Brokers and Teams — Can They Thrive Together?

In my last Medium article, I wrote about the macro challenges facing traditional real estate brokerage firms. Being caught in the middle of a financial vice grip with downward gross commission income rates on one side and hungry agents and teams on the other.

According to RealTrends data, the average Gross Margin (generally, Gross Commission Income (GCI) less agent compensation) for U.S. real estate brokerage firms was about 15 percent for the 18 months ending June 30, 2018, down about 30% from just five years ago. Keep in mind that from these Gross Margin dollars, the brokerage firm has to pay all of its operating costs and hope that at the end of the day, there are a few crumbs of profit for the owners. That unpleasant sound you hear is the vice tightening.

What is very interesting, however, is that while traditional brokerage margin is in a free fall, real estate teams are flourishing, both in terms of growth and financial success.

Just last month, NAR published a comprehensive Teams Survey. It’s an interesting survey but a couple things really stood out to me.

First, a whopping twenty-six percent of respondents self-identified as members of a real estate team. Keep in mind that NAR membership today is about 1.3 million. Of that number, a significant number (some believe as many as 50%) are unproductive and do little if any business. Teams on the other hand are, by definition, led by productive team leaders who employ team members in order to do more business than the team leader could do by herself. These two facts taken together would clearly indicate that the influence of teams is well more than ¼ of national transaction volume.

Second, the survey indicated that the median year that real estate teams were established was in 2014 with most of the respondents having joined their current real estate team in 2016. High producing teams are a new phenomenon with the long-term implications yet to be played out.

RealTrends is in the process of doing a study of teams in concert with the California Association of REALTORS. It recently reported that their data showed that team leaders paid their team members on average 35% of GCI, with the corresponding Gross Margin for teams averaging around 65%.

Let’s see. Gross Margin of brokerage firm — 15%. Teams — 65%. Yikes.

Yes, teams have a different cost structure with a typically much higher spend on marketing and lead-gen but that’s a lot of margin to play with to support those costs.

Just the other day, I was talking with a successful team leader and she was lamenting that her brokerage firm was essentially going to form its own team and compete with her. With numbers like this, one can see why.

In my experience, traditional brokerage firms have not embraced teams and at best might be said to tolerate them. And for good reason. Team leaders generally want to build their own brand, they want to run by their own rules, they cannibalize the broker’s other good agents, they don’t want the broker’s office space, they have unique needs that the broker is not adept at providing (e.g. team technology) and most importantly, they control a ton of business and demand very aggressive splits. Many brokers will accept a few of these teams sometimes only because they put a lot of the broker’s “for sale” signs in their local community.

And for the team, many in turn just tolerate the broker. They really don’t want to be there, but it’s marginally better than being their own brokerage firm (many Team Leaders would rather scratch a chalkboard then be responsible as the broker). Sounds like a marriage made in “H-E-Double Toothpicks.”

We hear ad nauseum the term “agent-centric” brokerage. Everyone and their dog now claims agent-centricity. But as I talk to team leaders across the country, there is no consensus today on the brokerage that is truly “team-centric.” One that really, truly wants teams. Lots and lots of them. It’s a white space, primarily because the economics of that kind of brokerage firm need to be very different than the traditional firm in order to support that model.

With that white space in mind, I am super excited that today, Real announced that it is entering the teams space. Relying on the foundation of our highly-scalable tech-connected brokerage platform, our non-reliance on brick and mortar, and a national footprint that offers ultimate team expansion opportunities, we will be able to provide teams and entrepreneurial team leaders with everything they want from a brokerage relationship, while maintaining a very healthy brokerage firm in the process.

Tolerance of each other is no way to do business. With the right model, brokers and teams can really thrive together in a mutually beneficial way. And, we are excited to show the industry how.

Russ Cofano is a 30 year veteran of the residential real estate industry having held executive positions in brokerage, technology, association and multiple listing services. He can be reached at russ@joinreal.com or on LinkedIn.