The Real Estate Brokerage Firm Business Model - A Consumer's Friend Or Foe?

The greater the quality of the real estate agent, the better it is for consumers. But the greater the quantity of agents, the better it is for real estate brokerage firms. Traditional brokerage firms such as Keller Williams, Re/Max, Long and Foster, Weichert, Prudential and Century 21 are predominantly looking to get as many agents under their wings as possible in order to increase their sales volume and profits. Even Samson Realty, Realty Direct and other "discount" brokerage firms are following the same business model. So where does quality, what consumers are truly looking for and need, come into play?

Some argue this point by saying that the better and more successful the agent, the more deals they facilitate and the more the brokerage firm makes. Others also argue this point by saying that the more agents the brokerage firm has, the higher the overhead costs are so they need quality agents rather than less-than-average agents to stay in business.

The first statment is only partially true and is not how brokerage firms truly make money. Most brokerage firms have sliding scales when it comes to commission splits. The more the agent sells, the more of their commission they get to keep. In turn, the brokerage firm makes less and less money from an agent as they sell more and more properties. In many instances, the agent goes to a 100 percent split keeping the entire commission once they hit a certain sales volume. This puts a cap on the worth of any one agent.

Many brokerage firms also collect a flat fee up to several thousands of dollars per year from the agent just to be a part of the brokerage (sometimes called a royalty fee). Even if they don't sell one property, they still have to pay the fee. That lends to the brokerage firms not caring whether their agents are successful or not. They make a guaranteed amount of money off of every agent - the greater the number of agents, the more money they make, guaranteed.

As for the second statement, it's not quite accurate either. Real estate agents are almost all Independent Contractors and 100 percent commission based. And in order for them to use the broker's offices, they have to pay desk fees, administrative fees, per copy and fax fees, etc. In essence, they are "overhead-free" to the brokerage firm. If the number of agents increases so do the royalty and other fees offsetting the cost of a larger office space, etc.

Many brokerage firms claim that they offer training and support that are supposed to make the agents better and more successful (in turn helping the consumer). But that's not the case. The courses (all voluntary) are mostly on how to prospect and generate leads rather than helping improve the agent's level of service or become experts.

I have yet to run across or hear about a brokerage firm that only hires agents that have a 90+ customer satisfaction rating or mandatory ongoing ethics and industry training that revolves around client satisfaction, contract negotiation, proper agency representation, etc. And unless the agent has done something that may warrant disciplinary action and/or brings liability to the broker, I have yet to see a brokerage firm let go of an agent over client disatisfaction.

So what do you think...is the real estate brokerage firm business model a consumer's friend or foe?

Comments

[Ola Edvardsson]

This is a fantastic post and a very interesting question. My answer would be yes (at least to some degree).

I also have the same kind of perception:
No large brokerages really brand themselves as a quality brand per say or aspire to have a consistent quality experience in all aspects of their client interactions. Consistency is crucial if you want to build that kind of brokerage and the current models don't promote it. If the brokerage would do the majority of the marketing instead of the agent it might be a different story.

Thanks for posting this.

-Ola

[Danilo Bogdanovic]

Thank you for your comment Ola.

I think that the marketing brokerage firms do is geared towards attracting other agents versus attracting consumers to use an agent associated with them.

They know as well as everyone knows that if you ask past clients of any agent in the country the following question, "So what made you choose your particular agent, the agent themselves or the brokerage firm they were with?", 99 percent of the consumers will say "The agent themselves". Yet another reason why the brokerage firms focus on quantity rather than quality.