Changes in the brokerage scene
News has been circulating the last couple of days about changes in the Phoenix real estate brokerage scene, though the vast majority of the changes have never seen the light of day in the local newspaper.
Sometime over the past two weeks a smallish Century 21 franchise, Century 21 Camelview, shut its doors. Several agents made their way to my old firm, Century 21 Arizona Foothills. Arizona Foothills, meanwhile, announced this past weekend that it will be closing its Arrowhead Ranch office effective March 31.
2nd most productive office
That Arrowhead office was the second-most productive office in the Century 21 chain in Maricopa County last year (with admittedly limited help from me.) But the lease rates were high and the property owner was demanding a five-year lease, which Floyd Scott, Foothills’ owner, wasn’t willing to sign.
Today news comes that Homesmart last week acquired another local brokerage, Dan Schwartz Realty, giving Homesmart more than 3,300 agents. What slice of the market the company now will have, I’m not sure. I’ll try to run the numbers sometime soon.
We often talk about the need for real estate agents to prove their value to the general public. But real estate brokerages are finding themselves needing to prove their value to their agents to an equal degree.
Ron Copus’ departure
The worst past of Foothills’ closing of the Arrowhead office is the departure of Ron Copus, the one-time broker at Tradin’ Places before it was acquired by Foothills. Ron was my mentor and the mentor for many successful agents. There were many who remained at Foothills after the buyout only because of Ron and Mary Sand, the training director.
Loyalty to the Foothills’ brand never has run deep. And with the closing of this branch, there now are several agents looking elsewhere because without a local location, there are limits to the value the company offers. There’s a vibrant corporate relocation program there but agents soon learn that the 3/4 of one percent they may earn is little reward for a great deal of work.
Expenses passed to agents
More and more expenses have been passed to the agents. And there are substantial splits taken out of every closing check, sometimes with only the flimsiest of justifications. (Like an additional 5% fee for daring to accept a referral from a sister Century 21 franchise, payable directly to the company’s relocation department for doing absolutely zero work on the file.)
Dan Schwartz agents are used to a minimum of infrastructure so the change there likely will be less dramatic, outside of the usual need to order new signs, business cards and marketing paraphernalia. And since Homesmart is a company with 100 percent splits, the value question likely will not be asked as often.
Two types of communities
As I wrote on my own blog there seem to be two types of companies – mom and pop, and the monoliths. Century 21 Metro Alliance was a monolith whose days appear numbered, what with the owners filing for bankruptcy and rumors of downsizing office space from a scarcely 1-year-old location. Homesmart appears to be a monolith that’s thriving.
Smaller shops with a handful of agents often can be more successful comparatively due to the lack of overhead. Jay and Francy Thompson, for example, started Thompsons Realty after leaving Century 21 Aware and haven’t missed a beat. Others prominent in the real estate blogging world for their alleged marketing prowess have zero active listings in the MLS and remarkably few over the past 16 months or so.
Strange times, indeed.
Teresa Boardman
March 26, 2008 at 4:44 am
We have a growing trend here in MN where more and more of us have brokers licenses and agents are going out on there own in larger numbers than ever before. One of the major companies in town seems to be shrinking but the largest company looks like it is growing. It will be interesting to see if this is just an anomaly or if agents will continue to go out on their own.
Greg Cremia
March 26, 2008 at 6:31 am
What I don’t understand is how it is illegal for me to talk about commission structure with another agent but it is ok for 3,300 agents to follow the same commission structure in one city.
Jonathan Dalton
March 26, 2008 at 2:15 pm
Greg – a company can set whatever commission structure it chooses. I honestly don’t know if this is the case at Homesmart. I know at my prior office I never charged what the company’s set rate was for a variety of reasons.
Teresa – It’s something I’ve contemplated myself but I still like having the big franchise behind me, even if I don’t trade on their name all that often.
ines
March 26, 2008 at 9:46 pm
Something similar happened to us last year – our local Coldwell Banker office closed its doors saying they were “consolidating offices” and we had to move to one further off. CB lost their local presence and I still think it was a mistake, but Rick and I work from home and it really didn’t affect us. Interesting times for sure. I still like the big name behind us……somehow that name does not seem as big anymore.
Joshua Ferris
March 26, 2008 at 11:38 pm
I think the value of a broker has been challenged dramatically over the past year or two. I worked at a certain black and yellow company when I first started and it was an absolutely awful experience all the way around. I then switched to a work-from-home-we’ll-give-you-the-leads operation for about 4 years. It wasn’t a bad model really but I had to pay for all office expenses, meet potential clients at Starbucks because we had no office and work with buyers exclusively. To top it off, I was on a 60/40 split.
Over the summer I started my own brokerage to shoot for the 100% commission and I still hated working from home and not having an office. Plus when the calls came in for listings I was the only one to answer them so I had no time to myself.
Now I’m with Keller Williams and I couldn’t be happier. Not only do we have beautiful offices and a great front desk staff that everything but I also have a fantastic broker who helped me seal the deal on a 200+ home community marketing contract. Oh, and the split is higher than the 60/40 place!
Overall I couldn’t be happier. I share all this because brokers will always have a place in real estate but the ones who bring nothing new to the table and don’t help agents flourish are soon to be dead in the water.
Bill Lublin
March 27, 2008 at 2:30 am
Teresa;
There is a cycle that the business follows – as markets are good new people come into the business and over time some portion of them decide that they are the source of all good things and they go to open – some are business people and grow their companies, some struggle and don’t grow because they are better salespeople then they are businesspeople, and some (like Joshua find that they are better suited to be agents then owner operators- After a period of time some of the new independent companies find a place where they need to grow further and the next stage happens – a wave of franchisees or an expansion (I openend my second office 5 years after the first and didn;t buy a franchise for another 6 years when it seemed to be the next groweth step) after a period, there is a consolidation of many of the smaller offices as the market contracts – and then when the market expands again the cycle starts all over again – its really fascinating to watch – So many people open brokerage firms that never grow to be businesses, but are just opportunities to create a job (like Joshua relates) – A great book about that is call the E-Myth – it helps put into perspective the whole process (from purely a business overview – not real estate specific)
The nice thing is that its almost a sort of economic darwinsim – new things arise, old things grow and change – some things prosper and others don’t – but the agents and companies that make it through seem to be stronger when the next expansion cycle starts –
Bill Lublin
March 27, 2008 at 2:33 am
@Greg; When people from more then one company talk about their commissions it is considered price fixing (since a number of companies may be agreeing to “fix” a price to charge the consumer) – when agents within one company follow a single policy it is a business practice (since all of their competitors set their own commission schedules) It goes back to business practices in the late 19th century when railroad companies and energy suppliers would conspire to create pricing through artificial methods outside of the marketplace demands – (leading to things like the Sherman Anti-Trust Act) Hope that helps explain it
Bill Lublin
March 27, 2008 at 2:35 am
Ines – I undertsand how you feel – we’re hyper-sensitive to changes in our business becuase we’re so involved in it (like you get sensitized when you buy a new car and start seeing it everywhere you go) but the consumer still sees the branding they’re used too, so the names still seems the same to them – (but we know better 🙂 )
Bill Lublin
March 27, 2008 at 2:39 am
Joshua – I agree that the brokerage needs to bring something to th table – no matter what the business model – and I would even challenge the common assumption that its a split or a percentage – When the brokerage is a place that fosters the growth and business of its affiliates then it does well- and its not about your split- but about what you make and keep – in our market there are many business models where the agent is paid a higher split and then charged back for services etc – bottom line is that the brokerage needs to be a profitable strong company and the agent needs ot make a good living and be able to experience growth – In our company almost all of my partners were agents in the company at one time – when they were ready to grow – we helped them open offices and they became principals in the company- its worked for us well so far – and even in this market we’ve been moving forward because this is a growth opportunity-
Greg Cremia
March 27, 2008 at 5:12 am
Bill,
I understand that part completely and agree with it. What I don’t understand is why it is ok for those 3,300 agents under one umbrella in one city to talk about commissions or even follow the same office policy on commission. If those 3,300 agents are not forced to follow the same pricing schedule they are at the very least encouraged to follow the same commission schedule.
It is a double standard when 2 little companies can’t talk about commission until they are bought out by a big company.