AGENT TEAMS THREATEN THE SURVIVAL OF BROKERAGES: NAR

By
Real Estate Agent with Randy Hilman Homes NH# 067519

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.

 

Comments (21)

David Barr
Berkshire Hathaway HomeServices Florida Realty - Sarasota, FL

I don't see the team concept as threatening to single agents.  I actively market against sales teams, showing sellers and buyers that I am personally involved in every aspect of their transaction.

Jun 29, 2015 12:01 PM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Hi Ed Macias .  Good point. Traditional broker models are challenged today in many ways, the team concept being just one.  I know one traditional broker who refuses to spend big bucks to establish and maintain a presence in search results.  A reputation is great and important but it needs to be at the top of search results. 

 

Jun 29, 2015 07:02 PM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Good morning David Barr , are you capable of closing 200 transaction this year?  If you are, my hat goes off to you.

Jun 29, 2015 07:04 PM
David Barr
Berkshire Hathaway HomeServices Florida Realty - Sarasota, FL

Randy Hilman what's the point of 200 transactions if that revenue is split 4 or 5 ways?

Jun 29, 2015 09:56 PM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Good morning David Barr.  Fair point, except that the modern teams don't split equally.  The lead agent takes the  lion's share.  More importantly, though, is the loss of revenue to the broker.  Most team set ups that I know about do not contribute to the company dollar on a per agent basis.  If one agent pays ten apples to the house, two agents might still only pay 10 apples, as an example.  The more  agents the team acquires, the less money the broker gets per agent, meaning that the team gets to keep and distribute more.  I think this is one of the threats addressed in the NAR report.

Jun 29, 2015 10:08 PM
David Barr
Berkshire Hathaway HomeServices Florida Realty - Sarasota, FL

Randy Hillman, I see the economics of scale with a team, but they are easy to poke holes in during a listing presentation.

Jun 29, 2015 10:10 PM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

David Barr . Please share your secrets (and your pre-listing/listing presentations). LOL

Jun 29, 2015 10:14 PM
David Barr
Berkshire Hathaway HomeServices Florida Realty - Sarasota, FL

Randy Hilman, try this line:  "Sir or Madam, what part of the sales transaction is unimportant enough for me to hand this to an agent you have not and likely will never meet?"

 

Jun 29, 2015 10:17 PM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

HaHa:  I like it and will remember to use it when I'm told I'm competing against a team. Thanks.

Jun 29, 2015 10:20 PM
Evelyn Johnston
Friends & Neighbors Real Estate - Elkhart, IN
The People You Know, Like and Trust!

I am kind of sort of thinking of taking my Brokerage to a team concept...

Jun 30, 2015 12:31 PM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Hi Evelyn:  If you're creating a team, that's one thing.  If you're thinking of letting agents form teams within your brokerage, you had better explore the financials carefully.

 

Jul 02, 2015 09:11 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

Randy Hilman, Associate Broker, GRI, CBR - Your points are well made - the team concept at Keller Williams reminds me of a brokerage within a brokerage - xcept the team leader knows the max annual out of pocket expense to the brokerage for the infrastructure and support, whereas that's a moving target for the broker.  Although they can calculate the max annual revenue that may come from a team - there is no guarantee that the max annual amount will be forthcoming as it is a split from revenue to the team members (until they cap).

Sep 08, 2015 01:46 AM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Hi Tony Marriott.  Sorry, but I don't follow you.  I'm not a member of a KW team, so I don't know how splits work.  Also, I don't understand why fees from a broker's perspective are moving targets.  The team leader knows how much will be owed to the broker.  The broker knows how much the team is due to contribute, right?

Sep 08, 2015 07:09 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

The KW model is pay as you go - up to an annual cap - then zero until the start of the next "fiscal" year.  Your anniversary month depends on when you joined.  Thus, as an agent you know that the MOST you will pay is the annual cap if you generate enough commission revenue to reach that cap when splitting that revenue with the market center.  Team members often have lower "caps" to the market center because they are on a team.  Let's say each team member (except for the team leader who has a "full" cap) has a "half cap".  For ease of numbers, let's say the Team Leader full cap is $20K and the team members "half cap" is $10K.  A Team with a Team Leader ($20K) plus 4 team members ($10K each) has a maximum contribution to the market center for that 12 month period of $60K.  But - there is no "guarantee" that the market center will receive that amount.  If the team doesn't produce enough revenue for the leader and members to cap, then the market center ONLY receives their split based on the actual revenue to the team.  At the end of 12 months, everything resets to zero and there is no requirement that the balance of the cap be paid to the market center.  Make sense?

Sep 08, 2015 07:23 AM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Got it, thanks.

Sep 08, 2015 07:26 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

David Barr - ""Sir or Madam, what part of the sales transaction is unimportant enough for me to hand this to an agent you have not and likely will never meet?"

Sir or Madam: "Tell me David, are you ONLY working with me/us at this time?  If not, who is taking care of business when you're otherwise occupied?  

Does it really take someone with your superb skill set to shuffle paper, coordinate inspections, update the MLS and other "transaction management" tasks?

What happens if (heaven forbid) you fall ill or are in an accident?  Who will take care of the sale of our home while you are unavailable?"

Etc.  I have been a solo agent, and a team leader, and IMHO a team is a better way to go.  To  Randy Hilman, Associate Broker, GRI, CBR  point, if you structure things "correctly", you save yourself a ton of time which can be focused on generating additional business, and you don't have to split the commission 4 or 5 ways.

All our team members are brokers.  Our Listing Manager of 5 years is also (as of last year) the Managing Broker at our brokerage.  I think she is far and away the better qualified individual to make sure all the "i"s are dotted and the "t"s crossed!

 

Sep 09, 2015 02:45 AM
David Barr
Berkshire Hathaway HomeServices Florida Realty - Sarasota, FL

Yes, it really does take my supurb skill set to accomplish everything seamlessly, especially if you think as a seller that paper is still shuffled.  I am paperless.  If I fall ill or are unavailable, I can fall back on other highly experienced Realtors in my office, not green team members.

Sep 09, 2015 04:49 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

David Barr - We are paperless also - have been for 10 years(?) now.  "Shuffling paper" was a metaphor.  

So you do rely on others in your office in case of the unexpected - makes sense.  

And I concur - green team members (which are few and far between) are not to be "relied" on - they are to be trained and mentored (as Buyer Agents) with hand firmly held by yours truly or another broker on the team until we (team leaders) are convinced they are ready to fly "solo"!

Sep 09, 2015 04:54 AM
David Barr
Berkshire Hathaway HomeServices Florida Realty - Sarasota, FL

I find the implied second class status of "Buyer Agent" compared to "Lising Agent" to be old school and derogatory.  Buyers need just as high a level of experience and service as sellers.

Sep 09, 2015 04:56 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

David Barr - Buyer Agents are not IMHO "second class", so not sure why you consider the classification to be "old school" or derogatory.  It's a reasonable first step in training.  Once they master that, if they want to, they can become "co-list" agents on the team.  

 

We believe in the same approach as learning how to fly.  The instructor shows, the trainee observes.  The trainee practices, the instructor observes and coaches. The trainee demonstrates a sufficient level of competency, the instructor signs off for the trainee to fly "solo".  

After x number of hours "solo", and all the specific training requirements have been met, the trainee is eligible to take their flight test with an FAA examiner.  

Far better IMHO to take a steady, structured approach to learning ANYTHING - be it a pilots license or real estate business skills.

Buyer Agent, Traditional Listing Agent, Short Sale Listing Agent, REO Agent - all utilize different skill sets - nothing "classy" or "classless" about them! :-)

Sep 09, 2015 05:04 AM