that I’m a bit late to the game. I tried reading all of the previous “stuff” here but my head semi-exploded so I am writing this with only the remaining half.

Obviously, a lot of thought and analysis has gone into your thesis as well as the comments. With my half-head I only wish to add a couple of thoughts:

There is a place in the market for at least two, if not more, models. They can be and are different and not necessarily driven strictly by business school standards. For example, our model can be summed up by the business theory of JWTPTBAHSLO (Just Want To Pay The Bills And Have Some Left Over). We make a “return” on every transaction we close. For every transaction one of our agents closes the return is increased, since their cost is minimal.

However, we are not really a low service brokerage. Why? Because while we do not provide a variety of technical tools directly to our agents at our cost, we provide the opportunity for them to use the very best technology at the moment by knowing it ourselves (well, Kris, anyway), showing them what is available and how to use it. THEY pay for and use Transaction Point, Doc U Sign, etc, etc., etc. And guess what? Next week there will be something else that is better than what we just showed them.

This is one of the greatest challenges for the large brokerages with hundreds of agents in numerous offices. They feel like they must provide all this techno-stuff to attract agents and to promote to clients. No matter how much they invest (time and $$) in technology, by the time they have evaluated it, had management meetings to discuss it, figure out how to integrate it into their backbone infrastructure and then finally deploy it only to have to spend the next two or three months trying to teach their agents how to use it, it is already yesterday’s news. Add the revolving door nature of the big brokerage with agents constantly being hired and leaving and, well, you get the idea. Technologically speaking, Kris has always been about 12 months ahead of everything our last big brokerage deployed. That’s one of the reasons we realized we didn’t need them. And that’s why big brokerages shouldn’t even try to keep up with technology. There are at least 3 or 4 third-party sites (probably more)that are much better than the best big brokerage website. They just keep falling behind. Once they realize that, they could save a lot of money and spend more time evaluating agents and trying to attract those who understand and know how to apply technology that’s already out there and who are able to adjust quickly to the inevitable changes that are coming. Whew!!

Just a quick comment regarding the “return” assumptions I skimmed above (remember with just half of my head), but I apologize if someone has already hit on this point – The big brokerage return, be it 3%, 5%, or whatever considers the net AFTER paying all of the overhead, including the salaries of their executive management team. Not just office managers and admin. people, but the corporate dudes including, but not limited to, the CEO, COO, President, numerous Vice Presidents, the in-house General Counsel, the Tech guy/girl (CTO?), and more. At our last big brokerage company I have to believe this nut was in the many $$millions. So, the theoretical 3% profit, or return is after paying those big boys (and girls) salaries, benefits, and bonuses. “Profit” can be eaten up quickly in this manner and unless you know each brokerage’s corporate overhead it will be difficult to make an apples to apples comparison.

Last note (Finally, sorry) – When we left to create our own little independent brokerage Kris wrote about it on Inman. There were many positive comments, all in fact, except one. That one negative comment came from the local owner of a national franchise office in our core market whom we know. He said we didn’t have a chance, that we would fail, because we didn’t have the “Big Brand” name and all of the associated advantages and that we would be crushed by costs. I thought about his comment and could not come up with one thing he or other big brokerages could provide me with that I couldn’t do better myself (and for less cost). We have our humble little office and our cost structure is actually less then our last big brokerage (even at our 90% split there), we are using technology that they haven’t even heard of yet, much less deployed. But the most gratifying validation of our move was as a result of a recent interview we gave to the San Diego Daily Transcript (one of our local business papers) about just this subject – the move from a large brokerage to becoming a smaller independent brokerage. The reporter wanted to take a picture of one of our “for sale” signs and we gave her an address. When there she happened to run into our client who was leaving her home and asked her what she thought about our move. Her answer: “I don’t hire the brokerage, I hire the agent.” Nirvana!