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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.

Related posts:
  • Is Your Broker Profitable?- Traditional Brokerage
  • Real Estate Brokerage models, Jeff Brown’s Dad, and Dead cats.
  • Is Your Broker Profitable? – “Rent-A-Broker” Shops

  • 25 comments

    25 Comments so far

    1. Ken Brand January 19th, 2012 8:34 pm

      Leadership. With it you win. Without it, even though it make take a while, you lose. Cheers Jeff.

    2. Erion Shehaj January 19th, 2012 10:13 pm

      Did they have iPads in your Dad’s brokerage? I hear without it you’re dead meat :-)

      Also, Ben Kinney (look him up) advocates a variation of what you’re suggesting here. He takes it one step further. The team leader generates the leads, then has a lead manager whose job is to convert those leads into clients. All Buyer’s agents have to do is show properties. All Day. Their take: 25-30%. Their income: Probably 3-5 times more than they were making before.

    3. Jeff Brown January 19th, 2012 10:16 pm

      Hey Erion — I know of two teams, very successful, in two different states, who operate more or less like you described.

    4. Erion Shehaj January 19th, 2012 10:39 pm

      Makes perfect sense, because instead of providing your agents with leads, you’re providing them with clients. Very different value proposition. And the split reflects that.

    5. Jeff Brown January 19th, 2012 10:42 pm

      Exactly.

    6. Teyona January 20th, 2012 7:21 am

      I really appreciate reading this post. This making sense to me too, both the article and the comments. Thanks!

    7. Tom Johnson January 20th, 2012 1:00 pm

      You have hunters and skinners. They are unique skill sets. Hunters have very thick skins and do not bleed empathy. Skinners on the other hand, do not tolerate rejection but will become a trusted consultant. The greatest sales people blend the two in one person. Teams blend the two by hiring different individuals for each function. It is easier (not easy) to hire a hunter or a skinner than finding the perfect blend.

    8. Dylan Darling January 20th, 2012 2:31 pm

      I’ve been thinking of starting a team for a while now, and essentially I have. I have a few buyers agents that I work with and assign leads to. But I’m almost ready to make the big leap and start a full on team. I’ll still sell, but not nearly as much. I’ll take listings, and hand out buyer leads. I agree with your entire post, and I think this business model will best suite me and my team when I start one. Right now we see teams doing most of the business in Bend.

    9. Jason Allen-Rouman January 21st, 2012 1:27 pm

      Great post. I’ve been an agent since 2007 and very recently began to recognize and appreciate this very model as superior. Ironically, the agent centric brokerages do themselves no favors. Thanks for framing the splits; I’ve been wondering about what others considered reasonable. Any suggestions on specific sources that discuss real estate teams more?

    10. John Kalinowski January 22nd, 2012 8:30 am

      Jeff – I agree with your basic premise, but unfortunately in most normal markets across the country the number don’t work any more. In Northeast Ohio, the median home price is now more like $100,000. If you list 40 homes per year in this area, you’d be lucky to sell 25, not 35. At $3,000 per sale you’re at about $75k in commission before expenses. After paying expenses and taxes you can’t even come close to supporting a family.

      Now, try to create a team of buyer agents in our market and see what happens. The agents wont stay long. You said you could have 3 buyer agents selling 2 homes a month. That’s 72 sold transactions per year based on leads generate from 40 listings. You’d have to generate way more than 72 leads to generate 72 buyer sales in our market, and to do it off 40 listings just isn’t possible now or any time in the near future in Ohio. The ready willing and able buyers just aren’t out there, and the leads don’t flow in like they did in 2005.

      Do the math again and see why this doesn’t make sense for buyer agents on a team in most markets outside of places like San Diego. Let’s just assume that one of your buyer agents really can generate 2 sales per month in Ohio. At an average sell price of $100k and a buyer-side commission of $3k that comes to $72k per year in gross commission. Now pay that buyer agent 40% and they are getting $28,800 before their own personal expenses. Pay those expenses and taxes, and they literally are better off working at McDonald’s!

      If you look at any typical US market the numbers just don’t work right now for these mega-teams. I also don’t agree that most sales are being handled by teams as one person commented. Most sales are still being handled by the agents who only do a couple transactions per year, and there still are lots of agents out there. I thought by now the low sales and high MLS and NAR fees would have pushed more out of the business, but they still keep hanging in there for some reason, doing 1 or 2 sales per year.

    11. Jeff Brown January 22nd, 2012 12:17 pm

      Hey John — You make excellent points. However, everything’s relative, right?

      Russell Shaw’s median sales price hasn’t been much over $100K in awhile. His team closed, in 2010 I think, just over 700 sides. His team numbers roughly a dozen members or so, and only 50-60% of ‘em are buyer agents.

      But let’s look at Ohio, a state I’ve implored investors to abandon for years. (Please, don’t hurt me, Teri.) Drop strong team leaders in NE Ohio, and they’ll do the lion’s share of business in whatever market they choose. The median price when Dad ran this model in the 60s was just under, and then just over $18,500. I had been in the business, part time while in college. When I got married, and went full time in the first quarter of ’74, the median price was maybe $22,000. (I could be off, but not by much.)

      With the exception of those who formed their own brokerages, and even many of them, the vast majority of his agents were either making far less then they had been, or out of the business in a year or less after he retired. Their incomes plummeted. I knew these people personally — I saw it happening in real time. The new ‘improved’ model killed ‘em off. This, even though almost all of ‘em were making at least 70% splits in their new offices. That said, the guys who’d always relied on their own lead generation, kept thriving. I can still name them. In other words, the team leaders survived, while those who needed team leaders faltered, some to another career.

      Ohio? John, your take has a false premise. It assumes at say, $100K being the typical sale, +/-, that the agents in question were makin’ a living to begin with. Take away the backbone of real estate brokerage life, the workin’ spouse, and they’d already be gone. Also, my premise, already proven hundreds of times around the country, is that these agents earn significantly more, and more predictably when part of a dynamic team with a true leader at the helm. Ohio is not different. You guys aren’t special. :)

      I used two deals a month as the bare minimum. Every long established team of which I”m personally aware has buyer agents doing far more transactions than that. As a matter of fact, most of ‘em are doing 2-5 times that amount.

      The difference, John, is leadership, a true gladiator if you will, at the top. This translates into the complete abandonment of the agent-centric approach. It says, in effect, “You want your own company? Be my guest, but not under me. You’ll make your own way, get your own leads, and close your own transactions. But, you’ve never been able to do that to any real extent, have you?”

      The typical agent simply cannot cut it without two major factors in place.

      1. Strong leadership from someone who gets it done.

      2. Leads being handed to them in quantity and quality, consistently.

      They don’t like it when guys like me say that aloud, but most of ‘em are with a team for one of two reasons.

      1. They’ve already proven they simply cannot produce squat on their own.

      2. They started their career under the guidance and protection and security of a team cuz they already knew they simply didn’t have what it takes to make it on their own. Even they knew the team was their best option even with the significantly reduced split.

      Am I makin’ any sense?

    12. John Kalinowski January 22nd, 2012 1:00 pm

      Jeff – Again I agree with your basic concepts, but the whole thing is based on comparisons to long-established teams.

      Russell Shaw is my hero, and has selfishly provided me personal advice. He is without a doubt an anomaly, and he has momentum that was developed during a unique time in our country’s real estate history that may not be repeated. The growth seen in real estate in the last 20 years was driven by many factors that are likely not going to repeat in our generation, and perhaps even the rest.

      All the long-established teams built their market presence during the crazy growth of the last 10-20 years. That presence is what is carrying them, and guys like Russell have very deep pockets that were filled during that rare time. I’m not saying he didn’t work hard, because he did, and he is an amazing example, but again not likely to be reproduced in a market like Ohio where the average sell prices and average commissions will always be lower than the tough markets.

      I don’t quite see the relevance to comparing 1974 sales prices for your Dad’s company. Those were different times, with different commission percentages, etc. Add inflation and all the other adjustments and it’s probably more comparable to the prices before the recent market crash.

      I think what your saying is right, but not likely to be duplicated in our current market in areas like Ohio. Even the local Keller Williams offices are not creating any mega-teams in our area, and they were the ones who really brought the team concept to the forefront with The Millionaire Real Estate Agent book. Any serious teams that still exist in our are do not have the typical MREA buyer agent setup like you described above. The team lead is running buyers and listing homes just to survive. The buyers agents don’t stay around long once they get past the marketing pitch that gets them to join, and they see how few leads exist and the small payouts that result.

      If agents are going to be big producers now, they need to trim their expenses and work every piece of business they can find themselves, both buyers and sellers. At least that’s what I see in our market.

      Your Dad’s days are gone, and times have changed. Commissions are lower, there’s more competition, relative home values have dropped, and equity is non-existent. It’s going to take more than just listing a bunch of homes and grabbing some buyers agents and expecting to pay them 35-40% and stay around for long.

    13. Jeff Brown January 22nd, 2012 1:26 pm

      John — This has nothin’ to do with ‘Dad’s’ days. It’s about the model. Russell is merely better at it than most, but certainly anything but anomalous. Again, there are teams in areas with lower median priced homes than Ohio, at $100K. Furthermore, Russell still closed several hundred sides in the worst year of the last few. He doesn’t even list, as he has a designated ‘listing agent’, a guy who does nothing but listing presentations. So those, (not you) who think it’s about guys like Russell listing massive amounts of properties themselves, he’s one who doesn’t list or sell, with very rare exceptions.

      I also reject out of hand the excuse (implication) that great producing teams wouldn’t be that way if they hadn’t started in the boom times. The year before Dad retired was a recession year, 1969, and he closed over 1,000 sides. Remember, it’s the gladiator, the guy who confidently enters the arena day in and day out who thrives, even in down times.

      If NE Ohio is so bad you think poor to mediocre agents are better off on their own vs bein’ with a solidly lead team, then that’s an area from which to flee. It’s my contention that any market where the average agent can’t do better on a dynamic team IS the anomaly, not the other way around. Fact is, in all 50 states, teams using the old model are kickin’ their competition’s rear ends.

      Bottom line? I think we’ll just have to agree to disagree.

    14. John Kalinowski January 22nd, 2012 1:36 pm

      I know Russell’s history and model very well. Again, he closed hundreds of sides during the worst market because of the momentum and reputation built during the boom times. People in that area already know about his team, and he has deep pockets that allow him to bring in that business during boom times. This is not a criticism, it’s a compliment to what he has been able to do. He is definitely the best. I just don’t see anything similar happening in a market like Ohio with the market dynamics and numbers that exist right now. Not if you expect to form a similar team structure from scratch now.

      I also am sure your Dad was very good at what he did and worked harder than most, but I can’t imagine the competition was anything like it is now. The whole dynamic of selling real estate was also different. It’s really not a fair or meaningful comparison.

    15. Eric Blackwell January 22nd, 2012 2:35 pm

      John;
      Jeff’s post has cuased me to do some thinking about some of my clients from around the country. Each have their own types of markets with their own characteristics.

      I know of one team that has grown from 2 agents to 20 in the last year alone. Much of this is fueled by them utilizing their online presence to generate leads (does not require the history and reputation of Russ to pull off.

      It IS possible and doable. I totally respect that it is a competitive environment and that many agents and brokers are faltering. one of the key factors that I have seen is if a brokerage has a mountain of debt, they will get supplanted by one that does not.

      If they have a low cost per lead generation system that produces reliable and closeable leads. If they have training and systems in place to manage their agents and get the deals done.

      My sense is that those are the key ingredients and not top of mind presence.

      I will put together a post on this shortly and try to document where I see people growing in this market using this model and what I see as some of the key ingredients.

      best
      Eric

    16. Jim Klein January 22nd, 2012 5:25 pm

      Thanks y’all; this is fascinating to me. I’m with Eric…

      “If they have a low cost per lead generation system that produces reliable and closeable leads. If they have training and systems in place to manage their agents and get the deals done.

      “My sense is that those are the key ingredients and not top of mind presence.”

      That’s plainly right IMO. If it weren’t, then pounding social media would be paying off big-time. John, there is a difference in your market, but it’s not a difference that distinguishes the business models. Like here in Michigan, the problem is simple—no buyers. No business model can change that problem, but the right one can still optimize results.

      Not being in RE, the beauty of Jeff’s model to me is that it has the right people doing the right things for the right remuneration. In principle, I don’t see how it can get any better than that.

    17. Dan Connolly January 22nd, 2012 9:05 pm

      The sad truth is that for every 100 agents it’s not 20% doing 80% of the business, it’s more like 3-5% are doing are doing 80% of the biz and all the rest of the agents are doing 2-3 deals a year each, which makes up the other 20%.

      Sometimes I think it’s kind of pointless to try to teach everyone how to make it. Most just don’t get it now and never will. You could give the exact same marketing piece to two different agents, mail it to 10,000 similar homes and one would convert many sales and the other wouldn’t do squat. It’s not the just amount of prospecting you do, it’s also what you say once you get a bona fide lead that makes the difference. (It’s also about knowing what a bona fide lead is.)

      So in Jeff’s model, it’s all about the rainmaker/broker/team leader, what he does to prospect, the level of lead that he accepts, and the kind of training he gives the team players that makes the difference. It’s not so much about the market. I know the Ohio agent might have to do three times as many deals as the San Diego agent, or the Michigan agent might have to do 30 times as many sales a year to make it, but I think it is possible to “make it” in any market. Granted it takes a smart, creative, “think outside of the box” type agent to make it big in some markets, but it’s always possible.

      That’s why Jeff’s point makes sense. Unfortunately, most agents don’t have what it takes to make it big on their own. It is extremely rare to find an agent who can consistently generate enough business year in and year out especially in a declining market. Most agents will do better if they are lucky enough to find someone who can generate an abundance of qualified motivated leads and is willing to share them.

    18. Jeff Brown January 22nd, 2012 10:21 pm

      Hey Dan — I’ve always liked you. :)

    19. Teri Lussier January 23rd, 2012 8:16 am

      I learn a lot from BHB, but here are two of the most important things: 1) Nothing gets done until someone generates a lead; and 2) It’s called “old school” because it’s still around and relevant, not because it no longer works.

    20. Eric Blackwell January 23rd, 2012 8:29 am

      T;
      @ It’s called “old school” because it’s still around and relevant, not because it no longer works.

      Thanks for that. 110% correct IMO. **trying to pass that on to teenagers-grin**

    21. Russell Shaw January 23rd, 2012 1:19 pm

      I am Russell Shaw. And I approve of this message.
      THE one skill that matters the most is Lead
      Generation. More than all the other skills combined.

      It is the only “hat” you can never delegate. If
      the members on the team could generate
      enough leads for themselves – they usually
      would not be on a team. The key skill for
      agent success is LEAD GENERATION.

      How many leads one might actually need to
      make a sale in a particular market may vary.
      Needing to endlessly generate more leads
      than the organization can waste does not. It
      IS what is important and vital.

      It is this one skill (that is usially poorly taught and
      even when well taught – mostly ignored) that
      determines agent success.

      ENOUGH leads make it possible to prosper
      in any market. Period. That said, I had four
      really bad years – with my average income
      coming in at about zero. I am once again
      doing the correct actions so that the market
      favors me. For the record my average price
      is 143k and we had 401 closed escrows in
      2012.

    22. Lynne January 24th, 2012 1:28 pm

      I agree, generating leads is what an agent needs in order to achieve their goal or to prosper. The only problem is that, most of the agent is getting hopeless with the market.

    23. Jeff Brown January 24th, 2012 3:37 pm

      Sorry, Russell, for being so long in reply to your comment. It was partly due to cleanin’ up the coffee on my desk and shirt. :)

      “I am Russell Shaw. And I approve of this message.”

      As usual, when Russell speaks, conversation over. Thanks so much.

    24. Darrel Aaron March 8th, 2012 7:07 am

      Glad to see the old School method is being dusted off and used by other agents. I also liked your reference to the 80 /20 rule, a phrase that is often thrown around quite a bit but one that I don’t think enough of us grasp this concept, or actually do something about it. I agree with your conclusion- the agent-centric model will be the death of itself. The only truly sustainable method of real estate is the broker-centric model because of the emphasis it puts on good leadership.

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