I'm in the middle of posting a series about the profitability of brokerage compensation models on Bloodhound Blog.
My first was about traditional brokerage compensation, or split models (think Brown Franchise). An excerpt from
Is Your Broker Profitable?- Traditional Brokerage
Here is the deep, dark truth about traditional real estate brokerage as a business; it’s just not that profitable in its purest sense of practice unless (a) the broker produces (which brings up a whole host of issues) or (b) the brokerage is really HUGE. Let’s analyze the typical medium-sized brokerage (25 producers) in a typical American city ($250,000 median value).
There are A, B, and C agents. There will be five “A” agents who close 20 transactions per year or $5,000,000. Assume they average a fee of $7,500 per transaction.... click here for the post (opens in a new window)
My second was about 100% shops (think balloon franchise).. An excerpt from:
Is Your Broker Profitable? - “Rent-A-Broker” Shops
Essentially, the business model is along the lines of “rent-a-broker” for a flat fee per month. The term “rent-a-broker“, really isn’t fair because it implies that the designated broker isn’t supervising the transactions but I’ll use it for the sake of illustration.
The compensation proposition to the agent is that you get to keep 100% of your commissions and pay a monthly fee to the brokerage. There is an mutation of that model that charges a flat-fee per transaction but I think I’ll focus on the “rent-a-broker” model for this post. The best analogy for this model is one of a landlord and tenant. Like a property lease, there is a contract outlining the rights, responsibilities, and financial consideration expected from each party. In most markets with a median sales price of $250,000, the monthly “desk fee” would be approximately $1,000. click here for the post (opens in a new window)
My last posts will examine the hybrid model (think red franchise) and the per transaction model.
Comments(16)