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You’re A Master Cat Skinner – The Good News and The Bad News

Are you the ‘go to’ guy/gal? Do you list a lotta property and do it well? Are you a leader? Though I’m sure many will say charisma is required, I beg to disagree. It never hurts, but in the end, the Lord created the ultimate equalizer to charisma:

Results.

Today, let’s have a serious discussion about what combination of approaches would slaughter what’s currently goin’ on in the national brokerage community. First, here’s my perception of the major ‘schools’ I see in operation.

Variations on the Agent-Centric brokerage model

Between us we can come up with a myriad variations. Let’s limit them to very high commission splits, and the desk fee approach.

As I’ve written before, not long ago, that the agent-centric (A-C) model is failing everywhere it’s been tried. It’s ability to fail at pretty much every level is becoming legendary, regardless of the Titantic-like practicianers now lookin’ to technology to save them. Listen guys, if buying ownership positions in title companies, lenders, and starting your own escrows isn’t prima facie evidence of the desperate reach for lifejackets, I don’t know what is.

Let’s directly compare the currently popular A-C model with what I’d open in today’s — or any — housing market.

But first, a word from the Disclosures Department.

My biz model, though it pains me to admit, would indeed work exceptionally well if completely buyer oriented, listing few if any homes. However, when compared to my model — Broker-Centric — the firm primarily based upon listing homes will annihilate the buyer based company. This isn’t theory, or even bias on my part. As anyone should readily be able to discern, it’s a matter of sixth grade arithmetic.

Also, I’m loosely basing my ‘virtual’ A-C company on a brokerage I know of in a northwestern state. The size, and commission split are the perfect example of the results one can expect when using this model.

End disclosures.

Let’s first construct a virtual company built upon the A-C model.

Let’s give ‘em a lotta agents, but not make it a big box setup. We’ll hire 35 full time agents. None of ‘em will have less than three years full time experience. They’ll be hired due to various levels of success, but mostly cuz they don’t require major babysitting. They’ll all be paid 90% commissions, and will be responsible for a $50 per transaction fee for E&O insurance.

We’ll even stack the deck for this brokerage. They’ll have no brick ‘n mortar office. They’ll have whatever technology they wish, but no physical place to go every day. No lease payment, or all the other things that factor in to having office overhead.

We’ll grant them 250 closed sides for a calendar year. The average sales price will be $150,000 with a 3% commission/side. Yeah, I know many will likely be 2.5%, but making my math easier has higher priority. :)

The same number of closed sides, average price, and 3% commission/side will be used by my virtual brokerage. Wanna keep as close to a level playing field as possible. Wait — I take that back. Only gonna give my virtual brokerage 100 closed buyer sides and 36 closed listing sides. Seems I should at least appear to be makin’ this fair, right?

The numbers for our A-C brokerage guy.

This broker/owner grossed about $1.125 Million for the year. We’ll say he has no overhead for the sake of this comparison. That nets him about $112,500 in pre-tax income. On one hand he didn’t hafta show one home, or make one listing presentation. He grossed six figures for the administration duties assigned to the broker in charge, by the state. We’ll also make the assumption this broker did everything possible to generate a reliable source of leads for the company at large. Assuming a typical 2,000 hour work year with a couple weeks vacation, this broker made just over $56 an hour.

Trust me, they earned it.

Now for my virtual brokerage — using the Broker-Centric model.

I’m the owner/broker. I don’t handle buyers — ever. I set policy. Decide commission splits. List properties. Generate buyer leads.

Out of the 36 closed listing sides, my agents sold (double-ended) 10 of ‘em, which are accounted for among the 100 closed buyer sides.

We have an office. I have three buyer-agents. A traffic cop for incoming leads. When the traffic cop’s busy, the buyer agents answer the phone. The overhead for office, traffic cop, phones, lead generation, and general geek expenses run me around $100,000. In point of fact, it’s probably FAR below that, but still, we’ll use it in order to increase the gloat factor when we’re finished. :)

Let’s look at my numbers now.

The firm’s gross income was around $612,000. Net of all overhead it quickly becomes $512,000. From that figure my buyer-agents, paid 40% commission splits, made $180,000 between them — about $60,000/yr average. With the exception of referrals or family/friends, they don’t expend any efforts on generating leads themselves.

That leaves around $332,000 — for me. Barely less than triple what my agent-centric counterpart earned.

Triple the earning for the firm’s owner/broker. Let us not conveniently forget that I gave myself a handicap. The ‘other guy’ was allotted 114 more sales than I was. What if my firm did the same? What if I listed 50 homes, while my buyer-agents racked up 200 sales?

Oops.

That’s an additional $270,000 to me from increased buyer sides.

Then, there’s the additional 14 listing sides, which add another $63,000 to the till.

That would bring my take to roughly $665,000 for the year. Let’s subtract another $65,000 in operating expenses arising from the additional sales. That would bring my total office overhead to around $165,000/yr — expenses we haven’t made my agent-centric competitor bear.

Net of all expenses my take then becomes around $600,000 for the year.

To put that in relative terms — the broker-centric model produced approximately 5.3 times more pre-tax income for the broker/owner than the agent-centric counterpart. That’s $300/hr if you’re keepin’ score.

This could be done in my own office in the San Diego area. ‘Course, if done there, it’d take just 100 closed sides of any combination of listings/sales sides to gross over $1 Million. But I digress.

The TakeAway

If you’re gonna go for the brass ring, why on the Lord’s green earth would you even consider using any version of the agent-centric model? Any way ya wanna look at it, it’s foolish to the nth degree. Teams everywhere are doing business using the broker-centric model. In many instances the team leaders are making more money than the brokers for whom they work — embarrassingly more in some cases.

If you have a team now, consider opening up your own operation. If you’re pondering the creation of your own firm? Ditto — Duh.

What I can’t figure out to save my life, is why, with all the empirical evidence of virtually guaranteed mediocrity, if not outright failure, the brokerage community at large continues taking long walks of short piers.

The Good news/Bad news joke in all this if you’re the broker/owner of an agent-centric operation.

The good news is that you made six figures for the year — major congrats!

The bad news? The guy next door, you know him, the one with less than 20% of your agents? He did exactly the same sales volume your firm did, but paid more income taxes than you made BEFORE taxes.

Bad news indeed.

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