I’ve been running some stats on advertising, Google rankings and agent performance over the last couple of days. One of the top agents in Atlanta has not had a selling-side transaction all year. Very unusual for this agent. Another top agent – who ranks very high in Google and has been a very productive selling agent in the past – has also not had a selling-side transaction this year. Both agents have seen sales on their listings, but not at the same rate as 2005.
When I examine the number of homes sold in the greater Atlanta area in 2005 versus 2006, the numbers are virtually the same… but the number that didn’t sell was much higher in 2006. In 2004 – 99% of all listings sold… in 2005 – 71% of all listings sold… but in 2006, only 54% sold. If this trend continues, we will soon reach a point where a property will be more likely NOT to sell.
Meanwhile, for the umpteenth time over the last few days, GMAC Metro Brokers Real Estate has been running their television ads trying to get more people to become real estate agents. One of their ads features a guy saying that he sold $9 million in his first year. Oh yeah… we’re all swimming in cash right now. Even their website asks, “Who wants to be a millionaire?”
I wrote “How Many Agents Is Too Many” back in October.
So, with a yearly average of three or four transaction sides per agent in Georgia… why would Metro Brokers advertise for more agents?
Simple. Because these agents aren’t on salary.
Many businesses that hire commission-only salespeople don’t care who they hire, as these people only get paid when the company gets paid. To them, the more the merrier… and I fear that the same is true in real estate companies.
The questions is: “Is this a good model for our industry?”
Some new brokerages are trying a salary model, and time will tell if these models will thrive – or even survive. I have yet to hear what kind of money these salaried positions are paying.
On the surface, it sounds interesting to me. One of the larger jewelers in Atlanta has a sales staff that is on salary, and they use that fact in their marketing… no pushy salespeople there. The same marketing concept could be used in real estate.
With all the bad press about agents pushing their clients and customers to make less-than-optimal decisions (presumably because of money) maybe there is some merit in this salary idea. I know one thing is for sure – if all agents were on a salary… there would probably be only 250,000 members in NAR. 300,000 tops.
Karen Rhodes says:
I agree. The only criteria most agencies have for their licensees is the ability to fog a mirror. Then they provide little or no training. And it’s not good for the industry. I’m curious to see how the salaried agent firms will pan out too. I don’t think it will take off because these firms will then have to spend dollars to train employees. Plus they will no longer be able to hide behind the employment and tax laws since they will actually have employees instead of independant contractors.
December 21, 2006 — 6:45 pm
Brian Brady says:
I disagree about salaried agents as the answer but think an emplyee status, complete with W2 forms, worker’s comp and health insurance would lead to more judicious hires by brokerages.
December 21, 2006 — 7:46 pm
Norm Fisher says:
If real estate went towards a salaried model, there’s no question that a broker would need to turf about 60% of the agents right away. The top 25% would likely find something else to do, leaving the broker with the “marginal producers” who are inclined to do only as much as they have to. Sounds like a disaster for the brokerage to me.
As agents, we need to get comfortable with the idea of allowing our brokers to earn a decent living. We’ve ground them way too hard over the last 20 years and most brokers have pretty thin margins. The only real solution for them is to bring on more agents and hope for a few winners who can keep their bills current.
Imagine this; the top 30% in your office get together and agree to give the broker a raise. They’ll pay him or her 5% of gross commissions, on top of what they’re paying now. The broker can likely fire everyone else today and still be ahead with revenues. With the dead wood gone, professionalism and morale go through the roof. Office leads are a little more plentiful and most of them actually close. Complaints and litigations almost disappear. The broker can actually focus on developing business for the brokerage instead of constant recruitment. The best agents from other firms start to notice that the quality of people working for your firm stands way above the rest. We all live happily ever after.
December 22, 2006 — 9:18 am
Doug Quance says:
“I agree. The only criteria most agencies have for their licensees is the ability to fog a mirror.”
Oh, that’s rich! I need to remember that one, Karen.
I don’t think it’s THE answer to what ails our industry… but it is ONE answer, Brian.
Good points, Norm. Maybe the states need to implement some sort of a limit on the number of agents under a single broker’s license. There are firms with more than 1200 agents under a single broker.
Maybe the public will split into two basic camps – the cheapies that don’t care if their agent is worthless… cause they’re not going to pay him/her much, anyway… and the other camp that wants experience – as is willing to pay.
December 22, 2006 — 2:54 pm
Franz says:
Brian, I agree. What needs to change is the independent contractor safe harbor for real estate agents. Most agents would really fall under the catagory of employee, but are treated as independent contractors thanks to the lobbying power of the NAR.
I like the idea of a salaried shop and would love to grow my business to the point where I could run one. Of note, some of the non-traditionals have gone salaried (Redfin & Foxtons)
If you look at the attrition rates for new agents, and how much brokers invest in recruiting new agents vs. helping existing agents succeed, you realize the traditional model is all about bringing on people, using them up, and spitting them out.
December 24, 2006 — 9:05 am
Franz says:
Also, Trevor at Blue Collar Agents (disclaimer: I write there as well) shared his thoughts on salaried agents a few weeks ago. Since then, he has accepted the job at Redfin, where presumably he is a salaried agent. We’ll have to check in with him and see how he likes being on salary 🙂
December 24, 2006 — 9:10 am
Doug Quance says:
Franz: Thanks for posting… I did not read that post over at Blue Collar, and now I have. 🙂
Hopefully Trevor will keep us informed of how the salary program works.
December 24, 2006 — 10:36 am
Marcus Burke says:
Doug, it’s absolutely true that whatever Code of Ethics courses NAR provides, we’ll never see real ethics in real estate while associates rely on commissions to feed their kids (and egos). And if you really want to hear me rant on this one, try this for size… http://activerain.com/blogsview/30398/NAR-Not-Absolutely-Rational
December 30, 2006 — 5:32 pm
Paul Hayes says:
I don’t think that salaried agents are the answer. I think there is too low of a barrier to entry into Real Estate. Where else can you start a “professional” business with 60 hours of class and a few hundred-to a couple thousand bucks. There are way too many agents who get in this business and then get out just as fast because they didn’t get rich as fast as they thought they would. If a salaried model was put in place, you would have all the top agents going to high commission split companies and be able to market themselves and their listings just as effectively as a “company” with employees.
After all, don’t top agents really do what has been suggested with the 80-90 of the market share they already have? They grow their sales business and hire buyers agents, listing agents, and other staff to handle their transactions.
The real question for brokers is how do you attract and retain talent, because that is the same way you attract listings and sales.
April 15, 2007 — 4:57 pm
Bob Barber says:
As a broker for over 25 years I think I would love to try salaries to aid any new agents and give them the option to move into straight commissions once they settle in to the point it is an advantage to them. I beleave it will take the pressure off new realtors. I am a small office and in the last 5 years I have recruited 9 agents. 4 of the 9 left my agency after 18 months on the average to brokerages with higher splits. Their average net incomes less MLS dues only in a 9 to ten month year was just under $200,000. I am ready to try newer agents on salary. Most high earners have made far less in their new companies.Some have come and gone 2 to 4 times over the years realizing what they have missed with my brokerage. I have had enough of it and need something new to try.
August 4, 2007 — 8:43 pm