Exploring various business models for real estate brokerages makes me realize how broken some of the brokerages are. The focus isn’t on real estate clients; it is on how many leads can be captured and how many agents can be collected.
To begin with, real estate companies do not exist just to make a profit; there is a little more to it than that. Real estate companies are about having a real estate broker because in most if not all states real estate agents have to work under a broker. Brokers are actually responsible for the actions of their agents.
Most consumers would be shocked to learn this, and I know some agents and brokers who would find it disturbing, too, but I am not making it up. Check your local laws.
I have strong evidence that on two recent transactions I worked with unsupervised agents. One was with a small company. He was a new agent, and he gave his client information that isn’t true. I wish I could say hilarity ensued, but that homebuyer is seriously ticked off.
On a separate transaction, the listing agent made a choice that weakened her clients’ negotiating power. Some of the things she did cost her clients stress and money. Yet she talks like she has been selling real estate for 30 years, and I don’t think she has a clue about how much she doesn’t know — she seems more interested in how much money she will make.
Supervising agents isn’t about having them come to an office or having them use a company email account. It is about examining contracts and talking with them enough to know how they are handling various situations. It is about knowing who their clients are and even offering to help newer agents work through transactions. The new agent might not know the extent of her ignorance.
One popular and growing business model for real estate companies is what I call the “agent collector model.” These companies bring on new agents so that they can have a lot of agents.
The broker is usually an excellent recruiter and often described as “nice.” He wants to make money, and he wants his agents to make money, but he doesn’t want to spend any money or pay much attention to what his agents are doing. He cuts checks and holds earnest money and sometimes competes with his own agents for clients.
Under the agent collection model, the broker attracts agents by using the word technology a lot — and by dangling low fees and favorable commission splits in front of agents who are doing all right as real estate agents but are tired of the high cost of being with a big brand.
I am just wracking my brain trying to figure out how the people who use the services of the real estate agent benefit by working with an agent who works under the agent collector model. How is the real estate company adding value?
The agent collection model has grown in popularity, as agents are no longer tied down to offices with copy machines, telephones, company websites and fax machines. Yet technology has not changed the rules or responsibilities of a real estate broker.
As they compete for agents, it is a race to the bottom because they compete with other real estate companies to have the lowest fees and most favorable commission splits to the agents, while the fees they charge consumers slowly go up.
The more traditional type of real estate company features opulent offices and a lot of well-printed marketing materials designed to promote the brand and the agent.
The fees that some of these companies are charging their clients are huge, and new agents will get half of the commission, pay fees to the company and might have to pay for company training. They will also pay for signs, lockboxes, advertising, MLS (multiple listing service) access and special software.
Some of those companies have one broker supervising hundreds of agents and have unlicensed office administrative help reviewing contracts and looking for mistakes. Sometimes the office staff is still enforcing rules that were changed years ago because no one told them, and they do not take the same classes brokers can take to keep themselves up to date.
We are all in business to make a profit — agents and real estate companies alike. In the eyes of the law, our primary purpose as brokers is to supervise our agents and be responsible for their actions. That means going above and beyond looking for mistakes in contracts. It could even mean helping them write better contracts.
The Department of Commerce doesn’t care if I make a profit. Collecting agents doesn’t help the consumer. Having the most agents doesn’t make it a better real estate company unless of course you own the company.
The core of my real estate company has to be about providing service, but that service has to be high-quality service. The kind of service that can best be provided by intelligent agents who are as interested in real estate and their clients as they are in technology and lead capture.