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Real Estate Business models: Which Model will you choose?

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Education & Training with Zip Realty

Traditional brokerage, Online, Discount or Hybrid?  Which Business Model will you choose?  How will you know? I've spent five years studying the different models for a book I'm writing.

Here's a general breakdown to help you choose.

Traditional Brokerage: Generally you pay a monthly office fee, and split your commission with the broker to a certain point, after which, you keep most or all of your commission.  Your costs still include the monthly fee and all costs of generating and maintaining business.  This is the most independent style of agency. Those successful in this model enjoy high incomes and nearly complete autonomy.  This model also has the highest failure and turnover rate of all models. Examples are Re/Max, John L. Scott, and Keller Williams. Focus is on lead generation first, client service second.

Online Brokerage: a relatively new model, uses online registrations to feed leads to agents.  These models run the gamut from No office fee and higher splits to an office fee with traditional splits.  Generally agents work from home offices. While business costs are typically lower, much of the agent's success depends on the number and quality of leads generated by the company.  Brio Realty (owner of Active Rain.com) is an example. Focus is on lead generation first, client service second.

Discount Brokerage: With a wide variety of business models, these brokers range from pay per service, such as charging a fee to put a home on the MLS, another fee for flyers, another for drafting contracts, etc. to full-service agencies.  Costs to the agent often include a monthly office fee, and all costs of business generation. Discount Brokerages typically charge lower rates for listing property, meaning smaller commissions. The attraction is in the number of transactions resulting from the lower fee.  Examples include Flatlistingfee.com, MLS for Owners and others.  Focus is on lead generation. Very little to much customer service.

Hybrid Brokerage: Currently, I'm only aware of one example of a hybrid model.  Zip Realty combines the online, discount and traditional models and the agents become commissioned employees, similar to the sales force of a typical brick and mortar business with a sales force.  Partnering with builders, lenders and technology companies, the model generates leads for the agents, charges lower listing fees, and allows much of the freedom of a traditional brokerage. Focus is on Customer Service.

Costs of business are transferred to the company vs the agent, and there are no monthly fees.  All marketing costs are borne by the company, and the employee can receive reimbursement for mileage, dues and more.  Leads tend to be of higher quality than Online brokerages due in part to the partnership agreements with major web site companies and other ancillary businesses.  The model tends to be more stable, with lower turnover.  Another benefit to employees is the ability to contribute to a 401(k) and taxes are taken out of commission checks.

Each business model has factors that will either lead to an agent's success or failure.  No model is right for everyone, and each office is different.  What I suggest is that new agents, and even those dissatisfied with their current situation, investigate the various models. Many agents have found success after failing at one model and moving to another.

I look at it this way:

If money is short, move to a Hybrid. The costs are low or non-existent and you get more closings, though commission checks are generally lower, more smaller checks make up for fewer larger ones.

if money is not the issue, and you want to become a professional Realtor, Keller Williams and Re/Max offer (in that order) some of the best training in the industry.  You'll learn a great deal that will make you a better agent, if you can survive by generating your own business while paying fees.

If you want complete autonomy, any traditional brokerage will do.  Most traditional brokerages give the "Warm Handshake" interview and leave you to your own devices.

I don't generally advise new agents to join online or discount brokerages.  While the costs of business can be lower, typically the turnover is much higher and the success rate for these agents is lower.

There is another issue to be aware of when examining business models: Passive Income.

Passive income is income you recieve without actively earning it.  In the Keller Williams model, if you recruit an agent and that agent becomes productive, you receive profit sharing money.  Similar to an employee referral program, every agent puts a small percentage of their commission into a profit sharing pool, and proceeds are paid from this pool. 

At Zip Realty, and possibly others, you receive a small sum of money, generally a couple of thousand dollars after your recruit has met some time or production standard.  Be sure to investigate this as it is a good way to bring your friends into your office.

One final note: According to NAR, 87% of all home buyers and sellers use the Internet.  Wherever you hang your license, be sure they are plugged in.  In my study I compared Brio Realty and Zip Realty, both use online registrations to generate leads.  Brio primarily uses Active Rain to generate leads. Active Rain is the largest of the Real Estate blogging sites, so it sees a good amount of activity.  The challenge Brio has is valid lead information.  Zip Realty uses online partnerships with a variety of web sites, like Google, MSN, Yahoo and others, partnerships with lenders including Countrywide and E-loan, and home builders like Quadrant Homes.   Zip's challenge is in finding enough quality agents to service the leads effectively.

 There's much more to know, but this is a general breakdown.  The real key to success in real estate has little to do with the company, and more to do with the agent.  Treat the business like a business. Clock in and out daily, and do the things that make sense to you and you'll be successful.

 

Comments (5)

Lisa Friedman
Alliance Realtors - Bedminster, NJ
Central New Jersey Real Estate

Interesting post.  I choose to pay a desk fee and be 100% in control of my business.

May 29, 2008 02:20 AM
Jay Sunderland
Zip Realty - Lake Stevens, WA
MBA

Hi Lisa,

Thank you for your comment.  As long as you're happy, I wish you the very best of success!

Jay

May 29, 2008 02:26 AM
Chris Prickett
DL Jones & Associates - Anthem, AZ

I think you need to let your personality dictate how you run your business. Some personalities shouldn't do real estate at all!

May 29, 2008 02:26 AM
Jay Sunderland
Zip Realty - Lake Stevens, WA
MBA

Hi Chris,

There's truth in what you say! One of the things I found is that personality played a big part in which roles agents played.  For example, in teams, there was generally a "front office" personality, or "Rainmaker" and a "Back Office" personality.  The first was focused on lead generation and contact with the public while the second performed a more transactional role, though in many cases both roles were reversible to a point.

One thing all successful agents had in common is a perception that we are in business, and therefore, we must act like we are in business. 

May 29, 2008 02:32 AM
Charles Stallions Property Manager
Charles Stallions Real Estate Services - Pace, FL
Pensacola, Pace & Gulf Breeze Property Management

Thanks for sharing as we are in the midst of changing a few things as well. 

Dec 25, 2013 12:38 PM