Connect Realty, a full-service brokerage headquartered in The Woodlands, Texas, has grown to about 1,200 agents since its first transaction in January 2008. That bucks an industry-downsizing trend: The National Association of Realtors has reported that its membership has fallen about 16.5 percent from January 2008 to April 2010, which represents a loss of about 212,900 members.

The brokerage operates on a combination of mostly virtual offices, high commission splits to agents, a low-cost technology package, and a revenue-sharing program that encourages agents to recruit their peers without regard to geographic location.

Connect Realty, a full-service brokerage headquartered in The Woodlands, Texas, has grown to about 1,200 agents since its first transaction in January 2008. That bucks an industry-downsizing trend: The National Association of Realtors has reported that its membership has fallen about 16.5 percent from January 2008 to April 2010, which represents a loss of about 212,900 members.

The brokerage operates on a combination of mostly virtual offices, high commission splits to agents, a low-cost technology package, and a revenue-sharing program that encourages agents to recruit their peers without regard to geographic location.

The brokerage currently has operations in 14 states, though its agents are mostly concentrated in half of them: California, Washington, Texas, Florida, Arizona and the Carolinas. Late last month, the mostly virtually based brokerage announced plans to enhance its presence in several more markets in those states this year, starting with Southern California.

The housing downturn definitely helped the company grow, said David Boatner, the company’s CEO and president.

A 50-agents-per-month pace

"Because of the economic conditions, people aren’t buying and selling houses as much. Agents used to make 30 sides a year. Now all of a sudden, they’re not only struggling to do 10 sides, but prices are down 10 to 50 percent. So they’ve started taking a look at fees. They were looking at what (their) business volume was and how much of that hard-earned commission (they) were able to keep," he said.

"While other brokerages are struggling to adapt to this unique environment, we are thriving and expanding," according to Boatner.

Connect Realty is growing by about 50 agents per month, and the company expects that number to accelerate as the year progresses — at least 62 agents joined in April, he told Inman News.

"We operate on these tenets: optimize the flow of information and optimize the cost of getting it to the agent; take advantage of the tech industry; optimize compensation to the agent; and use the agent as a primary recruiting source," Boatner said.

The company has a brick-and-mortar headquarters with 12 full-time staff who take care of the company’s finances, marketing, information technology needs, and online customer service support. "We’re scalable," Boatner said — if the company grows to 2,000 agents by the end of the year, as he hopes it does, the staff size won’t change much, if at all.

The company maintains a broker of record in each state the company operates in, and those individuals are in charge of making sure all agents meet any state regulations and requirements. Agents are also required to buy errors and omissions insurance.

Using the company’s Web-based transaction management system makes keeping track of everyone’s activity easy, Boatner said, and means there’s little need for franchise offices.

"When we have a listing agreement, it (is) scanned and put into our transaction management system so it can be tracked and followed. We’ve cut the cost of duplicating hundreds of franchise locations," Boatner said.

"Ninety percent of consumers say they’ve never been to a real estate office," he noted.

Commission splits at Connect Realty are set at 80 percent, except for brand-new agents who get 70 percent until they’ve completed five transactions. On an annual basis, for a high producer who contributes $25,000 of gross commission income to the company, the split goes up to 95 percent.

Recruitment is key

The company’s revenue-sharing plan works like this: If Bob recruits Jane, then Bob gets an amount equal to 5 percent of Jane’s commission. For example, a 3 percent commission on a $400,000 home is $12,000. Jane would get 80 percent of that: $9,600. So, Bob would get 5 percent of that 80 percent: $480. That piece of the pie would come from the company’s share of the commission, not Jane’s.

The plan has three levels. The first is given in the example above. On the second level, if Bob attracts five recruits (including Jane) and Jane recruits Sally, Bob gets 5 percent from Jane and 5 percent from Sally. On the third level, if Bob attracts at least 10 recruits, he gets 5 percent from Jane, 5 percent from Sally and 5 percent from whomever Sally recruits. Revenue-sharing applies to all transactions an agent’s recruits make and goes on in perpetuity — as long as the recruit stays with the company.

"It’s really aimed at providing a retirement opportunity for agents," Boatner said. "After four years, or if you’ve reached 62 years of age, you could retire on that revenue share. Most Realtors have no pensions or 401(k)s. As long as (the recruits) continue making sales, you get a share of that."

The chance for retirement was the main reason 17-year RE/MAX veteran Tom Conway joined the company about a month ago. He’s 56 and wants to retire in five years or so.

"I actually had a pretty good retirement (fund) up until (a few) years ago," he said. Then the economy began to decline, taking his nest egg with it. "(Recruiting) is a good way for me to recover what I’ve lost," he said.

In the short month he’s been with Connect, he’s recruited 18 agents and already has three or four houses in escrow, he said. He has formed his own team — Team Elite — with eight agents.

Ironically, Conway said he heard of Connect Realty when he was in the process of trying to recruit an agent for his previous company, RE/MAX GOLD in the Sacramento, Calif., area. The friend he was trying to recruit would talk to him only if he went to a presentation from Connect Realty. Once there, "I was just blown away," he said.

The tech package

Beyond the revenue-sharing plan, it was the company’s tech package that caught his eye. Among other things, the company offers an agent website, the transaction management system, unlimited virtual tours, online training, IDX feed integration, a commission management system, an iPhone application, and access to listings on Realtor.com and Homes.com.

The package costs $29.95 a month. Getting each of those things as an individual would likely cost him hundreds of dollars more each month, Conway said.

"It’s technology at a bargain price. In my personal opinion, the big (real estate) companies right now, they are Blockbuster and Hollywood Video and this company is Netflix. It moves fast. Every week there’s something new that this company is doing," Conway said.

The company also offers certain technologies on a discounted, a la carte basis: comparative market analyses from eNeighborhoods at half-price, for example, or video e-mail at $8 per month, discounted from $19.95.

"Agents want to try new tech products, but don’t want to be held accountable for a year," said Steve Hillier, another Sacramento-area Connect Realty agent. "If they want them, they can get them at a discount. If not: no harm, no foul."

No need for brick and mortar

Because it does not require a brick-and-mortar presence, Connect Realty does not charge franchise fees or desk fees. As the company has grown, however, groups of Connect agents in different locations have gotten together and voluntarily formed Connect Realty business centers where agents can work, meet clients, or set up agent-run training presentations.

For the moment, Conway’s base is a center run by Hillier. Hillier joined the company in 2008. "Over the last two years, it’s pretty much exceeded my expectations," Hillier said.

The center Hillier runs has some private offices, some cubicle areas and a shared copier. In general, the company pays the setup costs of a center until there are enough agents to take over the maintenance, Boatner said.

Agents pay $35 a month for a key fob to the center and use of equipment there; those that want a private office pay an additional fee that varies depending on location. A center can become self-sufficient once there are 60 to 80 agents paying that $35 monthly fee, Boatner said.

It’s the agents who are precipitating changes in the way the company works, he said.

"The agents were saying, ‘We need to have a place to socialize, meet clients, etc. But not like a branch office where you have to come in for meetings on Tuesday and Thursday,’ " Boatner said. Participation in the center is completely voluntary, he said.

That flexibility is part of what makes the company so attractive to agents, according to Hillier.

"That’s the secret right there: Give the agent just a little wind under their wings. And don’t bang them with fees. And when they sell a house, for goodness sake give them most of their money," Hillier said.

One side effect of the company’s revenue-share model is reflected in the work environment at Connect Realty centers, Hillier said. "Everybody’s intertwined financially, so there’s very little snipping back and forth (such as): ‘That’s my deal!’ "

"Its so cool to work with agents that are all trying to help each other," Conway added.

There’s only one thing Hillier said he could think of that the company might improve. "I think that because of their fast growth, a better customer-service arm — that would be the only thing I could ask for," he said.

"With a large team of agents, I can’t answer everyone’s question and I’ve been asking for more open lines of communication." He just suggested the change last month.

Conway has signed a lease to open a center of his own in nearby Roseville, Calif. The new office is located where a bunch of other real estate companies have clustered together, but the competition doesn’t bother Conway.

"We’re going to try to recruit those guys," he said.

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