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The New Real Estate Model – Part 3.2: Patrick, Dunne & Purcell, A Real Estate Firm

A Real Estate Firm based on the legal model could have many looks, as do actual law firms.  But for a starting point I am going to lay out an achievable structure that will accommodate the greatest majority of agents.  The firm would consist of three distinct levels as well as an administrative staff.

  1. In the top level are the named agents: let’s say Ms. Patrick, Mr. Dunne and Mr. Purcell. These are the founders of the firm and generally speaking they are all three tremendous rain makers. They have a large and active client base from which they receive a tremendous amount of referral business.  It is also quite likely that one or more of them has a strong presence in a niche area.  They are not only the face of the firm, but it is their style and personality that colors the firm’s corporate vision.
  2. Under the named agents are the partner agents.  It is within this level that we see so much of the communal benefit that Mike Farmer has written about.  Similar to the named agents, partner agents bring in a lot of transactions.  They also may have areas (geographic, industrial, network, etc.) of specialty.  These agents have reached a level reminiscent of tenure.  They share ownership of the firm as well as decision making duties and have a say in its direction.
  3. The associate level is where the greatest number of agents are found.  From fresh beginners to agents with years of experience.  The associate level is also the workhorse of the firm.  Associate agents are not only working hard to take care of clients assigned by the partners, but are at the same time trying to impress the partners with business they generate themselves.  The presumed goal of an associate agent is to be made partner.
  4. Finally, there is an administrative staff which grows as the firm’s growth dictates.  It could be as simple as one administrator or as complex as a multiple level staff covering everything from answering the phones to creating the marketing to processing the transactions and more.  Staffing might be the one place where someone looking for part time work while deciding whether to make a career change into real estate could get some exposure.

Responsibilities and Remunerations

The Associate
The most significant accumulation and degree of change versus the outdated brokerage model can be seen at the associate level.  First and foremost, associates are employees and as such receive a salary.  There is no more winking at the independent contractor rule by the IRS and no more tax advantaged hiring practices.  Responsibility, accountability and liability for associates as employees rests with the firm.  The hiring process will by necessity be focused and purposeful.  Associates will have the luxury of choosing between competing firms with various personalities, numbers of employees, areas of focus and methods of billing clients.  Of course, top firms will be sought after by many and the competition may be great.  This competitive edge will improve the firms as well as the associates and serve the clients who benefit from that honing process.  No doubt there will be some associates who do not wish to participate in such a competitive market and there will be firms that cater to them as well.  Firms that practice real estate from a different perspective.  Such boutiques, as well as the career path of solo practitioner, allows for anyone to make the choice and enter the field of professional real estate agent.  How long they stay will be up to them.

The associate life at a large real estate firm is a tough one.  They are expected to put in 60 or more hours per week.  There may be training sessions or mentoring programs (as the individual firms decide), marketing duties and clients assigned by the partners.  They may be asked to assist partners or other associates with specific transactions.  On top of that the associate is working hard to generate their own client base as this is one of the primary talents evaluated when an associate is up for partner.  An agent at the associate level receives a great deal of on the job training and a wide variety of experiences.  They receive a salary and possibly benefits.  The firm is liable for their development and their actions; the associate is accountable to the firm.  In the parlance of law firms their job is measured in billable hours.  I suggest that real estate firms abandon the practice of billable hours and keep the focus on value added goals.  I can imagine some variations though: minimum required monthly marketing hours, home viewing hours and so forth.  The firm may use this as time management training and even require the associate to document their days the way a lawyer must.  The difference: the agent is not documenting in order to grow the clients’ billable hours but rather to assure they are doing the proper activities while on company time.

When all is said and done, not all associates will make partner.  In fact at some firms the percentage that make partner may be quite small.  Those that do not move up may be asked to stay on as associates with some type of defined pay structure or they may be asked to leave or they may resign and test their ability at another firm or out on their own.

The Partner
Partners are part owners.  Real estate firms may be set up as corporations, LLCs, LLPs or sole proprietorships.  The partners receive a percentage of the profits as owners and this has significant repercussions.  Again, the wink at independent contractor status is eliminated.  More importantly, the desire to create a firm with profits and the desire to be part of a firm with profits lead to better firms doing better business for their clients.  Generating enough profits to share means the firm is creating satisfied clients and doing so in an efficient, price conscious way.  Pricing will probably be based to a large degree on the firm’s reputation for results.  That reputation is created and nurtured by the partners.  The partners will most likely meet at regular intervals to make decisions on all matters firm related.  This relieves any one or two people from carrying all the weight or spending too much time on running the firm instead of generating business.  If you will remember, this is one of the main set-backs to the Super Team model.

Partners may be general or they may have areas of interest and specialty.  A small firm may take care of all manners of real estate or they may specialize in just a few areas or niches.  On the other hand, a larger real estate firm might have have specific divisions that handle residential, commercial or investment.  There could be divisions based on type of marketing (online, door to door, network, etc.) or they may have divisions broken into geographical areas.  It would depend on the nature and proficiency of the partners as well as the size and vision of the firm.  Partners would continue to generate business as rain makers and have the added benefit of associates to help them handle the leads.  As previously mentioned, partners would receive a percentage of the firm’s profits.  On top of this they may receive a salary, a percentage of the transactions they themselves bring to the firm or both.  Their share of profits may be a fixed percentage or based on the percentage of business they generated.  It might also be influenced by the responsibilities they take on over and above real estate transactions such as training associates or creating marketing strategies.  It might be any combination; the possibilities are almost limitless.

The Named Partner
The named partners will generally be the creators of the firm.  Being named a partner may also be a reward to an existing partner agent or a carrot used to entice a top producing partner from another firm.  The named partners, besides the cache, may receive a higher salary or percentage of profits.  Named partners, as such, also serve as the “face” of the firm.  They are the corporate personality as well as the impetus behind the vision for the firm.  This uniqueness based on the named partners (and to a lesser degree on the partners in general) serves to further differentiate firms from one another; providing clients as well as employees more choices and a greater fit for their individual needs.  A model such as this fosters diversity in the name of the marketplace rather than requiring it by inefficient mandate of law.  Perhaps of greatest benefit to the general public: named partners have a personally vested interest in the level of professionalism and the reputation of the firm.

The Others
Beside the three main levels of the firm there is most likely a support staff.  Given our current licensing laws much of the staff would probably need to be licensed themselves.  Some, if not most, staffing needs can be outsourced so as not to drain so much of the partners time.

There is one other position a larger firm may fill: that of managing partner.  This person is designated as the partner that handles much of the staffing and administration aspects of the firm.  They are not brought on due to their rain making ability so much as their organizational skills.  This would create even more opportunity for the named partners and all the partners in general to focus on business.  I am not a fan of our current licensing laws, but one requirement of our model is that it be achievable quickly.  As current law requires a brokers’ license, that need would also fit nicely in the arena of the managing partner.

In the final section on Wednesday, I will talk about one possible path for implementing our new model.