DANGER A3 - Agent Teams Threaten the Survival of Brokerages: The National Association of REALTORS® D.A.N.G.E.R. Report.
The team approach to real estate sales is not a novel or new concept but the modern application of the team approach has emerged as a threat to the real estate brokerage industry, says NAR in its recently released D.A.N.G.E.R. Report, a major review of 50 mounting threats and challenges likely to have a significant, even game changing impact on how we REALTORS® conduct business over the course of the next five years.
"Teams cannibalize brokerage companies by siphoning off their profits, leaving them exposed to all the risk," the report says, citing the team concept as a significant challenge to the traditional brokerage model.
The D.A.N.G.E.R. Report is based on more than 200 reports, surveys, research, focus groups, white papers and confidential interviews with real estate industry leaders.. It was developed by Swanepoel | T3, the real estate management-consultant firm commissioned by NAR's Strategic Advisory Committee. The acronym stands for "definitive analysis of negative game changers emerging in real estate". Download the full report here.
Brokerages that have endorsed or at least allowed the development of sales teams have done so because of the significant revenue teams can generate, but there are issues which brokerage's should address to protect their proprietary interests as teams grow into autonomous brokerage units, the report says.
As a percent of the revenue generated, teams can generate more profit for themselves, while exposing their principal brokers to greater liability., the report suggests.
"Agent teams greatly expand the broker's potential legal liability as the master agent imposes standards and best practices on the team that have not been approved by either the brokerage or the broker's legal counsel."
Another issue, the report says, is team branding, which, when combined with strong revenues, can result in a business identity that is more powerful than the brand of the brokerage with whom the team is affiliated.
"Their self-directed status is enhanced by their own ability to obtain their own technology and operate more efficiently and effectively for their own benefit...which presents the opportunity for the emergence of the "lead agent-centric" model, the (branded) company within the company," says NAR.
The report's author adds that teams dominate and make it harder for solo agents to succeed and for companies to act as entrepreneurial as they may wish.
"There is a strong tendency for teams, as part of their business plan and their own identity/brand, to establish their own operating guidelines, standards, and procedures, writes Swanepoel. "Some of these independent decisions and actions may run afoul of Real Estate Settlement Procedures Act (RESPA) compliance or the Consumer Financial Protection Bureau, especially decisions involving Affiliated Business arrangements. On the other hand, with good management and oversight, teams can become a strong growth opportunity as demonstrated by some large national franchises."
It is understood within the industry that a single team can generate far more transactions than any single salesperson. Given its synergy, real estate teams can become so powerful that their organizers can dictate the team's requirements to the principal broker, who, by law, is legally reponsible for the the team's activities yet may lack sufficient clout to exert proper oversight.
What do you think? Are you a broker threatened by the development of agent teams? Do you feel that teams, not properly regulated, can become more important than the brokerages themselves? Are you a team member. NAR wants REALTORS® to have a national discussion about these emerging threats and challenges. Let's hear from you.
Meanwhile, stay tuned to my next installment of the D.A.N.G.E.R. Report - DANGER A4: IRS FORCES EXODUS OF INDEPENDENT CONTRACTORS.