When speaking with seasoned agents, it’s not uncommon to hear some team members ask what they need to do to go it alone. And that question makes sense.
Many agents got in the business to be entrepreneurs, as traditional agents that help themselves and their families buy and sell houses and, most importantly, to work when they want to work and to enjoy the spoils when they work their butt off for their clients.
For some, working for a team gives them a sense of a robbed dream. The idea of giving up independence to work under someone else’s rules and commission structures limits the amount of money they fantasized about making, and it can be totally disincentivizing.
Agents, however, shouldn’t look at teams as a roadblock to entrepreneurial success but an important step on the destination to financial independence. While it’s frustrating to accept change, the real estate industry is evolving, and all agents need to consider the possible constraints along with the benefits a team provides.
One fundamental problem for agents looking to fly solo; it’s much harder to succeed today than it was even five years ago. Three major forces have increased the difficulty of independent agents compared to being a team member: Commission compression, competition due to the number of licenses and iBuyers and low-fee corporate models.
Several factors cause commission compression. When agents are untrained on how to compete, they often resort to discounting to win. With their sphere of competition expanding rapidly, agents have to justify cutting commission to justify existence, which is the basis of getting and keeping their license. This, combined with the massive amount of Wall Street money looking to get a piece of the real estate pie, some struggle with profitability, this is adding stress on commission like never before.
This increased competition is changing the role of agency as the real estate economy is taking a hard shift:
1. The Internet makes it easier to find high-performing competitors and listing agents
2. More sales going to iBuyers and low-fee model internet model
3. The internet has replaced shopping with an agent to learn about the inventory, Wall Street-funded marketing dollars keep those at the top of search
4. Agent count reaches all-time highs
5. More rentals compress the need for more agents
Wall Street-funded new business models with marketing budgets that an individual agent can only dream about, are creating business models of iBuyers and low-fee brokers with big pocketbooks that gobble up deals that used to go to individual agents.
The agent population continues to explode, but there are now fewer deals. Agent population has reached its highest count ever, according to the National Association of Realtors., surpassing agent count prior to the housing collapse. The total sales of homes across the U.S., however, is relatively flat, according to Statista.
Home sales grew by 5 percent from 2013 to 2018, yet agent count increased by 30 percent during the same time period, according to a report from NAR.
This lack of growth of home sales has been fueled by the growing number of well-funded corporations getting into the profitable rental business with the explosion of rentals models like Airbnb. The other main contributing factor to fewer deals is lenders, aggregators and iBuyers with large marketing budgets that are charging hefty referral fees. That is expensive to individual agents, to close their referrals, but also looking for top performers challenging agents as they need a return to stay in business but ultimately leading to commission compression for the agents involved.
This is why teams are expanding, and team leadership needs good business people to stay profitable in this shark tank called real estate. This is why agents should look to a team to survive and join the ranks of the 87 percent failure rate after five years, according to NAR.
“This growing trend not only helps our members share workloads and responsibilities, but also allow Realtors to benefit from the experience of fellow professionals,” said NAR President Elizabeth Mendenhall, in a statement about teams.
“The synergies of a well-functioning team are often an incentive to relinquish some of the independence of a solo practitioner and offer many attractive features for both licensees and their customers,” Mendenhall said.
Agents want to believe in the dream of real estate, but getting there requires knowing the situation you’re in and realizing that joining a team may be the best way to find real success.
Jeff Sibbach leads The Sibbach Team at Exp Realty. He is based out of Phoenix.