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The Spartan Approach to Real Estate Brokerage

As I was admitting to Sean Purcell this morning, a few times a year I get the idea to duplicate the brokerage model Dad used so effectively in the 1960′s to early 1970′s. When this happens, I quickly grab a couch and nap ’till the idea dies a solitary, friendless death. Although surely enough of his AH genes found their way through to his first born, puttin’ up with the day to day management of a firm doing that much business with that many meat eaters would be a challenge of the first degree.

His model was built on bedrock. Know in your heart of hearts the odds are better I’ll be the Padres’ opening day pitcher next year than they are for me starting a house brokerage — but if I ever succumbed to the periodic urge, this is how I’d do it — which is the same way he did it.

1. He didn’t hire pantywaists. Put another way, he hired carnivores. Frankly, I always thought if you emerged, cajones intact, after a job interview with him, you were easily tough enough for the business itself.

2. He hired adults. Don’t just slide by that statement. Take a mental inventory of the agents you’ve known awhile and the percentage who’re adolescents at best when it comes to their job and actually, you know, working. I rest my case.

3. He filtered for strong character and profound integrity. A hint of a whiff of anything less and you were shown the door. He could smell a guy’s fear in the parking lot as he drove up.

4. All agents had three options when it came to generating/conducting business — A) His way B) His way C) All the above.

5. Non-producers were not coddled. It meant you weren’t working — period. There’s the door.

To be fair, 1 & 2 really go together, don’t they? Those afraid of their own shadows should never be real estate agents, yet they comprise a huge minority, if not the majority of the agent population, always have. Being on the front lines in real estate is somewhat analogous to umpiring. Talk is easy. Shutting up, puttin’ on the gear and callin’ balls and strikes? A different story. An umpire who hasn’t yet grown up, finds out early he’s just chum for the sharks in the dugout. Same with the new agent who thinks aloud that h/she will show the world how it’s done. Adults understand the seriousness of the subject matter — children think it’s a game. Children run from difficult tasks — adults embrace challenges. Add the personality of a true carnivore, and you have the potential for a real winner. Dad could pick those people out of a lineup with uncanny success.

Character, #3, is talked about all the time in our business. Still, go into any brokerage with 25 or more agents and you’ll quickly notice the 80/20 rule in full force — not so when you’ve hired a buncha high character/integrity white sharks to work for ya. Every freakin’ day was a feeding frenzy for those guys. I grew up thinkin’ they were the norm, so I was never scared, even at barely 18 years old.

Most brokerages today should be called PantyWaists R Us as far as I’m concerned. Buncha whiners who wouldn’t know where the bodies were buried if they were at the cemetery with corpse sniffing dogs. As I said both here and here, sellers want their damn house sold quickly for the most $$ possible, and buyers wanna, you know, buy a home. Producers make these two things happen regularly — who knew? When I was the 16-17 year old janitor/listing printer/distributor, I got to know the profile of those who were producers in the best sense of the concept. They took no prisoners — and were completely merit-based in their thinking. They knew this wasn’t a game. They were driven to succeed, and were gonna win — period. HIgh character and integrity. No excuses.

Though #4 wasn’t even an issue on the radar back then, now it would be a shit storm of force 5 magnitude. “We’re independent contractors, so you can’t tell us what to do and how to do it!” Oh really? Then why all the lame training programs? Even if they were world class, you can’t train a buncha toy poodles to be attack dogs. Multiple generations have come and gone and they still haven’t figured that one out.

Dad insisted you work his way and so would I. It’s not the only way for sure, but the only way if your license is under mine. So, what would that entail?

Much to the surprise of many, it wouldn’t be all OldSchool, not by a long shot. But you’d hafta clear your M.O. with me. The firm would be based on the public’s perception that wherever you found one of our offices, it was because we were the great white sharks in those neighborhoods. This means all agents, no exceptions, would be running old fashioned farms, but with current technology as support.

OldSchool farming backed up by a website/blog created solely for that farm. Knockin’ doors or phoning wouldn’t be required, but an all encompassing presence would be. A team approach would be required — but with assistants, not necessarily other licensees. Rookies need not apply unless heavily capitalized.

I would personally decide what neighborhoods we’d farm, and what agents would farm them — with their mutual assent. Each farm would be relatively large in terms of the number of homes. Generally speaking, nothing less than 2,000 — up to 5,000 if two or more agents wish to ‘partner up’ for larger areas. Again though, with my approval.

I know, I know, this is just Jeff goin’ off again with DinosaurThink. Not even. Let me try to explain why.

First of all, I’m not playin’ by your rules. You’re playin’ against my guys with my rules. I have you beat multiple ways before the competition even starts. Let’s count the ways together, OK?

1. My guys are simply better than yours. Oh sure, your 20% might be impressive, I’ll grant you that small victory. But 80% of my guys will be at that level — I win. I beat you at the hiring table.

2. My agents are high character adults who know what success in this business takes, and will do it ’till they’re on top. They’re not a buncha theorists, singing all 87 verses of Kumbaya to anyone who’ll listen to their pap. They’re front line people who show up every day and do what 80% of your agents spend 90% of their time avoiding, the way high school girls avoid P.E.

3. The general atmosphere in my offices would be akin to what Sean Purcell would call a law office. Competence — it’s OldSchool meaning — is the minimum standard of performance, rising from that point. There’s no debate about which way is best to market listings, or what procedure to follow. There’s the company way — though my office door and ears are always open.

The only difference between Dad’s time and now, is that Denver now has a baseball team. Otherwise, nothing’s changed. Just like then, we’re all subject to today’s economy, and all the rest of the factors coming into play in real estate brokerage as a business. The playing field was level then, as it certainly is now.

His company in it’s heyday, had 28 full timers and 8-12 part timers. But for the sake of this post, I’ll use 35 full time agents to compare numbers. Oh, and for the record, there was nothing, as in zip/zero/zilch/nada special about the San Diego real estate market in the mid-late 1960′s. We didn’t even know what a boom market was back then.

Today’s San Diego median home price is give or take, $360,000 — a figure we’ll use here, in order to better relate to what those 1960′s guys/gals accomplished.

Note: We’re gonna penalize them by reducing the sides per year by 50%! This results in about 515 sides a year for the company for four years, 1966-1969. ’69 by the way, was a recession year. :)

In today’s dollars, 35 full time agents produced a total dollar volume in sales of $185,400,000. At 3% per transaction, that’s $5,562,000 in gross revenue to the company. Nobody, and I mean nobody, was paid more than 40% for a sale back then. :) So for kicks ‘n giggles let’s use that as their pay today in this exercise.

40% X $5,562,000 = $2,224,800 to the agents. Divide that number by the 35 agents, results in a average annual income per agent of $63,565. ‘Course agents who actually produce these days, make a minimum of 80%, so we’ll use 70%. Why? Cuz it’s a friggin’ privilege to work in this firm, that’s why. You know you’re gonna make far more money than your competition.

At the more up to date 70% split, these agents averaged $111,240 each. Recall that these numbers are based on just HALF the sides they really produced in closed escrows for four consecutive years — or until Dad got terminally bored and went golfing.

Let’s add back half of the sides we eliminated, and see the real life picture of what they’d be makin’ in today’s market. Check the math, but bottom line, the 35 agents who produced all this volume, averaged $166,860 in today’s dollars — which is post correction.

Using the same 35 agents, and the real life number of sides they sold/closed each year, they averaged 29.4 sides an agent for four straight years. No teams, not one agent with even a part time assistant. No transaction coordinators — they didn’t exist.

Not only did he consistently out produce his competition, but he did so, not just in sides per agent, but gross sides. Most of his real competition were firms with 50-200% more full time agents than he fielded. His guys ran circles around their guys year after year. Wanna know the source of most of his agent attrition? They started their own firms, and cloned his model. By my count there were eight firms started from one office alone.

His agents were the Spartans of those days. Though the only reason they stopped winning was cuz their general went golfin’. Take the Spartan approach — small numbers of superior quality people with unflinching character, integrity, and work ethic. Have them work only the company’s way, whatever that may be. Let them loose, and pretty soon the very predictable result will appear — your guys will beat their guys like day follows night.

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  • 15 comments

    15 Comments so far

    1. [...] This post was mentioned on Twitter by . said: [...]

    2. Brian Wilson June 23rd, 2010 3:00 am

      Sounds like a standards-based organization. I’ve always thought that a lawfirm type structure could work well if you could find a group of productive, like-minded agents to partner with. Everyone pays a share to the house and at the end of the year, the firm’s profits are divided. So partners receive commission income and partnership income.

    3. Gloria Singer June 23rd, 2010 4:55 am

      I agree that having high standards is imperative. What I don’t understand is that if agent splits are up from 40% to 70-80%, how the broker who has taken on all the risk and overhead, actually makes any money. It seems to be more profitable to be an agent than a broker.I am very curious who the independent brokerage model works for the owner/broker.

    4. Dan Scher June 23rd, 2010 6:05 am

      I’m not sure why you wrote this post. Are you telling readers how to run a brokerage company? If so, that’s good! I’m interested in the subject, but I have a few different ideas. Allow me to indulge myself.

      The Internet capture companies have it almost right. Eventually everyone will begin looking for info on buying/selling a house on the Internet. The old way of getting clients is too time consuming which is why 90% of the agents don’t make a living. Farming, fields of influence and pursuing FSBOS are still good ways to get clients, but these activities must be in addition to getting leads from the Web.

      The reason non of these “high tech” companies have not been, nor, are profitable {Foxtons, realtor.com, Zip, etc.} is because they are run by high tech people who do not know much about the real estate business and are not interested in sales as a science. They think they can get their clients by just using technology. Real estate is too personal and anxiety provoking to be 100% machine based, and too much time spent on the tecnology and numbers takes away too much time from the agents and management. If agents cannot be taught to become trusted friends of their clients and seek to produce only what the client desires they will fail. Look at the “failure rate” of Zip Realty. They are converting less than 4%of their Web based leads into buyers and sellers. Their president says that less than 4% is the best that anyone is doing with Web based leads. Also, 80% of their sales force leave the company annually. If that’s true, then the whole business model needs to be re-thought.

      I believe that agents can eventually be taught to convert a majority of their Web based leads. After all, these are potential customers that are on the Internet looking at houses.

      I agree that you have to find stong, mature agents who are willing to work hard for a better that average income. But even if you find and hire them, you had better to be able to teach, manage and mentor them. If you do that well your numbers are correct, maybe even conservative. However, this type of management must be harder than I think it is since nobody, yet, has applied it to a company.

    5. Jeff Brown June 23rd, 2010 7:28 am

      Brian — It’s standards based, but not in the generic sense, cuz it’s completely based on merit. I see your point about the law firm, but I personally wouldn’t be interested in a buncha partners — at least in my way of thinkin’ now. Office politics is possible only when the guy in charge can be outvoted. :)

    6. Jeff Brown June 23rd, 2010 8:10 am

      Gloria — You make the perfect point. It’s why I openly call most owner/brokers pantywaists. Their predecessors allowed the tail to wag the dog, they followed that example, and now they’re living in the dog’s house. I have no pity for them whatsoever. Most great sales agents couldn’t manage a good bowel movement as a real live brokerage owner, a fact Dad learned early on. He kept promoting stellar producers to office managers. This led to a sort of double jeopardy for him, as he not only lost the high production of a solid agent, but ended up with a badly managed office with a buncha poor attitudes. He began making office managers out of hard workers who simply weren’t cut out for sales, but knew how to manage people.

      He also saw the dual threat of emerging franchise operations and increasing agent cuts. It was at that point he decided to work on lowering his handicap. :) He knew his competition, and I’m quoting him now, “Would roll over like 2-bit whores.” He was dead on. Even with the onset of 80-90% splits and 100% models with monthly desk fees, a firm offering more dollars in agents’ Levis but with 70% splits, half that for buyer’s agents, would work. Take my example.

      They actually produced 1030 sides yearly those four years. If the house took 30%, their pre-operating expenses take would be $3.37 million. Operating expenses would be WAY less than the competition due to the very low number of agents vs gross revenue. One of Dad’s competitors sold more than he did by about 20-30% a year — with 16 offices and over 100 agents. Whose net would you have wanted? :)

      If we equate agent income to championships in sports, i.e., where championships equal money, the high producing agent will opt for more dollars at a lesser cut the same way an athlete will take lesser dollars to play for a championship team. As long as the tail keeps waggin’ the dog, brokerages will continue to fall short on the profit side of the ledger.

      Ironically, highly successful teams are only wildly profitable on the backs of the pantywaist brokers who allow it to happen. They pay their buyer-agents 25-40% and laugh all the way to the bank. They must light a candle every night at bedtime, praying fervently their broker doesn’t grow a pair and shake things up.

    7. Jeff Brown June 23rd, 2010 9:00 am

      Dan — The internet capture companies almost have it right? They’ve failed to dominate due only to non-real estate leadership at the top? If I had a thousand bucks for every time I’ve heard that, Warren Buffett would come to me for loans. :) I take your point, but there’s no empirical evidence of imminent market dominance. However, if it does happen, it won’t change a thing in my model. As you so wisely posit, agents will continue to be central players, regardless of the source of lead generation.

      I think you may’ve ‘jumped the shark’ when maintaining the future likelihood of converting the majority of internet leads. They’re the same ‘leads’ that came from Dad’s newspaper ads — some are dead serious, some aren’t even LookieLoos yet. I disagree with you on that point.

      I know that every time I say this in public, there’s an uproar, but I’ll risk it today. Teaching, managing, and mentoring mature adult agents who have strong character and granite integrity isn’t difficult — nor does it take much time. In an industry where high school dropouts consistently make $100-500,000 as agents, it should be axiomatic that a degree from M.I.T. isn’t required to succeed. Put more clearly, we both know either one of us could train a high school freshman to me a semi-competent agent in 30-60 days. Why then does all the training/mentoring/managing go for naught?

      The answer is simple — it’s not that 80-90% of the agents CAN’T apply what they’re taught, it’s that they WON’T apply it, cuz they’re children or pantywaists or both. They’re allergic to both rejection and hard work. How is anyone surprised at the results they don’t produce? Yet saying that in public evokes personal attacks almost every time.

      Dad’s so-called management and/or mentoring time was literally less than five hours weekly. HIs agents were fearless. If he told them what to do and why, they strapped on their helmets and did it. They didn’t spend the majority of their time avoiding rejection. They aggressively pursued new business relentlessly. I saw this for two years as the company janitor while in high school. In essence the company was an all-star team.

      In the end, Dan, the model works regardless of the source of leads. I’m not anti-tech by any stretch, as I profit from it handsomely every year. The point here is that brokerages continue to fail, or grossly under-produce due to the quality of agent they employ combined with how much they pay them.

      Make sense?

    8. Sean Purcell June 23rd, 2010 11:25 am

      I don’t disagree with your point at all, but I do believe your point makes mine nicely. The problem is the structure. If you put together half a dozen hard chargers who will listen to someone who’s already makin’ it work and do exactly what they’re told instead of explaining to everyone within earshot why they can’t work in this market… the walls would be covered with skins in no time. The reason it doesn’t happen – the reason brokers don’t coduct the interview-oscopy that your dad did, is because there’s no money in it. The industry is now based on turnover; professionalism and reputation mean nothing. The answer is in creating a new system that drives an agent to the promised land or the door and only requires about 10 business days to do it. Your edict that the agent work your way or not at all is the beginning of the solution. Independent contractors is not just an NAR sponsored tax fraud, it’s the core of the problem.

      The ants on The Simpsons may have put it best. When they’re little ant farm was broken (while in space, no less) they flew threw the rocket ship lamenting their fate and crying out: “Freedom! Horrible freedom!” :)

    9. Jeff Brown June 23rd, 2010 12:11 pm

      Sean — I get what you’re saying. Dad, however, hired mostly folks who were not already successful real estate agents. Many were fresh from passing the test in fact. Also, logic tells us that he had little chance of attracting the super-agent at that point cuz he’d only been in business since May of 1964. He went from zero to 1,000+ sides in less than two years.

      The ‘model’ is the only way to explain that, cuz he wasn’t San Diego’s answer to the NY Yankees, in that his roster was definitely NOT stocked with superstars signed as free agents — poached from other firms. On the contrary, he built his ‘team’ through the draft, so to speak.

      That’s why I firmly believe filling a new office with half a dozen smart, hard working, but under-producing agents would work. Once they were given the knowledge and taught HOW to make things happen, they’d become smart, hard working successes.

      Hell, you see ‘em all the time in our market, right? Those few agents you know should be doing better, but they’re handicapped by their so-called training. You’ve also seen the 40-something house wife embarrass three year veterans by sheer force of will, hard work, and a learning curve that’s you know, upward.

      I bet you and I could take some of the big box brokers’ ‘turnover’ and beat ‘em with their own rejects. Wait, what’d I just say? Time for a nap. :)

    10. Sean Purcell June 23rd, 2010 3:10 pm

      Those few agents you know should be doing better, but they’re handicapped by their so-called training.

      See ‘em? They’re my target audience when it comes to coaching! I call them the Fifteen Percenters. Why? Because the 80/20 principle is pretty universal… everywhere but real estate. Two years ago when we formed one of our training companies, we polled a lot of local agents. Asked them what percentage of agents were doing 80% of the work (should be 20%). General consensus: 5%.

      Here’s the thing: the principle is still universal. That means there are 15% of the agents out there who should be top producers (or at the very least controlling 80% of the market) and they’re not. They’ve not gotten what they need from the new brokerage system (70% payouts and the brokers’ main job is to make sure the lights turn on and the plants are watered). In steps yours truly… taking those 15%’ers to the results they’re capable of hitting.

      You and me together? I love it – the ultimate “good cop, bad cop.” (Guess which one you are… :) )

    11. Jeff Brown June 23rd, 2010 3:41 pm

      Not a problem — just gimme a cigar, and I can be that guy. :)

    12. Andy June 24th, 2010 4:06 am

      Jeff,

      As someone that works closely with brokers and agents but is neither of them, I think the model you outline is fabulous. Sadly, I think you would have an enormously difficult time, at least in my area, of locating a sufficient number of agents that would fit your criteria. I hope someone tries to prove me wrong because I’d love to work with that kind of outfit.

    13. Jeff Brown June 24th, 2010 6:54 am

      Andy — Sean Purcell talked about the profile fitting the agent you speak of. He calls it the ’15%’. He says, and I concur, that the 80/20 rule in RE is more like 95/5. Still, there’s the 15% just below that 5% who’re workin’ their butts off, but just haven’t figured things out quite yet. Those are the agents who’ll flourish in the post’s model.

    14. Chris Rasmussen June 24th, 2010 8:47 pm

      I couldn’t agree more with how your dad set up his office! Sounds very similar to the office I started in 20 years ago here in Silicon Valley. I can still remember how “non-producers” or “dead wood” as we called them, would bring down the entire office with their terrible attitudes. They would just suck the life out of the building! Luckily, we had a manager much like your dad, who would quickly clear out the dead wood. We all felt incredibly loyal to this man as he was looking out for not only his companies bottom line, but more importantly, the remaining agents bottom line!

    15. Jeff Brown June 25th, 2010 7:17 am

      Chris — Dad’s favorite way to end office meetings: “Listen up! Either work with enthusiasm or you’ll be fired — with enthusiasm!”