Are real estate teams more hype than help?
That's a question many consumers and many real estate agents are asking.
In today's residential real estate world, it's become common to see real estate agents advertise themselves as being part of a "team" with names like, The Smith Team.
These real estate teams sell themselves to the public under the concept that either the seller or the buyer is getting some greater benefit. This is alleged benefit is sold more to sellers than buyers, since the "team" alleges that more people will be working to get their home sold.
To help you better understand this marketing strategy, I've decided to provide you with some insights into what a real estate team is, what they're not, and how they work.
As for whether or not they're a benefit . . . we'll see.
But, before I can give you an explanation of how the typical real estate team works, you first have to understand what a real estate team is.
An Overview of the Typical Real Estate Team
By the way, when I use the word "typical" with regard to real estate teams, I'm saying that most of them are organized and operate in the manner that I'm describing. But, that doesn't mean all are.
Now that we've got that straight, let's see how the typical real estate team is structured and how it functions.
So, what exactly is a real estate team?
A real estate team is an agreement between 2 or more real estate agents in the same real estate agency to work together, or "team up," to share expenses and responsibilities. You could reasonably say, that a real estate team is, in fact, a "real estate agency within a real estate agency" because they're typically structured and work in the same exact way as the typical fee-split real estate agency.
By the way, a "fee-split" agency is one where the agency and the real estate agents that work in that agency split the commission generated by the agent.
The benefits to those who create and operate the team, is that they don't have the high level of legal liability or the high level of the cost to create and operate a stand-alone real estate agency or buy a real estate franchise (e.g. RE/MAX, Keller-Williams, etc.) because they work under the brokerage license and business umbrella of an existing real estate agency . (Real estate teams are most commonly found in firms where the agents collect between 90-100% of the commissions they generate.)
Most real estate teams are made up of multiple real estate agents with different levels of experience and prominence in their local market. And, while the number of agents can range upward of 5 or 6 in addition to 1 or 2 non-agent administrative members, there are probably more teams made up of 2 or 3 agents with an additional part-time unlicensed, non-agent administrative member.
The team is usually headed by 1 lead member who's virtually always the "big name" agent in the local market. This is the agent who everybody in town knows is a mover and shaker in the local real estate scene.
More often than not, the other agents on the team aren't well known. More times than not, the other agents are relatively new and inexperienced, with many having just obtained their real estate license and have no experience. Many of these "subordinate" team members are also part-time agents. These other, or subordinate team members exist to provide support to the lead agent.
You might equate the typical real estate team structure to a pyramid with the lead agent at the top of the pyramid and the other agents on the team acting as subordinate assistants to the lead agent.
HOW DOES A REAL ESTATE TEAM OPERATE?
The operation of a real estate team is typically divided into three parts: 1) Expenses; 2) Duties; and 3) Compensation.
The expenses of a real estate team are typically paid by the lead member(s) on behalf of all members. The team's expenses are the same expenses of an individual real estate agent in the company (only multiplied by the number of team members).
They typically include things like broker's affiliation fee (the amount each agent pays the broker to work in that agency), MLS dues and fees to submit listings, real estate license renewal fees, REALTOR® Association dues and fees, business cards, advertising, lawn signs, and so on.
You should know, that it's not uncommon for subordinate agents to be required to pay their own real estate license fees, REALTOR® Association fees, and MLS membership fees.
The duties on a real estate team are typically divided up by the different levels of expertise of the team members.
The lead agent(s) typically generate(s) the business through their prominence in the market, as well as the fact that all the advertising for the team, including the team's name, is about them. Consequently, all generated leads go to them.
They generate business by going out to promote their services to sellers trying to convince the seller to hire "the team" to sell their property.
The same thing is done with prospective buyers. For example, the buyer initially speaks with the lead agent and sets an appointment, and they may even have an initial consultation meeting with the lead agent, although this isn't always the case.
However, subsequent to that initial contact by the lead agent related with either listing a seller's home or having an initial buyer contact, the team leader will hand-off the duties of actually working with the seller and buyer to a subordinate agent on the team. More frequently than not, the seller and the buyer will never see or hear from the lead agent again.
In the case of dealing with a seller, once the lead agent gets the listing agreement signed, a subordinate agent take over. They will make sure the property info gets into the MLS, the lawn sign is ordered, the brochures are in the home, the photos are ordered, they'll make showing appointments, and deal with any calls from the seller. The subordinate agent is also relegated to (the useless duty of) holding an Open House (this is mainly to pacify the seller to show that the lead agent is doing "something.")
In the case of dealing with a buyer, at the conclusion of the initial contact with the lead agent, the subordinate agent takes over. The subordinate agent will do an MLS search for homes that fit the buyer's general requirements, make appointments to show the homes, show homes to the buyer, and write a contract offer.
At this point, the lead agent will typically step back in to review the contract offer and will sometimes negotiate the offer, using their prominence to try to influence the seller and the seller's agent - OR - In the case where the seller is the lead agent's client, the lead agent will definitely negotiate the contract offer.
If the offer becomes a contract, the lead agent again hands off all follow-up duties to the subordinate agent.
The compensation received by the team is received in the form of commissions the team generates and are collected from their employing broker. IT'S IMPORTANT to know, that all team members who are licensed real estate agents are legally required to be paid directly and solely by the employing broker.
That said, the amount of compensation paid to each agent on the team is outlined in a written agreement with that employing broker in their Independent Contractor Agreement, which is the employment contract between the company and the agent.
It's also important to know, that the amount of compensation each team member is paid is initially negotiated with the team leader who, in turn, advises the employing broker who agrees to pay each team member in accordance with the fee structure arranged at the team level.
In other words, the employing broker will only pay a team member in the amount set by the team leader.
Most commonly, the team leader earns the lion's share of the commission generated by the team. For example, the team leader will be paid 80% of the team's commission, while a subordinate who worked on that transaction will earn the 20% share. If more than one subordinate worked on the same transaction, each will be paid proportionately to their contribution from the 20% portion.
In dollar terms, if the team collects a $10,000 commission (after paying the brokerage), the lead agent will be paid $8,000.00 while the subordinate agent(s) will collect $2,000.00.
ALSO NOTE, that the team leader will pay the non-agent administrative staff, if any, from their share of the commission.
WHAT'S THE BENEFIT OF HIRING A REAL ESTATE TEAM VS. A SINGLE AGENT?
I'm at a loss to see any benefit of a real estate team to the consumer (a seller or a buyer).
If there's anyone who benefits from a real estate team, it's the team leader who can maximize their productivity while having subordinates actually do the time-consuming work.
To think that having multiple people working on getting a home sold is actually a benefit, I defy anyone to explain to me how that alleged benefit occurs.
It is an indisputable fact, that over 85% of homes that are listed, either by individual agents or teams, are sold by OTHER AGENTS, most of whom work for OTHER FIRMS.
There is absolutely no factual basis, no independent data of any kind from any source that indicates that homes listed by real estate teams either: 1) sell more quickly, or 2) sell for more money - than homes listed by individual agents who are not part of a team.
And, the same is true for buyers. In fact, it may be even more disadvantageous for a buyer to work with a team than a seller, since the buyer will typically work with a relatively inexperienced agent throughout the most of the buying process.
As for real estate agents who are considering working for a team, based on the information I've provided, I leave that decision up to you.
If you're a new agent or a part-timer, perhaps working with a team may be a viable alternative to starting out on your own or working full-time.
However, it may not be desirable for experienced agents who wish to make a decent level of income and be in control of dealing directly with their own clients.
In the end, are real estate teams more hype than help?
What's your opinion?
Kenneth J. Jones, REALTOR®, SFR, SCGREA
Broker of Record
There's no substitute for Experience!