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As the commission lawsuits and settlements continue to unfold, decisions about brokerage models, fee structures, training and increased transparency have come to the forefront for both agents and brokers. The ability to explain to clients how the process works and how a Realtor’s compensation is paid is, for some agents, a new skillset to master.
The latest developments include NAR’s proposed practice changes going into effect in August and an attempt by buyer plaintiffs — worried about being left out in the cold — to overturn or delay the implementation of the proposed settlements. All in all, we’re in our lawsuit era and developments will continue to unfold until all of the legal wrangling has received final approval.
As the real estate industry, market reach and technology all continue to evolve, brokerage models change along with them, providing opportunities for agents and their clients to find customized solutions to economic, market and transaction challenges. Along with that much change comes the opportunity to evaluate your current model and see what works for the road ahead — and what you’ll want to leave in the dust.
Table of contents
Brokerage model isn’t the same as business model
From a financial perspective, while we frequently think of brokerage models as defined, in part, by their compensation structure at both the agent and broker levels, that isn’t the best way to define brokerage models. A 100 percent commission brokerage can be an indie or a franchise. An a la carte menu of services can exist at a boutique brokerage or at a large virtual brokerage company.
One of the things agents have been evaluating as they look ahead to a post-settlement industry is the way they’re compensated and the way they find clients. For those who are worried about fewer buyer agent opportunities, a teamerage with well-defined roles might offer the opportunity to carve out a new niche or specialty and might come with some lead-gen baked in.
For those looking to add additional streams of income, working with an a la carte menu of services might allow them to focus on what they do best and maximize their income from one or two specific activities. For those who want to make every penny count, a 100 percent commission model might make a big difference, especially if they’re well-established and need little or no hand-holding.
Determining which will work for you is about more than dollars and cents; it’s about the kind of support you need educationally, operationally and organizationally.
Teamerage
The teamerage may operate as a mini-brokerage within an existing brokerage or it may operate pseudo-independently through a brokerage facilitator like Side. The teamerage model gives individual agents and teams the opportunity to brand and promote their business independently with the support of the team’s operational resources and support — saving time and money on infrastructure, backend operations and onboarding.
Flat-fee
A flat-fee brokerage charges a fee based on the entire transaction process rather than splitting a percentage of a commission based on the final sale price of a property. The flat fee may differ according to the price point of the listing.
A la carte
Brokerages offering an a la carte menu of services break down the buyer or seller transaction into component tasks, then monetize each of those tasks across the life of the sale or purchase. A la carte brokerages may work in cooperation with another service, like those that facilitate For Sale by Owner (FSBO) transactions.
For example, an a la carte brokerage may charge a FSBO homeowner for the initial uploading of a listing to the MLS. Buyer-focused services may charge a buyer for a home tour or for help with crafting and submitting an offer for a home they’ve identified and toured already.
100% Commission
Agents in a 100 percent commission brokerage keep the commissions they earn from transactions, paying the brokerage a flat fee or a monthly subscription instead. Essentially, agents operate more or less independently, retaining full control over their earnings while receiving minimal support, training or services from the brokerage.
Other considerations:
Cap or no cap: Some brokerages put a cap on commission splits so that top-producing agents have an incentive to max out their sales, and subsequent contribution to the brokerage, in order to earn commissions with no split. Commission caps generally reset annually.
Mentorship and training: Brokerages with more favorable commission splits often provide less mentorship and training to agents. However, they may provide optional mentoring programs or coaching services in exchange for a higher proportion of the commission split.
Takeaways:
- Often, brokerage models are less about the way agent compensation works and more about branding, services and corporate hierarchy.
- Financial models encompass both the amount of service that’s provided to the consumer and the amount of service that’s provided to the agent in terms of support and training.
- Additional incentives, including commission split caps and integrated training programs, can make a difference in how attractive the compensation model is for an agent.
Additional resources:
Franchise brokerage model: Balancing power and autonomy
In his cultural history of the real estate industry and its inextricable links with the rise of the American middle class, public policy expert Jeffrey M. Hornstein describes the development of professional real estate brokerages as the embodiment of early 20th century “cultural, social, and economic trends, including the drive to professionalize business, the rapid expansion of white-collar labor and its feminization, the rise of independent contracting as a prominent form of labor relations, and the enormous growth of the home-building and home-selling industries.”
Out of this time of change came many of the brokerages we think of when we talk about “traditional” brokerages: Coldwell Banker was founded in 1906, followed two years later by the founding of the National Association of Realtors. Many of the other so-called Big Box brokerages that share the franchise model came about later in the 1970s and 1980s, including Century 21 (1971), RE/MAX (1973), Sotheby’s International Realty (1976) and Keller Williams (1983).
Examples of traditional/franchise brokerage models: Coldwell Banker Real Estate, RE/MAX, Century 21, Keller Williams Realty, Berkshire Hathaway HomeServices, Better Homes and Gardens Real Estate, Sotheby’s International Realty
Franchise model benefits and constraints
Franchise and independent real estate brokerages cater to different preferences and business strategies within the industry.
Franchise brokerages offer the following benefits:
- Franchise brokerages often benefit from established brand recognition, which can lend credibility and attract clients.
- Franchise systems typically provide comprehensive training programs, marketing support, and operational guidance to help agents succeed.
- Being part of a franchise network grants access to a larger pool of agents and potential referral opportunities from other franchise locations.
In exchange for these benefits, however:
- Franchisees typically pay initial franchise fees and ongoing royalties, which can reduce profitability compared to independent brokerages.
- Franchisees must adhere to the brand’s operational standards and guidelines, limiting their autonomy in decision-making.
- Franchise agreements may restrict the ability to implement unique marketing strategies or technology solutions that deviate from the franchise’s model.
Branding and marketing
Some agents and brokers may be attracted to the nationally recognized brand footprint of a large franchise company. In addition, they may view the brand recognition of their company as enhancing their own personal branding efforts.
Conversely, others may feel constrained by the brand and marketing requirements of their franchise brokerage, especially if they have their own ideas about how they’d like to market themselves. It is important to ensure that the brand you choose aligns with your own personal brand and the market segment or niche you’re focused on.
Challenges facing franchise brokerages
High overhead and infrastructure costs are among the biggest challenges facing franchise brokerages. In addition, a large corporate structure may make it difficult to switch gears in the face of changing market trends.
Since all real estate is local, franchise brokerages may struggle to maintain unified marketing and messaging that appeals across all of their franchises. This can be especially problematic during times of economic change that affect some areas of the country more than others.
Takeaways:
- The franchise brokerage model includes some of the oldest, largest and most prominent real estate companies in the United States.
- The name recognition of a nationally known franchise brokerage can offer a powerful authority boost that enhances an agent’s personal branding and individual marketing strategy.
- The sheer size of a franchise brokerage company can make it difficult to switch gears in the face of changes in the real estate market or in specific market segments.
Additional resources:
Independent brokerage model: Navigating autonomy and competition
Arguably, the country’s oldest real estate brokerage is Chicago’s Baird & Warner Real Estate with 160 years in business since granting a $5,000 mortgage loan in 1855. Whether one small office or a large group of affiliated offices under one brand umbrella, the independent brokerage is a powerful force in U.S. real estate.
Examples of independent brokerage models: Hanna Holdings, William Raveis, @Properties, Crye-Leike Real Estate Services, Baird & Warner
Independent brokerage benefits and constraints
Independent brokerages offer the following benefits:
- Independent brokerages have the freedom to establish their own brand identity, business model and operational systems and processes.
- Without franchise fees or royalties, independent brokerages have the potential to achieve higher profit margins per transaction.
- Independent brokerages can adapt quickly to market changes, innovate with new technologies and implement customized strategies to meet the needs of their local market.
In exchange for these benefits, however:
- Building brand recognition from scratch can be challenging and may require significant investment in marketing and advertising.
- Independent brokerages may lack the comprehensive support and training resources provided by franchise systems.
- Without the built-in network of a franchise, independent brokerages may face greater difficulty generating referrals and establishing partnerships with other agents and brokerages.
Strategies for differentiation and niche market targeting
Some indies may operate more as a boutique brokerage, specializing in a specific niche or micro-market. Others may differentiate themselves through sophisticated, updated branding or through a carefully crafted image.
Other indies may be headed by a prominent broker-owner or managing broker who acts as a rainmaker and is supported by other agents in the brokerage. The name recognition of such a figure can sustain an indie brokerage well beyond the working years of that particular agent or broker.
Takeaways:
- Indie brokerages may offer an opportunity to craft a more specific and up-to-date brand and marketing strategy.
- An indie brokerage may be a single office or a collection of local offices under one brand umbrella.
- Indies must seek out ways to build both brand recognition and a network for professional development, referrals and collaboration.
Additional resources:
Virtual brokerage model: Redefining geographic boundaries
Propelled by technological advancements and changing consumer preferences, the emergence of the virtual brokerage model provides an innovative approach to real estate transactions that leverages digital platforms and tools to streamline processes, enhance efficiency, and redefine traditional notions of agency-client relationships. As technology continues to reshape the landscape of various industries, virtual brokerages have emerged as a disruptive force, offering agents and clients newfound flexibility, accessibility, and transparency in navigating the complexities of buying and selling properties.
The ability to transcend geographical limits and embrace a more dynamic and interconnected marketplace allows agents and brokers to band together based on common values, styles and niches rather than being limited by mere proximity. In addition, virtual brokerages can keep operational costs low by being mostly remote and passing on the cost of doing business to the individual agents.
Examples of virtual brokerage models: eXp, The Real Brokerage, lpt
Benefits for agents: Flexibility, lower overhead, global reach
For newer agents, virtual brokerages may provide a low barrier to entry and greater flexibility than more traditional models. Some brokerages tout their virtual training and more robust tech stack as particularly desirable features, allowing newer agents to continue their education and develop increased mastery from anywhere.
What virtual brokerages save in reduced brick-and-mortar costs may be passed along to their agents in the form of lower fees or the ability to take advantage of revenue sharing. Developing a downline can provide an ancillary source of income, especially for more experienced agents with a large professional network or a prominent online presence.
Regulatory and cultural barriers to virtual brokerage adoption
One of the biggest challenges for virtual brokerages and the agents who work for them is access to reasonable supervision by the managing broker. For newer agents who may have been attracted by the flexibility and low cost of a virtual brokerage, the tradeoff can come when there’s no one to ask questions of during those all-important first transactions.
In addition, with so much of the communication around a transaction being conducted online, agents and brokers in virtual brokerages should be especially aware of best practices in regards to online security, storage and document handling.
Takeaways:
- With reduced costs, greater flexibility and the ability to participate in revenue sharing, virtual brokerages have become a popular option for agents at all experience levels.
- For newer agents, access to virtual training can provide an opportunity to increase their expertise from anywhere on any schedule.
- One of the biggest challenges for virtual brokerages and their agents is access to timely guidance and supervision from the managing broker.
Additional resources:
Hybrid brokerage model: Integrating innovation and tradition
Fusing traditional practices and innovative approaches, hybrid brokerages seek to respond to shifting market dynamics and evolving consumer demands. These brokerages blend the best of both worlds, combining the personalized service of traditional brick-and-mortar agencies with the efficiency and convenience of digital platforms.
By embracing a hybrid model, real estate brokerages aim to cater to diverse client needs while leveraging technology to optimize operational processes and enhance the overall customer experience. In an era where flexibility and adaptability are paramount, hybrid brokerages seek to reshape business as usual for agents and their clients.
Examples of hybrid brokerage models: Redfin, Compass, eXp Realty, HomeSmart International, Realty ONE Group
Pros and cons of hybrid approaches for agents and clients
For agents, hybrid brokerages can offer greater flexibility and lower overhead costs, similar to the advantages offered by virtual brokerage models. However, some agents will long for more support than they’ll find in a more traditional brokerage model, and for those who are not tech-savvy, getting up to speed on the hybrid’s tech stack may present a considerable challenge.
For clients, greater transparency and increased communication can be a significant advantage of a well-utilized tech suite. However, some clients may perceive the hybrid model agent as providing a less personal touch, especially when working with a team.
Here too, clients who are less tech-savvy may find it challenging to navigate digital platforms or feel overwhelmed by the reliance on technology throughout the transaction.
Takeaways:
- Hybrid brokerage models can offer a best-of-both-worlds solution that marries some of the benefits of traditional brokerage models with a robust tech platform.
- Agents may enjoy greater flexibility and lower overhead, but may miss the support they’d find in a more traditional brokerage.
- For both agents and clients, the reliance on sophisticated technology may present a barrier to those who are less tech-oriented.
Additional resources:
Boutique brokerage model: Crafting personalized experiences
The boutique brokerage model takes niche marketing to the next level with an entire organization dedicated to a specific market segment, specialized services and a deeper level of expertise. Boutique brokerages may specialize in a niche like luxury, in a very narrow micro-market or in services like facilitating the probate process for inherited properties.
Examples of boutique brokerage models: The Agency, SERHANT., Hilton & Hyland, Dolly Lenz Real Estate, Ebby Halliday, Red Oak Realty
Creative branding and marketing strategies in boutique firms
Boutique firms have an opportunity to tout their expertise in their particular niche, taking them from generalists to must-have specialists for a specific client base. This also makes marketing easier to target and opens the door to a robust referral network of affiliated professionals.
For example, a brokerage specializing in senior adult communities may work closely with professionals who specialize in clean-up and move-out, estate sales and auctions, wills and trusts, and other needs of their client base.
Potential pitfalls of boutique models: Scalability and resource constraints
Narrowly focused boutique brokerages may run into difficulties if they decide at some point that they want to grow. However, in many cases, part of the appeal for the owners and agents of these brokerages is their smaller size and more focused services.
Market shifts may also affect a boutique brokerage’s business model, especially if they are working primarily with a focus that’s economically or geographically driven. Decision-makers should be closely attuned to market conditions and trends to ensure that they’re staying ahead of any changes that could potentially require them to shift their business model.
Takeaways:
- The old saying “there’s riches in the niches” applies to boutique brokerages, which tend to focus on a narrow market or client segment.
- Boutique brokerages may have an easier time targeting their branding and marketing since they can more narrowly define their potential clientele.
- Boutique brokerage owners should be hyper-aware of changing economic conditions and other market factors that could impact their chosen segment.
Additional resources:
Emerging trends and innovations: Shaping the future of brokerage
Of course, the central truth of the real estate industry is that it’s always changing. New technologies, new trends, new generations, new economic realities: all of these have an impact on what comes next, how existing brokerage models may choose to adapt and how new brokerage models may come into being.
Impact of technology: AI, blockchain, virtual reality
With the growth of technology comes the opportunity for new ways to “do real estate.” With the transaction potential of AI, the security potential of blockchain, and the home tour potential of ever-advancing improvements in virtual reality, the role of the agent will be less about transactional nuts and bolts and more about process navigation.
The role of the broker in this scenario becomes about choosing the right tech and the right agents and ensuring that they are working together seamlessly. It will also be about articulating a brand identity and a unique value proposition that will help agents attract clients and serve them with exceptional consistency and competency.
Alternative compensation models: Downlines, agent equity, revenue share
Compensation models are evolving beyond the traditional commission-based structures, offering agents and brokers opportunities for diversified income streams and long-term financial growth. One notable approach is the downline model, where agents earn not only from their transactions but also from the sales generated by agents they’ve recruited into their team. This incentivizes mentorship and team-building, fostering a collaborative environment where success is shared collectively.
Equity share and revenue share models are also gaining traction, offering agents ownership stakes in their brokerage that align their interests with the company’s growth and success. This model not only aids in retention by providing agents with a sense of ownership and commitment, but it also allows them to benefit from the appreciation of the brokerage’s value over time.
Such models also address a frequent pain point for real estate agents by allowing them to create opportunities for long-term financial stability so that they may one day retire or exit their business on a more secure financial footing.
Changing consumer expectations: On-demand services, transparency
For the modern consumer used to same-day service and at-your-fingertips convenience, providing on-demand services 24/7, along with easy and convenient access to everything they need to know throughout the transaction is essential. Evergreen content marketing, well-integrated communication channels, and ongoing updates will be necessary to keep clients comfortable and onsides.
In addition, there’s little or no mystery left in the real estate process, so agents must be transparent about the service they provide and how they’re answering client questions. Younger consumers have grown accustomed to doing their own research and becoming their own experts before they ever reach out for the first contact with an agent. That means you need to be able to answer their questions and reassure them about your qualifications and the service you provide. Again, tech and training will be keys to meeting changing expectations.
Environmental and social responsibility: Sustainability, community engagement
Corporations of all stripes are finding that being a good public partner is also good business. Brokerages that differentiate their branding, marketing and services through an ecological, social, community service and charitable giving approach will connect with clients on a deeper level and may be able to engender the kind of brand loyalty that has been elusive for brokerage firms in the past.
This may lead to an even greater opportunity for boutique brokerages that serve ever-narrowing niches with entire brokerages becoming more focused on specific micro-markets, property types or client needs.
Takeaways:
- With advances in technology, the agent’s role becomes more about process navigation than individual transaction tasks.
- Modern consumers expect, and demand, 24/7 availability and information. Brokers must provide enhanced productivity and communication tools to meet this expectation.
- An emphasis on community involvement, flexible compensation, environmental sustainability, and social engagement offers opportunities for brokerage companies to develop unprecedented levels of brand loyalty from consumers and agents.
Additional resources:
In the face of industry and technology changes, brokerage models become more fluid and interconnected, erasing many of the traditional differentiators between categories. The important thing to remember as an agent or broker considering your options is that there is truly something for everyone, and a perfect fit does exist.
Take into account the way you like to work, your level of expertise and your desire for collaboration when considering the brokerage model that works best for you and your business.
Email Christy Murdock
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