Do Some Business Models Make Bad Real Estate Agents?

On Facebook today, Brad Inman was complaining about the lack of skill and courtesy demonstrated by an agent that he contacted as a consumer. That lead to a conversation about how low the bar is in the industry, and the usual complaints and aghast responses from some very skilled and professional people. Same old, same old. But why does that happen? Where was the supervision that could have helped that agent do a better job for someone in the industry that could certainly have been a wonderful source of future business?

It strikes me that the competition for agents created by different business models has led the real estate agent to assume that they know everything, well before they know anything –  And it also struck me that some business models do less to improve the competence of agents, and more to degrade the level of service received by consumers than others, so I thought I would throw those thoughts out to see if I’m alone in my concern.

Essentially there seem to be three types of business models in the real estate industry;

  1. The traditional model where the company (large or small, independent of franchised, virtual or brick and mortar) provides infrastructure, training, and some variety of services. The income of the firm is generated by the gross closed commissions earned by the agents, and the profit of the company is generated by the retained company dollar of those commissions.
  2. The desk fee or “downline” firms, where the company (large or small, independent of franchised, virtual or brick and mortar) may or may not provide some training, but the majority of the firm’s profit comes from desk fees, “up sales” on training programs, and/or selling services or tools to the agents, with some income coming from a modest amount of retained company dollars, usually hitting a ceiling or cap at a modest amount.
  3. The license warehouse where the income of the company(large or small, independent of franchised, virtual or brick and mortar) is generated by a monthly or annual fee – there is little or no company infrastructure, and the profit to the firm is generated strictly from fees. (CAVEAT: I know that there are companies of all shapes and sizes, and many of them have some amalgam of these models, but these are really the core model – I would gladly review any model you think is different from these)

The major difference between the first business model and the other two is that the company’s success in a traditional model relies significantly on the success of the agents – because if the agent does not succeed, the amount of retained company dollar is impacted. In the second model, the company’s success is less reliant upon the agent’s success as long as the desk fees are paid, training is bought, and services are used, and obviously in the third model, the company’s success is only reliant on the number of agents paying the monthly or annual fee. And therein lies the problem – if the core of the company’s profit is recruiting the largest number of agents without regard to how successful they are, you can’t be bothered spending much time on agent development. And since those companies operate on the thinnest of margins, the resources just aren’t there, and part of the agent development that is overlooked is conducting themselves professionally.

All of this leads to a large agent population that isn’t taught the simplest of professional techniques, let alone the finer points of the business, and that’s not good for anyone. Here are a few common issues;

  • Text messages or phone calls asking for information on a property or access to a property without introducing the sender (or caller) as an agent
  • Agents that call and ask for information about the property that is readily available in the MLS sheet. Often prefaced by a “My client saw this property and asked that I call you…”
  • Agents that send email offers without calling the listing agent to let them know that an offer is coming to them leading to;
    • offers that get caught in spam filters and languish without response
    • offers that are not responded to promptly because the listing agent was too busy actually meting with people to respond to their emails until late in the day
  • Verbal negotiations (which shouldn’t happen) and communications from Agents relying on those verbal negotiations who are often disappointed later when the principals refuse to execute the documents because they;
    • Didn’t understand the negotiation
    • Changed their minds
    • Felt uncommitted by their earlier response.
  • Agents that call the advocate for the other party looking for directions on how to ask for something for their client, or agents that don’t clearly understand how to act as an advocate for their client
  • And lots of other stuff – because the fact that you have had a few transactions and no one poked their eye out doesn’t mean that you have a full understanding of the business.  But there is, in many cases, a level of unwarranted pride that agents get just because they managed to survive their first year, leading them to believe that they have it all going on now…

The simple problem is this – when the success of the brokerage isn’t connected to the success of their affiliated agents, the brokerage doesn’t dedicate resources to help the agents grow professionally, and the agents therefore only know what they know – they have no idea what they don’t know about the business, and therefore are not able to grow in the profession in an organized manner, and often even lack basic skill sets that would make doing their job easier, make consumers more comfortable with them, and make other agents feel better about cooperating with them. It’s as if someone decided to open a restaurant without knowing how to design a menu, purchase raw materials, hire staff for the front and back of the house, or budget expenses against the price of their meals in a manner that allows them to be competitive, and then neglected to smile and welcome the consumer when they joined them for a meal.

When a company receives money based on the number of agents they recruit rather than the amount of business they do, they have little to spend on resources to train and support those agents. And that is based on hard economic reality. If the company doesn’t make enough to reinvest in their agents, or have no gain by investing in their agents, they just won’t do that, and the agents, their income, and their professional growth will generally suffer. I don’t think that it’s unusual that in our marketplace, the highest producing agents don’t work for desk fee companies, and the companies that have the highest average per person productivity are companies that have technology support, training, and managers that are dedicated to increasing the productivity of the agents that work there.

In our company,  we tell agents that our commission schedule doesn’t cap because our support for our agent never caps, and when an agent’s commission caps, their employing broker has no practical business reason to worry about any individual transaction, other than in the vaguest and unconnected manner. Not that you might have some desire to help someone you like, you just no longer have a connection to the transaction and therefore are not invested in a successful outcome.

We need management teams who want to help, and agents who are willing to be helped, and to accept that professional development is an ongoing process. Though we all need to make a living, and it is important to do as well as possible financially, both the management team and the sales force need to be dedicated to being the best they can be – not just financially, but professionally

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