A Real Estate Firm based on the legal model could have many looks, as do actual law firms. But for a starting point I am going to lay out an achievable structure that will accommodate the greatest majority of agents. The firm would consist of three distinct levels as well as an administrative staff.
- In the top level are the named agents: let’s say Ms. Patrick, Mr. Dunne and Mr. Purcell. These are the founders of the firm and generally speaking they are all three tremendous rain makers. They have a large and active client base from which they receive a tremendous amount of referral business. It is also quite likely that one or more of them has a strong presence in a niche area. They are not only the face of the firm, but it is their style and personality that colors the firm’s corporate vision.
- Under the named agents are the partner agents. It is within this level that we see so much of the communal benefit that Mike Farmer has written about. Similar to the named agents, partner agents bring in a lot of transactions. They also may have areas (geographic, industrial, network, etc.) of specialty. These agents have reached a level reminiscent of tenure. They share ownership of the firm as well as decision making duties and have a say in its direction.
- The associate level is where the greatest number of agents are found. From fresh beginners to agents with years of experience. The associate level is also the workhorse of the firm. Associate agents are not only working hard to take care of clients assigned by the partners, but are at the same time trying to impress the partners with business they generate themselves. The presumed goal of an associate agent is to be made partner.
- Finally, there is an administrative staff which grows as the firm’s growth dictates. It could be as simple as one administrator or as complex as a multiple level staff covering everything from answering the phones to creating the marketing to processing the transactions and more. Staffing might be the one place where someone looking for part time work while deciding whether to make a career change into real estate could get some exposure.
Responsibilities and Remunerations
The Associate
The most significant accumulation and degree of change versus the outdated brokerage model can be seen at the associate level. First and foremost, associates are employees and as such receive a salary. There is no more winking at the independent contractor rule by the IRS and no more tax advantaged hiring practices. Responsibility, accountability and liability for associates as employees rests with the firm. The hiring process will by necessity be focused and purposeful. Associates will have the luxury of choosing between competing firms with various personalities, numbers of employees, areas of focus and methods of billing clients. Of course, top firms will be sought after by many and the competition may be great. This competitive edge will improve the firms as well as the associates and serve the clients who benefit from that honing process. No doubt there will be some associates who do not wish to participate in such a competitive market and there will be firms that cater to them as well. Firms that practice real estate from a different perspective. Such boutiques, as well as the career path of solo practitioner, allows for anyone to make the choice and enter the field of professional real estate agent. How long they stay will be up to them.
The associate life at a large real estate firm is a tough one. They are expected to put in 60 or more hours per week. There may be training sessions or mentoring programs (as the individual firms decide), marketing duties and clients assigned by the partners. They may be asked to assist partners or other associates with specific transactions. On top of that the associate is working hard to generate their own client base as this is one of the primary talents evaluated when an associate is up for partner. An agent at the associate level receives a great deal of on the job training and a wide variety of experiences. They receive a salary and possibly benefits. The firm is liable for their development and their actions; the associate is accountable to the firm. In the parlance of law firms their job is measured in billable hours. I suggest that real estate firms abandon the practice of billable hours and keep the focus on value added goals. I can imagine some variations though: minimum required monthly marketing hours, home viewing hours and so forth. The firm may use this as time management training and even require the associate to document their days the way a lawyer must. The difference: the agent is not documenting in order to grow the clients’ billable hours but rather to assure they are doing the proper activities while on company time.
When all is said and done, not all associates will make partner. In fact at some firms the percentage that make partner may be quite small. Those that do not move up may be asked to stay on as associates with some type of defined pay structure or they may be asked to leave or they may resign and test their ability at another firm or out on their own.
The Partner
Partners are part owners. Real estate firms may be set up as corporations, LLCs, LLPs or sole proprietorships. The partners receive a percentage of the profits as owners and this has significant repercussions. Again, the wink at independent contractor status is eliminated. More importantly, the desire to create a firm with profits and the desire to be part of a firm with profits lead to better firms doing better business for their clients. Generating enough profits to share means the firm is creating satisfied clients and doing so in an efficient, price conscious way. Pricing will probably be based to a large degree on the firm’s reputation for results. That reputation is created and nurtured by the partners. The partners will most likely meet at regular intervals to make decisions on all matters firm related. This relieves any one or two people from carrying all the weight or spending too much time on running the firm instead of generating business. If you will remember, this is one of the main set-backs to the Super Team model.
Partners may be general or they may have areas of interest and specialty. A small firm may take care of all manners of real estate or they may specialize in just a few areas or niches. On the other hand, a larger real estate firm might have have specific divisions that handle residential, commercial or investment. There could be divisions based on type of marketing (online, door to door, network, etc.) or they may have divisions broken into geographical areas. It would depend on the nature and proficiency of the partners as well as the size and vision of the firm. Partners would continue to generate business as rain makers and have the added benefit of associates to help them handle the leads. As previously mentioned, partners would receive a percentage of the firm’s profits. On top of this they may receive a salary, a percentage of the transactions they themselves bring to the firm or both. Their share of profits may be a fixed percentage or based on the percentage of business they generated. It might also be influenced by the responsibilities they take on over and above real estate transactions such as training associates or creating marketing strategies. It might be any combination; the possibilities are almost limitless.
The Named Partner
The named partners will generally be the creators of the firm. Being named a partner may also be a reward to an existing partner agent or a carrot used to entice a top producing partner from another firm. The named partners, besides the cache, may receive a higher salary or percentage of profits. Named partners, as such, also serve as the “face” of the firm. They are the corporate personality as well as the impetus behind the vision for the firm. This uniqueness based on the named partners (and to a lesser degree on the partners in general) serves to further differentiate firms from one another; providing clients as well as employees more choices and a greater fit for their individual needs. A model such as this fosters diversity in the name of the marketplace rather than requiring it by inefficient mandate of law. Perhaps of greatest benefit to the general public: named partners have a personally vested interest in the level of professionalism and the reputation of the firm.
The Others
Beside the three main levels of the firm there is most likely a support staff. Given our current licensing laws much of the staff would probably need to be licensed themselves. Some, if not most, staffing needs can be outsourced so as not to drain so much of the partners time.
There is one other position a larger firm may fill: that of managing partner. This person is designated as the partner that handles much of the staffing and administration aspects of the firm. They are not brought on due to their rain making ability so much as their organizational skills. This would create even more opportunity for the named partners and all the partners in general to focus on business. I am not a fan of our current licensing laws, but one requirement of our model is that it be achievable quickly. As current law requires a brokers’ license, that need would also fit nicely in the arena of the managing partner.
In the final section on Wednesday, I will talk about one possible path for implementing our new model.
Todd says:
In this day and age of Zillow, where is the Consumer value in this proposed model? If I am a seller, will I get a reduced fee by having an associate be my agent as opposed to a “named partner”?
Also, didn’t I read somewhere that public opinion of lawyers is down in the Exxon/Mobile and Enron range? Is the “law firm” model really in super smart, independent, Bloodhound Agent spirit? To me “Bloodhound agent” has come to mean “beauracray free” and “do more with less”.
August 4, 2008 — 12:55 pm
Bob says:
Todd, my thoughts exactly. The very use of the word ‘tenure’ makes my skin crawl.
August 4, 2008 — 1:39 pm
Sean Purcell says:
Todd,
The consumer value would seem obvious to me. A new model that not only encourages but by its very structure practically demands more professionalism and a greater work ethic is all about consumer value.
You seem to be equating consumer value with price. Price is what you pay, value is what you get. The actual pricing model a firm uses might definitely be part of the choices for consumers as opposed to the arbitrary percentage system in place now. Law firms have fee based, contingency based, hourly and so on. Some firms may charge a flat rate instead of a percentage. Some firms may follow the illustrious lead of our own Jeff Brown and charge a monthly fee based on time on market. You could charge hourly or by service provided.
It is these very possibilities that make the new model of so much better value to the consumer.
As for lawyers having a bad reputation, that is hardly a concern. We are discussing a new paradigm here. Call it whatever you want. The new firm model based on Bloodhound spirit (whatever that is). It has nothing to do with lawyers. I am simply borrowing from their successful model.
August 4, 2008 — 1:53 pm
Sean Purcell says:
Bob,
In hindsight “tenure” may have been a poor choice of words, although the concern seems rather pedestrian given the vista I am trying to lay out.
I meant only to convey that partners move into an ownership role and that is an important shift. We see it in the real estate business all the time. Owning vs renting creates quite a difference in neighborhoods. Owning vs employee servitude carries the same benefits in business.
August 4, 2008 — 1:57 pm
Bob says:
Owning what? There is no tangible asset of the typical real estate company that one can buy, so not much worth owning. What is bought is market share, and that is agent dependent.
We have ownership vs employee servitude now. That is what being an independent contractor affords. I control my brand, my marketing, and my expenses. My broker only provides the legal umbrella under which to operate. I have been offered a piece of ownership. I do not want it. It only serves to limit my options and potentially increase my esposure to liability.
August 4, 2008 — 2:24 pm
Bob says:
I mean to say “we have better options to ownership vs employee servitude now.”
August 4, 2008 — 2:26 pm
Sean Purcell says:
Bob,
Ownership does not require a physical asset. Market share is certainly worth owning. Good will is the most common asset owned by companines. In any case, ownership here reflects profit sharing more that the ability to lay claim to any piece of property or asset.
From what you are describing you sound like someone who would prefer to be a sole practitioner. This is a great thing because there are clients who will only want to deal with a sole practitioner. But likewise, there are agents and clients that will want the size, wisdom, backing and abililties that only a large firm can afford them. We see this in law firms, banks, the medical practice… probably most any industry we look in where trust is a main issue, we will find both models.
PS
You are already well established Bob. How does your independent model help train and make professionials out of the agents coming into the business?
August 4, 2008 — 2:44 pm
Bob says:
I spent the better part of the summer watching my daughter play softball seated between two lawyers. One started the firm (national in nature). The #1 complaint they had was that law firms are top heavy and all about billable hours. Practicing law is frequently compromised because of the emphasis on billing, which is camouflaged by the argument of the need to leave no stone unturned.
With almost 20 years and experience with Pru, KW, a pure 100% gig and now my present situation, I can’t see how the law firm model is an improvement. Lean and mean doesn’t have to imply size, but efficiencies.
I’m out of the wholesale training business as it is easier to find agents who know what they are doing. By nature, I’m a coach and am good at refining skills. I can fix most swings, but I’ll only draft those who already know how to play the game.
For the most part, I think an industry-wide hiring freeze is in order.
As a real estate coach, why would you recommend a new agent work under a law firm type business model?
August 4, 2008 — 3:23 pm
Bob says:
FWIW, the only lawyers I know who like the model are those who started their own firms.
August 4, 2008 — 3:26 pm
Sean Purcell says:
Bob,
Very interesting comments. Great stuff. Allow me to work backwards:
the only lawyers I know who like the model are those who started their own firms
I’m guessing there is some truth to that statement. Here’s the thing though, I am trying to conceptualize a model that will be effective and universal. That means it will make happiest those that benefit the most from it. No other way to do it. The rain makers are the ones that will be at the top of the food chain and deservedly so. Odds are, if you sit down with some of the associate agents you will walk away with the same sentiment.
As far as law firms being top heavy and too focused on billable hours, I agree. I think the idea here is to lift their model as a workable starting point (which is a wonderful shortcut for us), but then make some tweaks. For instance, I don’t know of many lawyers that appreciate the billable hours process or focus. Nor do I. As I said in the post that is one area we need to change. I would like to see a more value added type process which is more a measurement of the agents time (and therefore training) than it is a price to be passed on to the client. Definitely interested in your take on what measurements a firm might use to evaluate an associates progress without said measurements being directly related to client costs.
I don’t agree with the hiring freeze idea. Not so much because we need more agents but rather I don’t like fixing by fiat. I would rather create ways wherein the market will balance things out. In that vein, I think your other questions are related. How does a law firm model improve upon the existing system and why would I recommend it.
I would love to shortcut this and say it is better for the reasons I already laid out and I recommend it to new agents for those reasons… but I don’t think that would be a satisfactory answer. The law firm model accomplishes a number of things, first and foremost it rids the industry of dead weight. This is an outcome you are asking for as well. Of course, other models would do that (I’m thinking Super Team now) so long as thre is accountability and employer cost (or at least liability). Here’s the thing with the law firm model: it accounts for and rewards those who make things happen with the added plus of firm wide accountability (if not survival) based on only a couple of issues: effectiveness with clients, professional reputation, and knowledgeable agents.
One more benefit that I did not discuss: it removes the usually false hope of great riches early on and with little effort. I’m sure you’ve heard the ads, “Make 6 figures in your spare time” and “Learn how to be a real estate millionaire in 8 months” and so on.
When a new agent goes to work for a firm the firm has a financial risk involved and a financial benefit too. At the same time the agent has an interest in moving up and sharing the profits. Both parties believe that by improving and impressing the other they improve their own future.
August 4, 2008 — 4:12 pm
Bob says:
I don’t think it removes false hopes. Many think lawyers make bank, but the 80/20 rule is alive and well there as well.
Profit for a real estate brokerage is based on efficiencies. I do not see how this model is efficient.
What I can see is a whole litany of unintended consequences because of the make up. A smart agent can take whatever training they can get and be on there own. The communal aspect of the law firm model minimizes the individual upside as it’s focus is on the firm.
August 4, 2008 — 4:56 pm
Mike Farmer says:
Bob, it depends on the firm — if firms develop that have a great system and perform at a high level, an indivdiual who joins the firm might do better than if the inidivual went alone.
This all hinges on efficiencies created by team work. The firm could become so efficient and staffed by excellent players that it makes little sense for an individual to compete against it when the individual is doing well within the firm.
If your stance is that no greater efficiency would be created than with the average brokerage, then that’s unknowable at this point.
I think Sean’s stance is that it would be more efficient by managing the talent coming on board, that it would bring in more business than the average brokerage and that it would build a better reputation than the average brokerage — assuming the average brokerage that is taking on anyone with a license with very little managment of success.
August 4, 2008 — 10:51 pm
Property in Brazil says:
Hi,
In this day and age of Zillow, where is the Consumer value in this proposed model? If I am a seller, will I get a reduced fee by having an associate be my agent as opposed to a “named partner”?
August 4, 2008 — 11:46 pm
Bob says:
Then what’s the point? Why create a model that you dont know to be more efficient?
August 5, 2008 — 7:31 am
Brian Brady says:
“In this day and age of Zillow, where is the Consumer value in this proposed model?”
Does the consumer value have to be a lower price? If Sean’s “firm” delivers better results in a more customer-friendly environment, haven’t they established the greater value?
In the luxury market, price tends to be more inelastic. Wealthy people pay for quality because they want superior resluts. Maybe they’re on to something!
August 5, 2008 — 9:10 am
Sean Purcell says:
Bob,
You are asking why the new model will work when I do not think we have agreed that the current model is broken. If you believe that the real estate industry, constituted the way it is now, works pretty well then there is precious little reason to make any changes.
If you believe, as I do, that the current system continues to not only shoot itself in the foot… but the same foot over and over – then a new system needs to be designed.
Will the system I am fleshing out now be more efficient? I think the answer is an undeniable yes. Maybe not the exact model I am currently laying out, but certainly something close. Here’s why: we have already seen the team concept take hold. In almost any large market the top producers are large teams; some are what I term Super Teams. I think the evidence is clear that a team approach creates efficiencies that are not found in the average brokerage. (This obviously does not always hold true. Even a team has to be set up correctly.)
My interest in the firm model is taking the team concept that already exists and that has already been written about quite extensively by Mike Farmer and others, and expanding it… tweaking it… shaping it into something that might be more universally utilized. As I said, the team relies on one of two aspects that I do not think are always present. The firm negates those needs to a large degree.
I am not finished writing the next post in this series wherein I lay out ideas for the creating of such a firm. But I am already fairly certain that it starts out looking an awful lot like a team. What I am suggesting here is not so radical as it may appear. Teams already exist. Teams are already proven. What I am looking for is the next incarnation of teams: one that has a more widespread adaptability.
August 5, 2008 — 9:14 am
Sean Purcell says:
Property in Brazil,
This question was answered at the top of the comment string. Do you have something constructive to add?
August 5, 2008 — 9:16 am
Dan Sullivan says:
“What I am suggesting here is not so radical as it may appear. Teams already exist. Teams are already proven. What I am looking for is the next incarnation of teams: one that has a more widespread adaptability.”
To me, this seems to sum it all up. This model may not be for everybody, but could be a very attractive option for those that would like to work in a more structured operation with a planned career path.
August 5, 2008 — 11:25 am
Sean Purcell says:
Dan,
Thank you.
August 5, 2008 — 2:28 pm
Bob says:
I think that the “system is broken” is a sweeping generality. Does Russel Shaw believe that his system is broken? Specifically, what parts are broken that are fixed by this model?
This is a simple business that consists of two parts – finding business and then getting it done. The reason most of the training time and money is spent on how to find and close, because the money goes to those who can find it. If I can find it, then all I need is to find those who can do the tasks I don’t want to do.
August 5, 2008 — 4:32 pm
Sean Purcell says:
Bob,
We are starting to go in circles. The fact that Russell is successful does not mean he would necessarily agree that the system is fine. Truth is I don’t know what he thinks of the current system. I do know that he follows the Super Team concept out of Keller’s book pretty well and that is one of the answers I, Mike Farmer and others originally suggested to deal with the current “broken” system. He is in fact operating without many of the problems that we find and that I am addressing because he does not use the typical brokerage model but rather uses the Super Team concept.
The problem with the Russell Shaw answer, as I stated in the post, is that there are few Russell Shaws in this world just as there are few Greg Neumans. We need an answer that has more universal portability.
August 5, 2008 — 5:54 pm
Sean Purcell says:
PS
I certainly agree with your final paragraph. If you are a rainmaker, the world is your oyster. You may choose any number of paradigms and it sounds like the one you like based on this comment and another is the referral method. I think that is great.
I want to design a system that has more vision and more income potential than the referral system. But even if I do so, I may choose to avail myself – personally – of the referral system if I decide it works best for me. That is an individual decision. Let’s just have more choices than the brokerage system, the referral system and the rare Super Team.
August 5, 2008 — 5:59 pm
Bob says:
Funny that you mention Gregg. I was his very first buyer agent in 1993. The paragraph you agreed with was written with Gregg in mind.
I would argue that Gregg’s model, which is similar to Russ Shaw’s, is the one model that allows for extreme success aside from the ultra luxury model.
Few know that when Gregg moved downtown, he became his own Pru Cal franchise. That lasted for a bit, then he decided to go back to operating under the umbrella of the original Pru franchise and stopped being the broker/manager and went back to being the team leader.
If you look at the top producing agents in San Diego that are making 7 figures and have done that over the last several years, factoring out the luxury market agents, they have accomplished this by implementing their version of a Russell Shaw/Gregg Neumann business model.
Their model does have universal portability and can be duplicated. Equally important is that it is scalable and efficient.
August 5, 2008 — 9:09 pm
Bob says:
The way I’m handling referrals is on offshoot of how Gregg handles his buyer agents. The only difference in how I’m doing this is who issues the 1099.
August 5, 2008 — 9:12 pm
Sean Purcell says:
Bob,
I agree that the team model is scalable and efficient.
Their model (the Team model) does have universal portability and can be duplicated
It is here that we must agree to disagree. I have watched agents try to implement this and they run into a great amount of difficulty. Granted this is often time management problems, but the point remains that I do not find it portable. Add to which, I think it is still limited in how well it addresses the changes and potential changes that the industry will see going forward. In the end, it solves the problem of unproductive shoe salesmen and it most definitely places RMs where they belong. But I don’t think it allows for some of the variations and options that can be realized with the firm model.
I have enjoyed your commentary on this. It has been enlightening and I hope you will take the opportunity to have the last say. 🙂
August 6, 2008 — 9:31 am