AgentBrokerage

‘Principal agent model’ may be better for your real estate business than team approach

There are many pros and cons regarding real estate sales teams that are often not obvious

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Takeaways:

  • The common perception within the real estate sales industry and with most of the consumers is the larger the team, the greater the success.
  • There are many pros and cons regarding real estate sales teams that are not often obvious or shared within and outside our industry.
  • I feel there is a better and lesser-known option called the “principal agent model.”

Since their inception, real estate sales teams have signified a certain level of accomplishment and status within the industry.

The initial desire for any agent to build a team is to leverage their time in such a way that they can generate more sales while focusing on the tasks they prefer doing most or deem most important to their success.

The common evolution is to hire an assistant to handle paperwork and various other administrative responsibilities and then hire buyer’s agents, whose only responsibility is to take care of the team leader’s buyer clients in exchange for a percentage of commission, which is typically 50 percent.

On the surface, it all seems to work well, at least at first. Like most relationships, there is always a honeymoon period and, depending on the personalities at play, things will — and do — usually begin to crack after a few years, if not sooner.

The common perception within the industry and with most of the consumers is “the larger the team, the greater the success.”

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But the larger the team grows, the more the personalities and expectations begin to clash, which ultimately leads to what I believe to be the biggest team buster of all — entitlement.

Having had the experience of building a large team firsthand, I can say I personally would not do it again. I know some agents who have made it work, which means it can. But I believe the management of such teams requires a specific personality and mindset.

For the rest of us, I feel there is a better and lesser-known option called the “principal agent model.” Although it’s not as impressive in appearance as the “team model,” I believe it is a better way for the majority of Realtors to leverage and get the most out of their real estate sales business.

The real numbers

I was part of a training program for years that specialized in team building to accomplish massive sales volume. The most obvious takeaway from that experience for me was the difference between one’s GCI (gross commission income) and the NCI (net commission income).

Among this group of mega agents and their teams, there was not one whose NCI surpassed 30 percent of their GCI. So, in basic and round numbers, that means for every $1 million earned in GCI, the team leader would see $300,000 after commission splits and overhead.

This scenario was the best case, as most were operating at 20 to 25 percent NCI. The model made for generous expense accounts. But it failed miserably in the risk-reward department.

Any team leader who can generate $1 million in GCI with a team could easily generate $300,000 on their own with little to no help at all.

I have always felt that agents are too quick to hire assistants and don’t spend enough time mastering all the areas of their business before leveraging themselves.

My basic rule of thumb is if an agent is doing fewer¬†than 50 sales transactions a year, he or she¬†doesn’t need an assistant — except perhaps a virtual assistant to manage certain tasks, such as social media marketing and management of website content and listings.

The principal agent model is focused more on streamlining one’s business while maintaining an emphasis on managing clients vs. members of one’s team.

The model is not specifically designed for the primary agent to sell 300 to 500 homes a year. The idea is to create an NCI two to three times higher than the team model while selling far fewer homes — with greater focus placed on getting results for the client rather than the agent.

Monkey Business Images / Shutterstock.com

Monkey Business Images / Shutterstock.com

How to build the principal agent model

Many agents are likely operating some form of a principal agent model without being aware of it or without the right purpose and intention.

Leveraging is still the primary focus, but it is done by hiring independent contractors versus adding team members.

So all the other experts — such as assistants, home inspectors, stagers, sign installers, photographer, listing appointment coordinators, SEO managers, social media experts, website managers, graphic designers and even buyer’s agents — can all be hired on an as-needed basis.

By leveraging this way, you — as the primary agent — continue to be the central nervous system of your business. Your overhead is directed only where it’s needed and as it’s necessary, and you are never left out of touch with your clients.

As your volume of sales grows to between 75 and 100 transactions per year, then having a full-time assistant and buyer’s agent could make sense.

The added long-term benefit of the principal agent model is the connection and relationship the primary agent maintains with his clients. And with a proper LCP (lifetime client program), it will ensure greater client retention and referrals.

Overall, I believe the principal agent model offers greater ease of operation, superior NCI and exponential client retention.

Eric Putoto is the creator and founder of The Platinum Process Real Estate Coaching Program. You can follow him on Twitter @epplatinum or LinkedIn.

Email Eric Putoto.