There’s always something to howl about.

The Brokerage Biz Model That Rocked In 1966 Is Still Rockin’

Let’s begin by establishing clearly — this isn’t new info — just widely ignored. In fact, it’s more likely than not most agents readin’ this will roll their eyes for one of two reasons. One would be cuz it’s old news to them. Not that they’ve ever contemplated using it, just old news. The other is cynical disbelief when something from a couple generations ago is touted as being highly effective and profitable in today’s real estate brokerage climate. Give it a read and then make your call.

I will tell you in advance that from what I’ve seen personally, the huge majority of super high volume per agent operations are using it. They just don’t know it was snatched from the hippy dippy 60s. 🙂

And yes, there are one or two big time brokerages who’ve successfully gotten away from the model used by the industry the last 40 years.

I learned this model beginning in 1967. I’ve spoken of Dad’s brokerage countless times here, but what may not have been communicated clearly is how relatively few agents were needed to produce such off the chart sales. Let’s put the numbers on the table. How’d you like to have been one of the 25 to never more than 30 full time agents (Usually 8-12 part timers.) who divvied up more than 1,000 sides a year for five straight years? As their janitor/official printer-of-listings, I witnessed some pretty astounding things. ‘Course, back then I had no earthly clue I was seeing world class production, as I thought it was the way it was supposed to be.

Boy, did I ever learn different as a few birthdays came and went.

Our industry, beginning in the 1970s, decided it made more sense to go away from a highly profitable business model. Before operating expenses, the OldSchool model netted 40-50% of every commission dollar earned. From that income they paid all costs — the broker did. I cut my teeth on that model, and it worked like a charm.

In their infinite wisdom, they decided a superior strategy included increasing agent pay by over 100% in many cases, while simultaneously populating their firms with wet behind the ears beginners. It gets better. In order to house all the no-nothings they leased bigger and bigger offices. Geniuses.

Considering it was around that time the ‘new math’ came out, maybe that was the real culprit. Or, it coulda been the drugs which had become so popular the decade before. Who knows? We know one thing for sure. The OldSchool model was put on the shelf, often derided as ‘horse ‘n buggy’ thinkin’.

Horse ‘n buggy is kickin’ NewSchool’s ass all over the country — now.

Since the advent of teams, the OldSchool model has been taken from the shelf, dusted off, and put into service. This has been happening for several years now. From what I can tell, it’s been spreading superior profit all over the country. Ironically, almost always under the umbrella of a brokerage still shackled by the failed ‘new and improved’ model. It’s the teams that’re showin’ the way, as they throw out the ‘new’ and opt for this old model.

The 80/20 rule

It’s my contention that less than 20% of agents are producing more than 80% of the business. I base this on nothing more than average agent earnings, and the tremendous turnover we witness every few years. Yet, when we see brokerages with highly successful and efficient teams sometimes earning more money than their brokers, one wonders what these brokerage owners don’t see.

If you’d like to test this model, here’s what I’d do if I was still in the house business.

Let’s begin with a few assumptions.

1. The typical sales agent out there isn’t makin’ it, not even close. It’s for a laundry list of reasons. The real reason is that most of ’em simply refuse to do what it takes to succeed.

2. You aren’t one of those agents. You’re already successful, but want to get to the next level. However, you definitely don’t wanna start your own brokerage. I feel ya. I wouldn’t either when there are so many brokerages out there who’ll wine ‘n dine you to get you under their roof.

3. You can find a brokerage that will agree to leave you the hell alone, within reason. You don’t want their help, and Lord knows you don’t want their worthless advice. “Point me to my office, I’ll do the rest.” 🙂

How it works — what I’d be doing.

Caveat: There are a few fine books out there giving far better detail than I can here. Suffice to say, the OldSchool biz model has very stealthily made an impressive, and to some extent, an embarrassingly solid comeback.

I’d find the agents who’re doin’ about a deal a month or so, maybe less. I’d find the ones who were never listers, which is the vast majority of agents. I’d end up with several, but hire just two or three at first. Their pay would be 35-40% per deal of the buyer side commission.

I would be in charge of generating both inventory and buyer leads.

Leads would be assigned by me. The only job the buyers’ agents would have is to show up in the morning, grab their leads, convert them, and smile.

There would also be a transaction coordinator, but that’s my personal preference.

Predicting 100 listings a year would be foolhardy, by listing around 40 is completely doable.

In San Diego the median home price is roughly $340,000. The listing side commission would be just over $10,000. If you sold 35 of the 40, that’s $350,000 listing income.

With three buyer agents selling just two a month at $40,000 below median, $300,000, that’s six sales monthly. That’s not exactly settin’ the real estate world on fire, but it works. If the team leader pays his buyer agents 40%, that would leave him a tad under $390,000 in buyer commissions.

$350,000 + $390,000 = $740,000 before expenses to the team leader. Let’s say his expenses were $120,000 a year. They won’t be, but we’ll use that figure. He nets about $620,000.

The broker might be making roughly $50,000 monthly in desk/office fees. Who knows? But if that’s the case, this team leader made more than he did with a tiny fraction of the manpower.

Now, imagine an entire brokerage run this way. The possibilities aren’t really possibilities, they’re completely predictable.

Under this model, the ‘team leader’ made $400,000 a year — in the 1960s.

The foundational difference between the two models

The OldSchool approach is broker-centric — or team leader centric if you prefer. The broker/agent with the real talent and the real life courage is in charge.

The model that replaced it is agent-centric. You know, the ones who don’t have the huevos to simply prospect for business, much less start a brokerage? The ones who want the other guy to take all the risk, but pay them all the money? Dad called them leaches, an accurate description from where I sit. ‘Course, he was one hardcore SOB. He predicted exactly what would happen, and it did. It’s the main reason he shut down his operation except for one office back in 1971. “Agents are never gonna run my business. And when others allow it to happen, encourage it — they will pay the price.”

He was dead right.