BLOODHOUNDBLOG.COM

There’s always something to howl about

Turning LiquidBlue into steady green: Is it possible to found a new real estate brokerage without going broke?

Cleveland real estate broker John Kalinowski and I have been batting around some ideas of his on how to structure his new brokerage to make it work well for everyone — clients, agents and ownership. Surely I’m not the best person to ask about this, since we are doing everything we can to avoid adding agents. So John decided to throw it out to the Bloodhounds — contributors, commenters and readers — to see if y’all can come up with better ideas.

Here’s John’s epistle to the dawgs:

Hi Greg!

I’m reaching out to you and the Bloodhound community for a little advice as I prepare to take the next step in the fascinating world of real estate brokerage. I left RE/MAX in early December to start Liquid Blue Realty with a secret weapon of sorts, a custom sign sign idea built around your original concept. So far the response has been beyond incredible. It takes a ton of work to create each sign, and they’re not cheap, but the attraction is unlike anything I’ve seen in our area.

Our market is in a state of transition, just like everywhere else, with agents concerned about whether or not their brokers will survive, and struggling with monthly desk fees and transaction charges. Right now I have one other truly excellent agent working with me, along with two part-time admin assistants who have the ability to work full time. I’m ready to start talking to other agents, and I plan on being very selective in who I choose to join our company. Our approach to listing homes is an important part of our business, and providing a reliable, repeatable listing experience to the public is one of my main goals.  No matter who a seller works with at our company, I want to make sure they receive the same attention to listing detail and transaction management as I bring to my clients.

Where I’m stuck is how to best create a compensation plan that makes sense, particularly with all the extra services we intend to provide to our agents.  We will partner with them on their listings, taking care of many of the details that help create a focused, effective marketing strategy. To keep it short, you can see what we offer on our Careers page.

My thought is that we’ll offer two simple commission splits. One for listing transactions and one for buyer sales, with no additional transaction, E&O, or monthly fees. Agents will not have to worry about writing a check or receiving a monthly statement, and much of the overhead and stress that holds the majority of agents back will be handled by the company. Ideally, I imagine creating something like a mini Russell Shaw Team within a brokerage, possibly with listing and buyer agents handling certain territories and receiving all company-generated leads for their area.

I also intend to have one program, with no secret back-office deals to lure agents. Everyone will be under the same structure, and we intend to attract, not recruit agents.  We’re completely virtual at the moment, and I don’t expect to sign a lease for any sort of expensive office space in the near future. Small, satellite offices, possibly part of an office conglomerate where you basically pay for a small space and share a conference room is probably where we’ll land.

How can the Bloodhounds help?

I’m looking for input from fellow agents and brokers as to what they consider to be a fair split, with no additional fees, based on all the things we’re offering. With one split for listings and another for buyers, what do Bloodhound readers think is the best plan that allows both the agents and brokerage to prosper, particularly when working together in a true team arrangement.

Thank you so much for your help!

John Kalinowski
Broker – Realtor
Liquid Blue Realty

It happens that Cathleen and I were treated to dinner last night by Greg Tracy of BlueRoof360.com, and he had some interesting thoughts on the general idea of how to manage a modern brokerage. Perhaps he’ll have time to jump in with thoughts of his own. I may shed a notion or two, too, but I don’t think my ideas will scale well. That leaves you. What do you think John should do?

Technorati Tags: ,

Related posts:
  • 5 Minutes On “Why Now Is A Good Time To Buy”
  • How Do You Take Your Blog From a Sloppy Joe to a Decadent and Delightful Dish?
  • Times Are Tough – But That’s No Reason To Be A Thief

  • 24 comments

    24 Comments so far

    1. Tony Sena January 27th, 2009 12:05 pm

      I went to your career page and saw that you are offering:

      NO Transaction Fees
      NO Monthly Fees
      NO E&O Fees
      NO Annual Fees
      NO Technology Fees
      NO Desk Fees

      Which means your company is absorbing the E&O Insurance for each and every agent and I am sure there are other fees you are absorbing which is usually covered by charging agents monthly fees.

      Most people start their own business to make money and with your setup, even with low overhead, you won’t be making a profit unless your agents close deals. Knowing this, I would put all agents on at least a 80/20 split for non company generated leads and a 50/50 split for company generated leads.

      That’s my 2 cents…

    2. Joe January 27th, 2009 12:35 pm

      My wife and I have started our own brokerage. In fact, today is our first day of being on our own, so naturally I was drawn to this blog entry today.

      Initially, I’ll be reactivating my license and our company will be just my wife and I, however, when we start to add on, we’ll go with a flat fee. I realize this is contrary to what John is looking for, but I thought I would mention it nonetheless. My wife worked for a broker who charged a flat fee, plus E&O insurance. The system worked well. I think we might consider a sliding scale, and as agents produce more, the flat fee would go up, slightly.

      My wife and I produce (income wise) more than we need, so the agent(s) we select will be little to low maintenance. The sliding scale works well especially in a down market when agents are considering putting their license on the shelf to avoid desk fees.

      That’s just my 2c! :o)

    3. Dee January 27th, 2009 2:09 pm

      As an agent (not a managing broker), I believe that I pay quite a bit o’ cash each month just to breath, in addition to my 60/40 split and transaction fees. Unfortunately, I don’t believe that my contributions ensure financial success for the Brokerage.

      After all, once an agent makes his/her split they might bring brand awareness (if they have listings vs buyers), but financially they are not directly contributing for the rest of the year (be it a calendar year or anniversary year).

      So … assuming your goal is to have a few agents who are high performing & loyal … I would suggest a high split ratio with profit sharing and/or investment assistance. Something like 80/20 for the split?

      Oh … have you checked out The Group Inc? They are a Real Estate Company in Northern Colorado. You might like the way they run their biz. If I lived there I would stand in line to join their team.

    4. Jeff Brown January 27th, 2009 2:32 pm

      My only experience watching a multi-office real estate brokerage was as the young son of the owner. Business models have come and gone. What he did won’t be repeated in our lifetimes, maybe never.

      The last four decades have brought home the #1 factor acting as the foundation for his phenomenal success.

      His roster of agents was never less than an all-star team. As in pro sports, there are age old debates about which offense/defense was best. Or what model employed to build a championship team has produced the most rings.

      The lone common denominator running through all great teams has always been the skill level of the players on the field. Obvious? Maybe. True? If my guys are better than your guys — I win. Period.

    5. genuinechris johnson January 27th, 2009 3:57 pm

      >>>>If my guys are better than your guys — I win. Period.

      Unless Norv Turner or Marty are your coaches….

    6. Jeff Brown January 27th, 2009 4:16 pm

      A perfect example of the naked truth hurtin’.

      Of course, coming from a guy living in a state sans pro football, it kinda sorta loses its sting. :)

    7. Carey January 27th, 2009 5:13 pm

      We have been operating a brokerage with very little overhead for about 18 months now. We also attract agents not recruit. Our fees are low–$500 per month and $95 per transaction for an office and $195 a month to work at home. While we don’t have a receptionist (or any paid staff) we do have 13 people who have joined us. It is about working together and sharing ideas and common goals. We have turned away far more agents then we have. If you run a good business other agents know it and will come calling.

    8. James Boyer January 27th, 2009 6:46 pm

      Hmmm, This is a hard one. Being that I am a RE/MAX REALTOR I really like the 100% plan and believe that it incentivises to maximize your business. It really sounds like you are looking to almost hire people to work for you, since you will be giving them a required listing presentation, probably required marketing activities, and probably other things they are required to do. I guess I would go with 88/12 for deals they bring in on their own, and a 60/40 on deals they convert from within the company.

      Mind you, this is not a model I would work for.

    9. Joshua Hanoud January 27th, 2009 7:43 pm

      With each listing you provide a set marketing plan…that marketing plan has a set cost. Figure out your cost to market 1 home for 6 months that will give you a dollar figure.

      Take that figure (plus whatever profit/padding you require to cover the listings that don’t sell (run stats to find an average percentage?)) off the top of any incoming commissions and then give as high a split as you’re comfortable giving with the remainder.

      so say “300 per transaction and a 95% split” or whatever the numbers happen to be that work for you.

      Charge a separate referral fee (higher if you qualify the leads before passing them on, lower for “name and number” type leads) for any leads you generate for the agents through your company site.

      The problem that comes to mind is if your agent lists a $50,000 house, that $500 plus a potential referral fee to the broker would make a huge dent…hmm…

    10. John Kalinowski January 27th, 2009 8:18 pm

      @Tony – I’ve found that most brokers soak their agents when it comes to E&O, and overcharge substantially. They look at it as a profit center, which isn’t our goal, since we’re not in the insurance business. You also said “you won’t be making a profit unless agents close deals”. Isn’t that the goal of any sales organization? Aren’t the salespeople supposed to actually sell something, and that’s how you make a profit? I aim to get away from the standard model of treating your agents as customers and finding any way you can to squeeze blood from them until they leave. We actually want to help them close deals! Thanks for the input!

      @Joe – Best of luck to you and your wife. I think the flat fee system can work well in the right environment, and there’s really no right or wrong system. In my company it wouldn’t work since we’re doing so much for the agents. The reality is that you have a cost of doing business no matter whether you pay a flat fee and cover your own costs and generate all your own business, or whether you pay no fees and a higher split for receiving leads and extra service. Net-net it’s about the same, and if you can do more business because you’re not doing busy work, you should be able to net more even after paying a higher split.

      @Dee – You commented on an agent “making their split”. This may be a common problem with brokers who cap off the split after a certain milestone is hit, usually once the company has made a certain amount from the agent. Again, it can only work in a company that isn’t providing much more than the “typical” brokerage. I think having something like an 80/20 on buyer transactions might make sense for me, but on the listing side I just don’t know of anyone else who’s offering as much as we are. There’s a cost associated with properly listing a home, and we plan on bearing that cost, and charging a slightly higher split for it. The premise being that the agent will list and sell more homes, since their properties will be properly presented to the market, and we’ll also take a lot of the busy work off their back. This allows them to spend more time doing what they do best- sell homes!

      @Jeff – I totally agree with you on having a roster of best-of-the-best agents. The problem is, if you go after those who appear to be “the best” in your market, you may find out they’re really not all the great afterall. Greg Swann may have a better plan, which is to start with newbies and train them into your system.

      @Carey – Sounds like you’re off to a great start! I think your path is a smart one. Turn away the bad ones, and attract the good.

      @James – I was first licensed in 2004 and started at RE/MAX, which was the only company I worked with until I went out on my own. The reality is that there is no such thing as 100%, and once you pay the annual dues, monthly fee, transaction fees, and E&O charges, plus the other misc. junk they push your way, you really end up at about a 60% split. That usually doesn’t include the extra money you spend to dig up your own business since they don’t really do anything to bring leads your way. Despite all the hype about Leadstreet, I never received anything of value from that program, even though I carried about 20 listings on average. Many of the agents in the office I left had production low enough that they were receiving more like 20% after they paid all the fees, and a few were actually losing money on the system! It’s hard to believe that anyone would pay a company just to exist, but that’s what many of them are doing. The only thing I can figure is that they just don’t track their numbers or do the math, or perhaps they hang in there, continuing to gulp the Kool-Aid with hope that things will get better.

      Thanks to everyone for contributing, and I look forward to hearing more!

      John

    11. myrtle beach condos January 27th, 2009 9:20 pm

      it is a great time to start a brand new model. But that is a lot of expenses you are incurring each month for non-producing agents.

    12. Thomas Johnson January 27th, 2009 9:31 pm

      John: I agree with the tiered split. Let the agents maximize earnings from their own prospecting efforts. It will encourage some entrepreneurial thinking.

      The company generated leads will have a cost associated with them. If your web initiative generates leads in abundance, here is my half-baked idea: Charge for leads, but pay for the closing. Your leads cost the same whether they close or not. If you have an agent that brings home the cat skins from those leads, put a cash value on that skill. In my experience, agents do not value a freebie lead from the broker, and thus do not treat that client as well as a self generated prospect. If you establish the value of the leads you generate upfront and then pay handsomely for the cat pelt, I think you have the opportunity to attract agents that will pull the rope in the same direction. You could do this on a percentage closed basis, or some sort of tiered payout.

      You can also accommodate the agent that doesn’t need leads, just your environment, corporate culture, if you will, as long as he/she is an asset to the company.

      Another thought is this: If you offer “A Better Listing”, thanks, Greg, what is stopping you from collecting a normal fee and having the listing agent earn less from the listing? For example, a Bloodhound type listing would cost the client 6% with listing agent payout of 2%, 1% to the house for custom sign, single property website, etc and 3% co-broke. If the agent obtains a retainer, incentives apply as well. This could turn into a Rube Goldberg comp plan, which would be no fun. Just thinking out loud here.

    13. Greg Tracy January 27th, 2009 11:03 pm

      Obviously there are local factors that are in play when you decide on compensation, but as a past broker/owner who had some success I would a few thoughts;

      Remember, if you don’t make a profit you go out of business and nobody wins. You need to make some profit.

      I would not put so much of my value proposition on a yard sign which can be easily duplicated by my competitors. It’s a great idea and I think your clients (and others) will love them, but if they join you for “stuff” they will leave you for “stuff”. I love the signs, but it’s just one piece of the value you offer your agents and clients.

      Going all-split and paying for marketing has risks, especially in your market where homes are sitting and many won’t sell. Will your agents be able to list for whatever commission rate they want (which also affects your profit) and price homes however they want (if they aren’t paying for marketing they aren’t as invested in the result).

      Best of luck to you…

    14. Mike Taylor January 28th, 2009 3:34 am

      I too have recently started adding agents and am kicking this exact same thing around. Here is one potential flaw I see with your system…there is no incentive or penalty for agents that take listings just to get a sign in the ground. We all know that in today’s market you must be picky about which listings you choose to take or you will end up broke marketing these things that never sell. Since you are bearing a big portion of the marketing costs, your agents will not think twice before taking an overpriced listing all while you are shelling it out to advertise the thing.

    15. Marty Van Diest January 28th, 2009 10:02 am

      My brother and I left a RE/MAX office in November 08 to start our own company as well. It is interesting to see so many similar situations in the comments.

      I would caution you on one thing. It seems that you have started your company on the strength of your custom sign service. That is attracting customers and listings which is good. But,if you start cutting into others business they will copy you which might take away your competitive advantage. So just keep thinking about additional ways to enhance your competitiveness in the consumers eyes.

      I have also been thinking about compensation packages to offer potential new agents. I do not want to grow much if at all, but am open to good people. I will want to have some type of performance built into the package so that I do not carry non-producers. That is the advantage of the fee based system.

      Just be very careful that your enhanced services do not end up costing you if you sit with a lot of non-sellable inventory. You mention that they will sell if effectively marketed, I am assuming that correct pricing is your number one marketing tool. The best sign in the world won’t sell an overpriced listing.

    16. Jeff Brown January 28th, 2009 11:18 am

      John — The only way they’d appear to be among the best to me would be their production. Unless there’s a curse on your new venture, it’s not likely they’d go from champ to chump overnight.

      Training agents your way is a model with which I’d never argue. At that point though, you’ve committed to being a full time mentor/teacher. Also, this would almost surely color your first’s year’s operation red. That’s not horrible if you can absorb it, as the long term benefits might indeed include your own roster of all-stars.

      My observation these many years has shown me the batting average for creating all-stars is less than .100 easily. Go after the stud muffins, and show them how to make more. Most will listen as they’ve already demonstrated they’re smarter than the average agent, and have a solid work ethic.

    17. John Corrie January 28th, 2009 12:45 pm

      John
      Congratulations on your new company.
      You are way ahead of most Brokers in the industry.The Virtual Real Estate office is the right business model.
      It is the only way you can really control costs and hopefully make a profit. The mobile agent with a laptop and cell phone does not need to have office space.Office meetings can be held with online webinars such as Goto Meetings etc. By the use of technology you can offer your agents a real Virtual Experience.

    18. Cheryl Johnson January 28th, 2009 8:10 pm

      Congratulations, John! After many, many years in the biz as a mom and pop style shop, my partner and I recently brought several agents into our firm.

      My only advice: Whatever you do, keep it simple. Don’t have so many variables and miscellaneous charges that you give yourself a headache trying to sort out who gets what.

    19. James Boyer January 28th, 2009 8:58 pm

      wow, I read your responce and was kind of surprised. I also was licensed in Jan of 2004 and joined a RE/MAX office. I have made enough each year that my numbers were way better than what you quoted, though this is a different area with much higher price points. Starter home here is 250K to 450K.

      You are right there is no such thing as 100% close as you can get is 94% minus about 20K in office and RE/MAX related expenses. I have converted a few of the remax-nj leads. they are difficult for the most part. Cold leads.

      Best of luck with your new company, and lets all pray that the economy can be turned soon.

    20. Barry Bevis January 29th, 2009 5:33 am

      I just opened my own office in November. I’m also using the sign/web presence to equalize the playing field with the big brokers. My plan was to stay by myself and work out of my home for at least a year. But, other people had plans too…
      I had a great agent approach me about coming to my office.
      He specializes in REO and has works with totally different marketing circle.

      Then a group that flips houses pursued a partnership.
      We are sharing office space

      Now I’m talking with a guy that does Short Sales almost exclusively.

      The theme- Look for producing Agents that bring a new sphere of influence or market area to your office.

    21. Gary Ashton January 30th, 2009 10:27 am

      It would seem that that good ideas are springing up independantly all across the nation at the same time.

      I used pictures on a sign in 2003 to try and market a lake home that really couldn’t be seen from the street. In essence the sign brought the home closer to the buyers. I obviously wasn’t the first to think of using pictures on a sign but I think this is a growing trend amongst the enlighted ;)

      I have a team of 15 agents who all work virtually through the leads that I have been able to generate online. They are on a 60:40 split and have been very happy with the growth of their business. Many of the agents were new to real estate when they joined my team so they have never had to beat the streets to get their business.

      As a result of being so busy with buyers I have never pursued the listing side of real estate. The potential though is obvious as a prefect marriage of internet exposure and marketing with a pool of buyers. I also think that with the advent of mobile technology there will be a swing back to the listings as a source of new business and will in some way echo the old sign calls of a few years ago.

      I believe that the way forward is to develop the virtual office and maintain a legally required bricks and mortar presence for the basic functions of a real estate office such as storage of contracts and paperwork etc.

      I keep hearing that the traditional method of real estate has shown that to survive an agency needs to have its commission splits at 80:20 to financially survive. I’m assuming that the reason behind this is the associated costs of a bricks and mortar operation.

      I’m planning on opening my own virtual real estate company and having the emphasis on production rather that office rent ie low monthly fees, a transaction fee to help with admin costs and transaction coordination and the have the agents on a 90:10 split for personal business and 60:40 for company business.

      If anyone else has suggestions on any pitfalls I’m not seeing I’d love to hear from you…before I make all the same mistakes again ;)

      Gary

    22. Joshua Hanoud February 1st, 2009 8:49 pm

      I disagree with the 80/20 split to financially survive…

      My broker charges $69/month and $239 off your first deal each month, with $40 E&O per deal…that’s it – 100% split otherwise. He now has over 100 agents and several brick & mortar offices. He also has integrated title & lending which helps towards his bottom line, but we’re not required to use them.

      He’s doing very well and constantly expanding his business and offering more to the agents.

      Personally I can’t imagine being at a company that takes any more from me than that unless they made me money…and I haven’t met a broker yet who hands out paychecks that I haven’t earned.

    23. John Kalinowski February 2nd, 2009 8:01 am

      Thanks to everyone for their input!

      @ Thomas- Thanks for the commission ideas, particularly on the listing side. Those are the sort of unique ideas I’ve been trying to find.

      @ Greg Tracy- I’m not too worried about my competitors copying the signs. It’s way too much work, and not that cheap, and most agents just won’t put forth the effort to do it on any sort of scale. Most agents won’t even take the time to take decent looking pictures, let alone design a custom sign for each listing. The big companies have way too much bureaucracy in place, and spend too much time trying to keep all their agents happy to make it a standard. Greg Swann is the perfect example as he’s had his custom signs out there for quite a while, and the only real people he’s seen copy the idea are a few FSBOs, and that’s in a market like Phoenix with 10 million competitors.

      @Mike Taylor- That’s a great thought, and one of my biggest concerns. It’s mainly what’s leading me to not take on just any agent, but to instead build a team within a company, of only the best.

      @Marty- You are absolutely correct that proper pricing is the most important part of the process. To me, it seems so simple, but sometimes I’m amazed at how hard it can be to get sellers to understand.

      @Jeff- My concern with going after the “stud muffins” is that most of them have an ego bigger than the BloodhoundBlog database, and are at a point where they don’t feel they need anyone else (and many probably don’t). They usually have their own assistants, systems, etc., and are after the lowest split or fee arrangement and a company that will kiss up to their ego. Thepre -Madonna attitude also doesn’t interest me. I think what makes sense is to find newer agents, with solid sales and personal skills, who are having trouble generating their own business and handling the behind-the-scenes details. That’s where a company like ours can shine. Many of the biggest and most successful teams I’ve studied said they found many of their best agents in other sales industries, like automotive and pharmaceutical sales. I’m leaning toward the idea of a Russell Shaw team within a brokerage, but perhaps without the one person’s name at the front. Basically start slow, add assistants and buyer/seller’s agents as you get too busy, and build it all around a central core of admin staff that handle the details. Just like every other business does.

      @Cheryl- Thanks! That’s our point to the “no-fees, no transaction charges” format. Just simple splits. If you don’t sell something, you don’t get paid, and you don’t pay me.

      @James Boyer- The RE/MAX system, and other “100%” systems obviously work for some people. What most people don’t factor is the time they spend handling details that could be handled by an inside support team, and the time and money they spend finding new business. There’s a real cost to these items, mostly in the reality that you can do more business if someone else is handling the busy work.

      @Gary Ashton- Sounds like you have a great team! Just wondering how you generate enough business for 15 agents if you don’t focus on listings? Most, if not all, of the largest, most successful teams generate their buyer leads and other new business from their listing inventory (read The Millionaire Real Estate Agent).

      @Joshua- That’s the problem with 99% of the brokerage companies. They really don’t provide anything of true value, so they only way they can compete is to offer a higher split. If they were really helping you generate more closed deals, then the amount they charged you wouldn’t matter, as long as your net is larger than at a “100%” company that does nothing.

      Thanks everyone!!!!

      John Kalinowski

    24. Jeff Brown February 2nd, 2009 10:26 am

      Good luck John.