The New Business Model in Real Estate - Good Bye Old Brokerages and Brokerage Models.

Real Estate Broker/Owner with Neighborhood Experts

A Look at History

Years ago the Red Shirt Warriors of the Lakota Indian Tribe were highly respected. They were fierce, they were elite, they were the best of the best. There are stories about how the Red Shirt Warriors were fearless and could do anything. The Lakota tribe didn't give a bow and arrow to every member of their tribe and call them a Red Shirt Warrior. There were only 2 invitations extended every 4 years for new members. Yes the members of the tribe were hand picked and invited to become members. To be picked you had to be elite and have the skills and heart required to be part of the group. 

The Red Shirt Warriors had guidelines and requirements in order to be part of them. What if the Red Shirt Warriors let anyone who wanted to join their group? People wouldn't strive to be their best to get into the group. They would have become a mediocre group. But because only the best were in the group, other people strived to become their best so that they could one day be a Red Shirt Warrior.

Today's business model is full of mediocrity. You can tell mediocrity is rampant when the market becomes saturated and consumers base their choices on price alone. Is the market saturated? There were over 9000 agents in my area last December trying to snag 430 home sells in January. That is definitely saturated. What about price? Consumers in a saturated market assume that every person in it provides equivalent service. When all service providers as perceived as being equivalent, consumers make their decisions based on price alone. You see this equivalent service as real estate agents advertise "Full Service" at a discount so that you save. Consumers are confused by these messages. Agent X with Coldwell Banker or Prudential or RE/MAX has been an agent for 20 years and sells 50 homes a year. Agent X has refined negotiating skills and a brilliant marketing budget and plan. Agent Y with the same company is new to the business and has business cards hot off the press, but no marketing plan or negotiating skills or experience. The brokerage mandates that they charge the exact same fee. What is wrong with Agent X and Agent Y charge the same fee? Two totally different agents with differing marketing skills, experience, etc. and they get the same reward for selling the home? (Okay, so their split is different but the consumer pays the same amount for either agent.)

Who is at fault?

If you have read Good to Great you might say the Leader is at fault. If you have read the Tipping Point or the E-myth, you might say that the system is broken. Well let's look at the industry and see what the focus is on. What do brokerages focus on to make money? They focus on recruiting. Its a numbers game right? 'The brokerage with the most agents wins.' The traditional brokerage models focus on recruiting as many people as they can into their brokerage. As they do this, they do not focus on the actual agent they are hiring. You may say that brokerage A does training and offers marketing to help agents, etc, etc. But when their primary focus is on recruiting more agents, their training becomes a lower priority. How do we know this is true? Subconsciously and consciously people know they don't have to work hard to be part of brokerage A. Every traditional brokerage in town allows any agent to hang their license with them if they have a pulse and a real estate license. You could say, every one gets a bow and arrow.

How is the industry going to change? Should we pass new laws?

No, there is not going to be a law passed that forces brokerages to employ better quality agents or salaried employees instead of independent agents. What is going to happen is economic pressure will purge the industry. During a commoditization of an industry someone is going to do something different and stand out and be the Starbucks or the Cirque de Soleil of the industry. Economic pressure is coming that will force brokerages to change or die. The Industry will change when someone does not hand out a bow and arrow to everyone. The industry will change because there is a team so elite and good that it hits other companies hard in their pockets.

What is the change going to be?

It will be exactly what the book Blue Ocean talks about. The change will be the opposite of what is happening in the industry. If every brokerage is focusing on recruiting agents, the new brokerage will focus on quality of agents. The new brokerage will be as the Red Shirt Warriors. Elite agents will be chosen to be part of the brokerage because of their abilities. Not simply because they have a pulse. There will be a subconscious pressure for people to perform the best they can in order to be a part of the elite group.   The change will be 3 fold. 1rst: the brokerage will only focus on quality of agents. 2nd: the structure of how an agent works will change. 3rd: the service given to the consumer will be instant results, knowledge, and services. The consumer will also see the value of this New Brokerage because there won't be inexperienced agents charging the same commission as the experienced agents. Regarding the change in structure, I'm talking about how agents' work will change. If you read the E-myth you will read why businesses fail. The New Brokerage which focused on quality agents will have a new structure. Today's model of an agent's business fails 90% of the time. The structure will meet the other 10%. What about the service given to clients? 80% of clients browse the internet to look for a home. 70% of those, don't call their brother or cousin to go look, they drive by the house on their own. The new brokerage model will give these people what they want. The new business model will get these people in the homes that instant, when they want to see it. How do I know? Because I know why people are calling me to help them buy a home instead of calling their brother. I know why other real estate agents are calling me to sell their own homes or to help their clients. I am seeing the change firsthand. People want a higher level of service.

Why are other brokerages forced to change?

Well lets look at some statistics. There is an office across the street from me that had over 40 agents. In December those 40 agents sold 16 homes. That is an average of 1/3 of a home sale per person. In the same month I sold 15 homes myself with 7 agents helping me.  We averaged almost 2 sales per person. Our average was 5-6x better than the brokerage across the street. These numbers came from when our market hit bottom. When the market picks up the statistics will start to grow exponentially better than the traditional brokerage across the street. As this grows, people will take notice. (They already are.) I didn't have to advertise to recruit and one of the best agents in town just joined my team. Agents want to be part of the New Brokerage model because it means more success. The other brokerages won't be able to keep the quality agents. Their overhead will be too high and they won't be able to compete. They will be forced to change.

What should I do?

If you want to be successful, you will have to start doing the opposite of what everyone else is doing. You already know what everyone else is doing, the question is do you have the courage to do the opposite?

Comments (213)

Karen & Doug Parker
Sorrell & Company Realtors - Logan, OH
From Hilliard to the Hocking Hills Ohio

With a prior history of careers primarily in media management and education, there might be a bit of skew to my perspective, but I've been simply staggered by what appears to be the traditional business model for real estate....and even more so given that we work in a "broker-centric" state.  Just throwing that proverbial "stuff" at the wall and seeing what sticks easily explains what agents tend to hear in their "Real Estate 101" class....that public rankings and perceptions of realtors run to the bargain basement.... 

Apr 25, 2009 12:49 PM
Sonya Mays, MBA
Midwest Executive Realty - Milwaukee, WI
Broker/Owner, Greater Milwaukee

What a great post! Thank you Dave for sharing such powerful, thought provoking insights and knowledge, we should all be the wiser for it. 

The new business model that you refer to is nothing new to Prudential. They've practiced this for over 25 + years.  The focus is on quality of agents and quality of service, higher levels of productivity and performance, rather than recruiting high numbers, which is why I accepted the invitation to join such an elite, esteemed group of colleagues, and it was invitation only.  This is a great discussion thread, however, different companies utilize different management models to achieve their objectives and bottom line results.  If you look at different management theories, you will find various scientific approaches used to manage resources and secure the maximum profits for the organization. Further, if you look at McGregor's Theory X (lazy) and Theory Y (self-motivated) concepts, most would assume that all Theory Y types are in real estate.  And perhaps Theory Z types are the ones with the red shirts.  

There is definitely a level of mediocrity in our industry, especially within the REO segments, which is my background and specialty, and I hope to see that image change locally and globally, starting with home first.  In today's market there appears to be significantly increased interest in wanting to break into the REO business and get REO listings/bank owned/foreclosed assets. Many might view this as easy money, a quick paycheck, and instant referrals, or a source of income in a tight market, so we're seeing increased numbers of new entries into the REO markets but the level of service is declining, from seasoned veterans to newbies who have no clear idea of what it takes to succeed in REOs or have lost sight of the basic model. The focus is on volume, quantity, getting the most listings, rather than service, best practice, ethics and integrity. 

I've had the opportunity to wear many different hats, from being a former REO Asset Manager, to a high volume, top producing REO Listing Agent to REO selling agent, and I've seen many opportunities to enhance the level of service and business practices, not just as it relates to consumers but in relation to fellow Realtors. This business is based on relationships, we have to work together to a certain extent to achieve the ultimate objective. It took a few hard lessons for me to get to this point, but it is imperative to remember that there is a micro-relationship as well as macro-relationship necessary for survival. If we focus on serving the external clients and forget about our internal customers (eachother) then our transactions will be much harder to finalize and close, and we could eventually do ourselves and the community a great disservice.  

In conclusion, I don't think we have to start doing the opposite of what everyone else is doing, for there is nothing new under the sun.  It comes down to home training, take care of home, do what is right, treat people right, be decent, fair and one of integrity, put yourself in their shoes and decide how you would want to be treated, you're right, it's not always about the money because I've never seen a Brinks truck in a funeral procession, life is too short people, let's get it together!

Apr 25, 2009 02:13 PM
Anja Kerstens, 669.270.8034
Compass - Morgan Hill, CA
GRI, NHCB, CDPE, CHS. Silicon Valley Homes

That was quite a read.  Good comments too.  I had a choice as we all do to pick a brokerage to work for.  I choose to work for a boutique brokerage because the broker/owner insisted on hiring agents who were willing to continue to grow in their profession through continuing education and community involvement.  He is very ethical and will not tolerate any "bending" of the rules.  

I would like to see an even more dramatic new change in the industry.  A partial payment up front for listing the home and the efforts of the listing agent.  Then the usual payment after successful completion of the contract.

Apr 25, 2009 05:18 PM
Joy Carter & Jeff Booker Brother and Sister Team
Keller Williams Parkland/Coral Springs Realty-GreatFloridaHomes Team - Coral Springs, FL
Trust Your Family's Move To Our Expertise!

Your Statements are ON TARGET!  Since you are younger than me....IF I move to Arizona I'll apply with your Team, because I am old enough to be done leading.  We are rockin in Southeast Florida as a Team of 3 (and we usually do), so it's unlikey that move will be anytime soon. Thank YOU!  For stating TRUTH so clearly!

Apr 26, 2009 12:51 PM
Laurie Nowland
Simi Valley, CA

You are so right on.  I've been saying this for several years.  It is changing whether the seasoned agents like it or not.  Great article!

Apr 26, 2009 06:51 PM
Dee Mauriello

Lets give new agents a break... I feel they can do very well if they know and embrace the new technology. Many of the agents leaving the business are experienced but can not cope with emarketing and technology. Lets welcome new, refreshing and talented people to our busines.... lets twitter, twatter or what ever and remember we have all been beginners at one time.

Apr 27, 2009 12:17 PM

Great post Dave!  As a real estate videographer, I run in to agents all the time who just don't get why technology is so important.  They don't get why they need to use internet marketing, and they certainly don't understand the advantages of video over "virtual tours."  The ones who understand technology and marketing are at the top!

If anybody here works in Utah (like you, Dave), check out my website, give me a call or email me.  I'd love to tell you about the adantage of video as well!

Apr 27, 2009 02:16 PM

We have to be cutting edge to attract the attention buyers and sellers demand of us as professionals.


Apr 27, 2009 02:56 PM

Great discussion about a zero entry industry and the need for change! 21st century organizations are competing in fast paced and uncertain times.  Therefore, much attention should be given to maintaining a learning environment, and being adaptable.  Team culture is a must!

Apr 28, 2009 06:32 AM
Bill Welsh



I couldn't agree more. I have had these discussions with my manager over the past year. I came from the auto industry here in Michigan. And when times get tough you cut down on your overhead, you reduce the workforce, etc. Real Estate is the only industry I know of that actually wants to add people to the problem. The reason is exactly as you stated, you can be a Real Estate Agent and do nothing. And the ones that do nothing, or one or two deals a year are actually costing the brokerage money- for future referrals because of their lack of follow up etc. If the brokerages had standards that had to be met, it would help. If you have an elite team that does what they say they are going to do, and do it; it would help our profession.

Apr 29, 2009 07:45 AM
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL


This post is like The Energizer Rabbit. It just keeps going and going :)


Apr 29, 2009 07:48 AM
Ray Cobel
Cobel Communications - Thousand Oaks, CA
Let's Get Real About Real Estate Marketing

Utah Dave certainly touched a nerve with this terrific post.

It sounds most of you enthusiastically agree with him that mediocrity is on its way out, and smaller, high quality brokerages are on the rise. Undoubtedly your models will have a great deal of variation in them; with some of you emphasizing one aspect, and others of you emphasizing different aspects.   There could still be huge, additional improvements for all of you, if only you could adopt each other's best practices.

Discussions relating to best practices and optimizing broker models have been going on all over ActiveRain for quite some time.   The problem is, these discussions are in pieces and scattered all over ActiveRain. You really have to dig if you want to find the pieces. 

Given the trauma and massive change the real estate industry is currently undergoing, best practices and broker model optimization are vital and timely discussions that definitely should be held industry-wide.  To help organize and facilitate these discussions, we've created a new Collaboration Group called "Optimizers" to:

  • Give the optimized broker model discussion clearer topics and more focus
  • Share best practices
  • Make it easier for the best ideas and thinkers to reach the center of the discussion
  • Make it easier for all participants to capture more value from the discussion

I've invited Dave to participate, and now I'm inviting you all too.  Use these links to learn more about our new ActiveRain Optimizers Group and Collaboration Project.

Let's create some synergy!


May 01, 2009 07:16 AM
Sarah Whitely

I worked at a large franchise here in california in administration though I had my license...I watched the different agents and worked with them one-on-one as I trained them on our Intranet and debriefed them on
ABC's of "How a House Gets Sold" or "Bought"
Basic Contract Provisions
Broker File Procedures
Client Interview script
Policy Manual and on and on from CAR NAR relevant emails forwared to them weekly
and on and on and on....

I had hard-copy versions that I emailed them as well as having them on our Intranet...

I tried to train many on PowerPoint for their marketing efforts...

Bottom line...they'ed walk out of my office and my jaw would just drop...full stop.

I now work at a boutique agency, Eagle Ridge Realty, where our brokers constantly email us with up-to-the-minute details on our niche market, work on refining the website, entertain with the latest scandals/scams, find the time to teach real estate at the local junior college, and have the heart, soul and quiet determindation of Mine That Bird...a 50-1 long shot that is paying off, big time...

May 05, 2009 05:52 AM
Sarah Whitely

mmm...glad I didn't razz a prior post for their for some popcorn.

May 05, 2009 06:11 AM

States should reduce the number of licenses issued in this profession. Realtors should have to disclose weather their Full-time or part time.  That is my 2 cents.

May 05, 2009 02:55 PM
Debbie James

I read E-Myth many years ago and it's an awesome book. A couple of months ago, I moved to a different company. My Broker initially contacted me and his business model is E-Myth. He wants Realtors selling, and not getting bogged down with non-selling things. Once I write a contract, it is given to our closing coordinator. That allows me to keep selling. Right now we have about 12 agents and we do more volume per agent than the large brokerages.

May 07, 2009 09:41 AM
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
850-476-4494 - Pensacola, Pace or Gulf Breeze, Fl.

Just found this post again and was wondering how your business model worked out? 

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