Notorious R.O.B.

Conversations about the real estate industry, marketing, technology, and public policy

Nov 2, 2010

Why Does Number of Agents Matter?

We're Number One! We're Number One!

This might be the shortest blogpost in history of Notorious ROB… because I’m just genuinely curious and don’t fully understand this.

A recent Facebook update from a friend-of-a-friend said something along the lines of (and I’m paraphrasing here both to protect the innocent and because I’m too lazy right now to go take screenshots and black things out)… “Celebrating my five years as manager of Brokerage Office XYZ.  We started with 10 agents, and now we’re the largest in the area with 200!  How fantastic this has been!”

And the comments/responses are all like, “You go!” and “How wonderful!” and “You’re doing a great job!” and so on.

Here’s what I don’t quite get:  Why does the number of agents matter?

I’ve seen/heard this from time to time in the industry.  A broker at a conference might say something like, “Yes, Company X is interesting, but it’s insignificant because it only has 25 agents, while my company has over 2,000.”  And I’m left scratching my head because as far as I know, the number of independent contractors you have working for you doesn’t appear anywhere on your income statement, cashflow statement, or balance sheet.

If the aforementioned manager had said, “Five years, and we’re tops in revenues, tops in profits, and we’re making money hand over fist, y’all”, that makes perfect sense to me.  Or if the aforementioned broker had said something like, “It’s nice that Company X is doing well, but they can barely make rent, while my brokerage is doing $5m a month in free cashflow from operations” or some such.

But really, quite often you hear brokers, managers, and even agents brag about how big their company/office is by reference to the number of agents.  With some 40+% of real estate agents (according to MLS sources) doing ZERO transactions, why is the number so significant?

Would love to hear your thoughts/explanations.

-rsh

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Category: Management, Marketing, Real Estate

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  • http://twitter.com/markbrian Mark Brian

    There are other numbers that are much more important than number of agents IMHO. Average DOM, percent of list, etc etc. Who cares if you have 1000 agents if only 5 are actually closing anything?

  • http://twitter.com/ProfessionalOne Michael McClure

    Rob,

    Because agent count is the age-old metric the industry just LOVES to tout.

    And it’s that way because *most* of the traditional brokerage models have a “more agents = more revenue for themselves” bias, EVEN WHEN those agents don’t sell a lick (nickle and dime fees, anyone?).

    So, the big-box (usually) broker brings on the “zero sales” agent hoping to collect $40 per month of “E&O/ad/insert other clever title here” fee. Because he has a LOT of overhead to cover and not enough sales to cover it. So, you get creative.

    And, when you don’t have a branding image that matters or in any way differentiates yourself from the competition, there is no brand image to dilute!

    Ergo, you end up with the phenomenon that are describing.

    The metrics that matter, in ANY business:
    * Net (hopefully) income
    * Profit margin %
    * Profit per producing asset
    * Good old ROI

    My prediction: the dominant companies of the future will have dramatically fewer agents who leverage tech/Social Media/professionalism/real service, etc. to have shockingly high (in comparison to today’s metrics) profit-per-agent ratios.

    Write shorter posts more often! I really like this one! :)

    Best,
    Michael

    • http://www.notorious-rob.com Notorious R.O.B.

      I guess I should post more often on stuff I have no idea about :) Ends up just being a question and a couple hundred words that surround the question. Heh.

    • http://www.realcentralva.com Jim Duncan

      What Michael said. Bragging about the number of agents is absurd. Bragging about the number of productive agents one has is a different matter.

      I’d love to see a ratio of brokerages – big and small – franchises too – that puts their percentages on the line.

      “We have 1,571 agents!” sure sounds better than “We have 1,571 agents, of whom 119 are full time agents and are making more than they would working a minimum wage job!”

      • http://twitter.com/ProfessionalOne Michael McClure

        Jim,Here’s one of my favorite activities: take one of the Big Brands (one in particular comes to mind) that is constantly bashing us over the head with their “HUGE!” numbers, and do this: divide their total sales by the number of their agents. Voila! Instant lack of respect for them. I am amazed that more people don’t do this…Best,Michael

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  • Anonymous

    Rob, personally I would much rather have an office of 25 agents closing a cumulative 300 deals a year instead of an office with 50 closing 250.

    Who needs a bunch of agents taking of space and resources just so you can say “We’re the biggest”!?

  • http://twitter.com/Micropterus Rich Bailey

    I recall we had this conversation…maybe it was over brisket, as I recall. It matters to the managerial and perhaps at some point the revenue-share models. And it’s a industry buzz count, historically. But I think the Nests, @’s and Good Life Teams of the world would prefer quality over quantity any day.

    Maybe there is also still a perception that consumers care about the number of agents a brokerage has. But I doubt they do.

  • http://PhoenixRealEstateGuy.com Jay Thompson

    Agent count doesn’t matter. Market share doesn’t really matter. What matters to a home seller is their home gets sold, for as much as the market will bear, as quickly as possible (in most cases) with the least hassle. What matters to the home buyer is they purchase the home they need/want at the lowest price possible with the least hassle.

    However, because of what has been ingrained in many people’s minds, from buyers and sellers to agents and brokers, questions — from consumers — like “what is your company’s market share?” and “how much business does your company do?”, and “that brokerage with the balloon out front sells more real estate than anyone, so how can your small company compete?” happen.

    And any agent needs to be prepared to answer those questions. With data, not speculation.

    There are 5,177 registered brokerage offices in my MLS area. They range in size from 987 agents (in one office) to 1 — and everything in between. Transaction side count (YTD) ranges from over 2200 to zero. Volume (YTD) ranges from $416M to zero. Profit? I have no idea, the numbers aren’t reported. Cash flow? No idea, not reported. PPA (Profit per Producing Asset)? No idea, not reported.

    The “not reported” numbers contribute to the problem. It is (relatively) easy to get agent count, transaction side count and total volume. One can’t compare oneself to numbers that aren’t available. And it’s human nature to compare. And judge.

    Will the 987 agent office have more transaction sides and a higher sales volume than my 22 agent brokerage? Well I sure hope so. They have almost 45 times more people on the streets than I do, so of course their raw numbers will be higher.

    Does that mean the real estate buyer or seller is better off going with that mega-office?

    I don’t think so.

    But old ways die hard.

    • http://www.biggerpockets.com Joshua Dorkin

      That’s it Jay. Buyers and sellers could care less about office size . . . they just want to buy/sell a home quickly, at a good price, and with as little stress as possible. I’m not quite sure why any brokerage would focus on marketing anything other than their success in those metrics to clients.

      As for bragging to competitors, as everyone else has already said, number of agents is meaningless . . . it is their effectiveness that counts.

  • http://productivityjunkies.com Darin Persinger

    Fun. I’ll take the other side. Agent count does matter. It many ways it can be tied to revenue and profit. Just like an agent should have lots-a listings, a brokerage should have lots-a agents.And as agent shave negotiated higher and higher splits and capping, it becomes a bigger numbers game for a brokerage clear a profit. Lets say it cost me $10,000 a month in rent. $15,000 in staffing. $5,000 in equipment, tech, etc my expenses are $30,000 a month or $360,000 a year.If my business model is that agents cap after paying me $20,000 in year I need atleast 18 capping agents just to break even. So lets say I find those 15-20 agents and I know my bills will be paid. Now here comes an agent at that does 3-4 transactions a year, a dual career AKA part timer, and they will generate $10,000 in revenue. That is pure profit. So I’ll add 10, 20, 30, hell, 50 of those because lets face it, the reality is…it is easier to find those that do 3-4 vs those that do 15-30 a year. SO I add on 50 agents that generate 10,000 of PROFIT now, not just revenue. That’s now $500,000 in profit.Now walks in an agent that only plan to do 1 transaction a year. I say great. Because my expenses are covered by my 15-20 capping agents, and this 1 transaction will be pure profit. I’ll make $2,000 or so there.So now, I take in 100 of them which contributes $200,000 in profit. And we know its EASY to find an agent that will do 1 transaction vs an agent that does 10, 15, 20 or 50.SO now I’m at 170 agents and I’m generating $700,000 in profit. Agent count = profit. Agent count matters.

    • http://PhoenixRealEstateGuy.com Jay Thompson

      Just don’t forget to plan into your balance sheet for the agent who does one transaction a year and mangles said transaction resulting in a lawsuit, and the quintupling of your E&O premium.

      Yes, your stud capping agents could do that too, though they a far less likely to do so.

      • http://productivityjunkies.com Darin Persinger

        I would argue Jay that the agent that does the one transaction a year will be doing it with a family member or friend and that person will be more ok with some stumbling and bumbling with the transaction and the broker can always review the file right?

      • http://PhoenixRealEstateGuy.com Jay Thompson

        Maybe. But all it takes is one boneheaded move by one agent to land a broker in a world of trouble. And even if Mr/Ms Onesale Agent is selling to their grandmother, there is still another person, agent and brokerage on the other side of the transaction.

        Can we review the file? Sure. But we can’t be standing there in the living room of the potential home shoving a sock int he mouth of the inexperienced agent right before that say something that gets us sued…

      • http://productivityjunkies.com Darin Persinger

        So, what I hear you saying…is that 1. Either a broker is taking a calculated risk or maybe an outright gamble that getting sued won’t happen and 2. The same broker that is asking about ROI about social media, probably hasn’t calculated the ROI of adding an agent. and if they did they might not add the agents they do?

      • http://www.realcentralva.com Jim Duncan

        Ah, stumbling and bumbling agents are ok so long as they’re family? They *still* reflect the brand, no? And does a brand want (maybe they don’t care) to have reputations for occasionally having great agents?

    • http://www.realcentralva.com Jim Duncan

      Those are valid points that lead to the question of to whom are these brokerages trumpeting their size? The audience matters.

      If they are speaking to customers and potential clients – the numbers are irrelevant. If they are speaking to other agents/brokers/brokerages they want to acquire, the numbers do matter.

      Rob – this is the conversation we’ve had before – what business is the broker in?

      • http://productivityjunkies.com Darin Persinger

        What business is the broker in? <- I think that is the question that every broker has to answer sooner or later AND I don't think there is a wrong answer. But your answer will dictate your strategy.

      • http://www.facebook.com/jackmilleraustin Jack Miller

        Darin-

        I’ve got to respond to this, since I lived in the belly of the same beast for a while and know exactly what you are talking about.

        There is no debate about the performance of the model you are describing historically. The Goodlife teams and other “new” brands have an assertion that we are making about the market place that we intend to prove.
        The assertion is that productivity & performance matter in real estate. They matter to the consumer,
        in handling the largest asset that they own. In the age of social media and a knowledge economy,
        models that depend on new agents that are basically incompetent for the first 24 months they
        are in the industry for purposes of profitability will be threatened by this trend.

        WRT to the company that developed this new version of the old recruiting-based model here in Austin,
        what we’re seeing happen in this town I think is indicative of what is inevitable everywhere -
        many of the best agents no longer want to be associated with a brand that focuses so heavily on
        recruiting “yet another XYZ” agent because it offers them -zero- competitive advantage, and
        in fact disadvantages them because when they compete for listings the clients says “I already talked
        to another XYZ agent” and moves on.

        If you ask Krisstina Wise why she went independent, she’ll tell you exactly that.

        We have a more complete narrative about why the future of the industry does not look like the past, and while elements of the past will persist we will see some new players make a very nice living in the new and growing space that the shift in the consumer market has created.

        Finally, I have a personal problem with any industry with claims about “professionalism” that continues to produce average annual incomes of $36,000, and has a 70% turnover rate. That’s broke. Let’s fix it.

        Jack

      • http://productivityjunkies.com Darin Persinger

        Jack – can I ask what is the model for The GoodLife Team? Are you guys capping your agents? And are you asserting that with your “I already talkedto another XYZ agent” line that BRAND does matter? That the consumer views all CB agents the same, all KW agents the same, all C21 the same?

      • http://www.facebook.com/jackmilleraustin Jack Miller

        We’re uncapped, but that isn’t what matters to our agents. What matters is that if they work with us they will make at least in the top 10% of income for real estate in our market place. We do not ask our agents to pick technology tools, design marketing programs, manage advertising, manage leads & lead response, design websites, etc – we do expect and provide them everything they need to prospect, meet with clients, stay in contact with long term prospects, develop themselves in their niche market, and ultimately close a minimum of 24 transactions annually. All of our agents use 100% of our platform, and we have coaching & performance management built right into the model.

        For highly experienced agents, instead of asking them to take on the risks of hiring a big staff, designing their own tech, and developing out an organization in order to grow, we partner with them and the company shares in the risk and the reward.

        And yes, I am asserting that Krisstina went on listing appointments where potential customers said “I already met with someone from brand XYZ” and took a pass. Her association with Brand XYZ confused the consumer, since the agents from Brand XYZ all have different marketing promises, “sub-brands” etc that don’t make sense.

        What I would ask is this: Do high net worth financial managers at Goldman Sachs promote themselves, or do the say with pride: I work for Goldman Sachs. I’m an expert because that is all the Goldman hires, and whether you know me doesn’t matter. You know that the brand makes the promise. Consumers want it simple : make a strong brand promise and keep it. Agents at the Goodlife team drop their egos at the door and know that they are working for the customers best interests by being a Goodlife agent and accepting the challenge of meeting the high standards we set and keep.

        That’s the difference.

        What the brand promise of KW? CB? Century 21?

        We help our customers live the good life, by being experts in our space and professional, full time agents that perform in the top 10% of the market. How bout them apples?

        J

    • http://www.notorious-rob.com Notorious R.O.B.

      Makes sense. So bragging about the number of agents is shorthand for bragging about profitability? Basically, the idea is that after the fixed expenses are covered by the “Core Group”, each additional agent is marginal profit.

      I’d love to see if the numbers actually play out that way. If the 25 agent brokerages have lower profit margins than the 250 agent brokerages, which in turn have lower profit margins than the 2,500 agent brokerages.

      • http://productivityjunkies.com Darin Persinger

        In theory yes…but I’ve seen first hand…expense creep as agent count increases, soooo….

  • Anonymous

    In and of itself it would indicate prodigious recruiting and low attrition.
    Every time you get 4 non-producing agents, you get 6 that produce, so building a team should be profitable to the brokerage if they are doing everything else right.

  • http://www.mikebowler.net mbowlersr

    OK, Darin is on to something, however the bonus to Large companies also comes in with the Title Insurance (Cash Cow) and mortgage company, which most large organizations depend on these days. There will always be room for the smaller, medium, and larger companies and even the 1 person office provided they reinvent themselves to today’s market. Market share does matter when you’re competing against it. We enjoy a seasoned agent walking in at least once a month ready to reevaluate their career vs. losing business to us.

    I would disagree about hiring the non-productive agent. It’s just to expensive these days to carry that weight. Hopefully we have all learned from our past mistakes. Small. medium or large, I believe if the broker is not consistently bringing in new recruits in addition to seasoned agents, they’ll struggle to stay profitable.

  • http://www.reddoorindy.com/ Mike Taylor

    As retarded as Darin’s methodology is and as fuzzy as his math is, there is actually something to this line of thinking and this is coming from an independent broker. I am definitely in line with Jay’s reasoning that these unseasoned agent bring a world of liability that are not worth it for me. However, if you are a big brokerage his line of thinking does make sense to a point. Yes, you can use their income to pad the bottom line, but what does it do to your long term reputation when people actually engage those agents only doing 1 transaction per year? One transaction per year??? You know nothing if you are a professional real estate agent closing one deal per year!! My thinking is, right now in a world of agents dropping like flies, big brokerages don’t have they luxury of thinking about long term damage to their image. They are just concerned with paying the mortgage on their 10,000 out of date office space. Thankfully, us independents do actually care about the quality of agents we hire.

    • http://www.mikebowler.net mbowlersr

      Mike, I respectfully disagree, that #1. you would think that (us Independents) care about the quality of agents we hire. There’s poor choices being made in ever business model of our industry. #2 Big brokerages don;t think about long term damage. That is just not true. As I pointed out above, any broker worth a grain of salt would not have agents who only produce 1 sale a year. #3. Darin’s methodology comes from real life experience and does not deserve to be labeled retarded. So, I went in reverse order on my disagreements, however, I believe real estate is local and the best prevail depending on how they run their business. Thanks, Mike

    • http://productivityjunkies.com Darin Persinger

      retarded methodology? really? that’s the phrase you want to use mike?

    • http://www.facebook.com/jackmilleraustin Jack Miller

      In Darin’s defense, his assertions about the capacity of the model he described to create profitable real estate offices is correct *historically* (I used to read the P/L statements of 200 brokerages in one system), and will remain true for a large segment of the market for a long time. That isn’t to say that my personal values & ethics (or Darin’s, for that matter) allows us to condone or help a model that produces lots of incompetent part timers that do more damage than good.

      As a brilliant friend of mine once succinctly stated “The future is not evenly distributed” and that is what I believe we are seeing with the emergence of new models and practices in real estate.

  • http://www.bawldguy.com/ Bawldguy

    I’ve been watching brokerages since the 60′s. The numbers that matter, at least when taken in the context of more than a year or two, are as follows, IMHO.

    1. Production per agent.
    2. Percentage of listings sold vs listings taken.
    3. The degree to which results are leveraged into positive word of mouth.

    From 1965-69 a San Diego brokerage averaging 25-30 full timers and 10-12 part timers, closed well over 5,000 sides. Their results, year in and year out, sliced ‘n diced every other biz model in play. Franchises came on the scene, and before you could say, idiot, short-sighted management, splits exploded. The rest is history, much of it told in this post’s comments.

    In today’s SD market, each of those full timers in that firm, woulda generated over $325,000 in gross GCI yearly. By design, they were real estate’s version of the ’27 Yankees. Stud agents wanted to work there. Word soon got out that non-producers and slackers need not apply. It was wonderful.

    Alas, the broker/owner saw the writing on the wall, and decided lowering his handicap was a far better use of his time. :)

  • http://www.myfhamortgageblog.com/mark-madsen Mark Madsen

    I helped start a real estate company in 04, which we quickly sold in 05 when we hit our 40th agent and third lawsuit.

    I’d say the number of agents would be a bragging right if they were also adding 2 posts each per week to the company blog and increasing number of targeted leads that were generated from SEO.

  • http://twitter.com/sueadler sueadler

    Rob, here was the 2nd part of her quote ” To think there were 18 agents when I joined and we’re now over 150 – so many great accomplishments, thanks to the strongest team of agents anywhere!”
    She was talking about how she took our office from almost going under to the top office in our mls in just 5 years and one of the top produciing KW offices in the country. I think you totally missed the point of this one Rob.

    • http://www.notorious-rob.com Notorious R.O.B.

      You know, there’s a reason why I didn’t identify the person, or use the exact quote, Sue. Because it isn’t about her, or you, or your specific KW office. It was about the general brag, which in fact she used: “To think there were 18 agents when I joined and we’re now over 150″. Why does that matter? Why not lead with “To think that in just 5 years, we are a top 10 profitable office in the entire KW system”? Or why not lead with, “To think that in just 5 short years, we’ve served over 5,000 clients” or something like that? Why lead with agent numbers, going from 18 to 150?

      And given that I had heard very similar things about agent-count from brokers and owners and managers in the industry for years, I thought THAT was the interesting thing to explore.

      How you see that as some sort of a comment on Deb, or on your office, or on KW, or on anyone is beyond me. So perhaps the person totally missing the point isn’t me, after all?

  • http://twitter.com/RichLeeRE Rich Lee

    There are lots of good points in the comments.

    The number of agents is partially an advertising bragging right that means very little. I compare it to the gigahertz number that CPU manufacturers proclaim for their chips. Is a Intel 2.8 Ghz slower than a AMD 4 Ghz chip? The answer is not enough information. The gigahertz meaningless by itself just like the number of agents a firm has.

  • http://twitter.com/jimmarks Jim Marks

    All.

    I have NO horse in this game… HOWEVER, the fact that Rob takes argument A, means that by default, I will take B.

    Exposure.

    If Hahns discount brokerage and Waffle house is 20 years old and has 40 agents in Taloola, OK, and I start a New Brokerage…. Marks’ luxury 3% only listings next door with 10… Who is better off?

    Well, to make the agent argument valid, we must usurp all other variable. Lets assume then, that we are doing exactly the same business… My agents are busier, because their are less of them.

    But Rob has FOUR TIMES the exposure… He has 4 times as many agents doing listing presentations, 4X as many agents doing marketing, 4X as many in the community, at the Farmers Market, at mixers, everywhere…

    His brand, has four times the EXPOSURE..

    Now, I am a buyer from out of town and fly into Taloola to see some real estate… Who am I most likely to bumb into? When I open the paper… 4X, when I search the Internet, 4x, when I drive past bus benches… lol 4X…

    The question is… does my Broker model allow me to be PROFITABLE on the agent that writes 1 house a year…

    FULL DISCLOSURE: This is not how I feel and I would trade ALL 10 of my agents for ONE Sue Adler, tomorrow….

    • http://www.notorious-rob.com Notorious R.O.B.

      Well, although I don’t consider asking a question to which I do not know the answer to be making an argument of any sort :) , therefore leaving no A against which you can take a position B… I like your answer, Jim. Perhaps exposure is the reason why agent count numbers matter to the industry as much as they do.

      Here’s the rub, though. In order for you to take this position, even rhetorically, you have to then accept that brokerage/franchise brand does in fact mean something to the consumer. Survey after survey shows that if brand does mean anything, it means very very little (less than 4% I think? of consumers choose based on brokerage/franchise brand).

      I get the feeling from the comments that the reason why the industry uses agent count numbers so much is that it’s shorthand for revenues and profit.

      • http://twitter.com/jimmarks Jim Marks

        Rob, my argument to your question (lol) has NOTHING to do with brand… Think SEO, if I have a site that has 20 pages indexed with google, and I can build 500 more and get them indexed… it gives my consumer 500 more places to bump into me during their search…

        If I have an extra 500 agents… then I get the benefit of ALL of their marketing, and EXPOSURE… regardless of my brand, THEY increase the chances that any biz will come back to me…

  • http://productivityjunkies.com Darin Persinger

    I think its also a form of social proof. The same why, if I see a facebook page with 1,000 people, vs 100 people I think this page with 1,000 must have it going on.

    Now to it to the next level, lets say both pages have 10% engagement on the page, the page with 1,000 LIKERS is just going to appear to have more going on.

    My final thought on this, “There is more than one way to skin a cat.”

    If Wal-mart, Target, and Nordstrom can all be profitable running very different models in the same vertical, why can’t we do the same in real estate?

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  • http://twitter.com/sueadler sueadler

    Actually the reason it’s so ingrained in KW team leaders to talk about agent count is because it’s a profit sharing model. Since even top agents are only worth the cap, or in our case-$35,000 profit to the company , so it becomes important to have high agent count mixed with high productivity for the profit sharing to work. Agents who arent productive are still worthless unless they are helping to grow the company with productive agents.

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