Is Your Broker Profitable? – “Rent-A-Broker” Shops

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

The 100%, desk fee model was made popular some 25 years ago by one HUGE national franchisor. There have been several companies that have adopted that model and had equal success. Essentially, the business model is along the lines of “rent-a-broker” for a flat fee per month. The term “rent-a-broker”, really isn’t fair because it implies that the designated broker isn’t supervising the transactions but I’ll use it for the sake of illustration.

The compensation proposition to the agent is that you get to keep 100% of your commissions and pay a monthly fee to the brokerage. There is an mutation of that model that charges a flat-fee per transaction but I think I’ll focus on the “rent-a-broker” model for this post. The best analogy for this model is one of a landlord and tenant. Like a property lease, there is a contract outlining the rights, responsibilities, and financial consideration expected from each party. In most markets with a median sales price of $250,000, the monthly “desk fee” would be approximately $1,000.

The broker/owner, really doesn’t have to provide much to the agent in terns of advertising or office space. Essentially, the only expenses associated with the brokerage would be the three administrative salaries and a small office space (with conference room and copier). I’ll pull the administrative costs from my post about the traditional model:

Let’s analyze the annual expenses. Receptionist, operations assistant, and sales manager salaries will total $130,000. We gross that number up 115% to include payroll taxes and benefits for a total of $149,500. This is a traditional model so you should figure on $12,000 for advertising. Throw in the rent and facilities charges of $75,000 for a 2000 sq. ft. office, $12,000 for supplies and $12,000 for phone/internet, equipments lease and we are approaching $260,500.

Some of the costs will be recouped by “a la carte” services. Five individual offices could be rented to agents for $1,000 per month and the supplies and equipment costs could be passed through to the agents. The real “net costs” to the brokerage would be somewhere in the area of $150,000 or $12,500 monthly. You can see that a brokerage of this type starts becoming profitable at 13 agents (paying $1,000 a month).

Here is the problem with this model. If we look at the same pool of 25 agents from my original post, broken down into A, B, and C, this model appeals to only the A and B agents. The B agents are marginal players because 2-3 off months causes them to reconsider their “monthly fees” and transfer that risk by working for a traditional broker.

Another limitation of this model is the sales manager/supervising broker. Successful A agents will be producing two transactions (or more) each month. The supervising manager can really only juggle about 50-60 transactions each month; that limits the agent count to 25-30. The positive benefit of this model is that it attracts the professional, full-time agent who is less apt to put the brokerage license in jeopardy.

The owner of a “rent-a-broker” company can expect to make approximately $150,000 annually from the office. Risks to that profit include: price wars (from a competing model), a slower real estate market (scares the agents to lower risk split compensation), and turnover (the effort to stay at “full” employment). The main issue is the ability to attract ENOUGH qualified agents. In Temecula, CA, for example, there are 500 licensees, only 100 of them are “qualified”. The big question to consider before opening a “rent-a broker” shop will be:

Can we really attract and retain one out of every four productive agents in town?