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Opinion: The future is real estate teams, the pulse of the industry

For years, real estate teams have been something large brokerages have benefited from and also struggled with. Along with high production, came headaches in the form of liability and a drain on resources. The explosion of teams in the last ten years has given credence to the fact that teams are not only an excellent model but produce at a higher rate per capita than an individual agent.

Based on the recent RealTrends Study: “It’s true, that real estate teams outperform brokerage firms“, when a team’s production is compared to an individual agent’s, the team structure not only allows the team to be more flexible, but more profitable. The study found that teams retained an average gross margin of 61.8%, while the brokerage companies that RealTrends benchmarks (of all different business models), had an average gross margin of 13.8%.

What caused this shift?

The origin of most real estate firms can be rooted back to a high-producing agent or agents who felt stymied by their broker, so they launched out to start their own firm. The thing about high producers is not all of them have the business acumen or the interest to run a large business. They are really good salespeople who know how to generate business and service their clients which is what propelled them to success.

Most high producers, when they start their own firm, are savvy enough to surround themselves with people who understand the mechanics of running a business outside of selling real estate. But along with starting a company comes a lot of work that is not real estate related and demands the need for significant seed money to support a fledgling business.  

As profit margins shrink, more top producers are looking for alternatives to going head to head with their former firm just to achieve the autonomy they crave. Instead of leaving to start a real estate company, they just create a real estate company within a real estate company.

A real estate company within a real estate company

Teams of various types have existed in traditional model brokerages for many years. They were initially manufactured by the brokerages to target specific business lines such as relocation, rentals, REOs, and more recently internet leads.

The broker could set very specific performance metrics and payout structures to achieve their desired results. Those teams are typically loyal and compliant because they found it hard to generate that business and maintain it on their own as an individual agent. And some of that still remains true today.

But in the case of agent teams and their own personal business, no one knows better how to manage it than they do and there is no corporate entity creating a roadblock for their entry point.

Well-funded team solutions

The real question for teams is: Do teams need the support and name recognition of a large brokerage? Or, can they use a vendor to provide the services they don’t know how to manage or don’t want to manage?

In a perfect world, they could either stay with their current traditional model brokerage or they could leave and partner with a company to provide it. The very roadblock that has kept many high-producing teams from leaving has been removed with a variety of well-funded solutions that have entered the market in the last few years.

Entities like PLACE, Side and Keller Williams-backed, Livian, are pushing the boundaries of the traditional model by catering specifically to teams.

National networks enter the team market

Brokerages can no longer ignore the elephant in the room. They need to determine what support and resources will be offered to support the growing team population.

Word on the street is that Compass and RE/MAX are creating specific programs to cater, attract, grow and retain large teams.

The RE/MAX pilot program for eligible teams features expanded education, improved technology, and enhanced economics that further support the growth and profitability of teams.

“Teams have historically been unscalable partnerships built on personality, DNA, or a high-producing rainmaker. Having invested hundreds of hours coaching and consulting mega agents, masterminding with top teams, and experiencing the challenges of scaling a first-generation team, it became apparent that our industry was failing the business-minded entrepreneur,” said Eric Forney, director of industry for Livian. “This failure is what we believe to be the biggest opportunity in the industry — scaling modern teams to achieve the freedom and financial success that was never possible in the past.”

As teams continue to dominate the landscape of real estate companies, broker-owners have to find a solution that not only relieves them of liability but gives the team leader the support to run a business they so desperately need.

Large brokers are already strained by the large volume of staff it takes to manage marketing, legal, HR, finance, IT, etc. These operational staff people do not directly produce revenue, but they are a necessary part of providing compliant resources and creating a consistent model and brand management. It can easily become the wild west if each team creates its own set of rules under the banner of a national brand.  

Why brokers are fearful of teams

Liability. Teams can be a drain on resources because either the brokerage can step in and help with various needs of the team, or they risk the liability of letting them wing it without supervision. If the team runs their business based on what seems like the right thing to do, they can create a serious liability for the broker which can equal massive legal issues, particularly in the area of employment law.

Drain on resources. They can drain the broker’s already limited resources when they have to step in to provide a lifeline. The danger of the partnership mentality can be risky. What responsibilities does the broker have to the team? Sometimes it’s too late to define it because when the problem is uncovered, everyone is in defense mode.

Unpredictability. One thing big brokers want is uniform practices, it makes things predictable. The loss of control creates a very uncomfortable unknown. The team isn’t doing things to intentionally create havoc, sometimes it just evolves as they grow. Not only does the team lead need leadership and sales coaching, but they also need business management guidelines from experts in their field.

It’s a matter of team leaders. A CEO of a large east coast franchise said this, “Teams are an increasingly inevitable facet of real estate brokerage and a logical step for aspirational agents to take their business to the next level through specialization and scale. As such, real estate companies need platforms to fully support them. With that said, there are times when teams may present challenges.

“Culturally, some teams create a company within a company where others perceive separation from the collaborative nature of the group as a whole or internal recruiting. In other cases, there are legal and human resource implications with employee and IC team members for which the firm is not in control but for which it has exposure. 

“Finally, space for expanding teams in offices inevitably creates pressure. I’m always excited when an agent wishes to take his or her business to the next level, and creating a team is a great means of accomplishing that.  It’s very much the future of brokerage and one better be excited if they want a sustainable company. I often hear from other brokers or managers who look unfavorably upon teams. 

“I usually ask the question ‘If one of your agents states he or she wishes to double their business over the next two years, what would be your reaction?’ The response is always favorable. So then I ask ‘then if forming a team is what gets them there, why would you be opposed?’ What I generally find is that it’s less about the concept of teams, and rather a matter of team leaders. Does the person have the organizational and leadership skills to effectively run a team without chaos?”

Don’t fear them, embrace them

“Real estate agents are often looking for the wrong thing from their brokerages. And when they don’t get it or find it, they prematurely believe going to a different brokerage will deliver that. We believe brokerages serve a very specific purpose. They have historically needed to be a one-to-many solution for launching and building a real estate practice. At a certain point, there are agents who want to become true business owners, and will need to either build or plug into a business services platform to scale their real estate businesses,” said Chris Suarez, co-founder of PLACE.

One thing the most recent rounds of venture capital money have shown us is that they favor the out-of-the-box thinking that some new fringe services are providing. The stock performance of the big public brokers is a real-time reflection of the lack of confidence investors currently have in traditional models. New ventures continue to challenge and disrupt the way we all believed a real estate brokerage should behave.

“Teams are the pulse of the real estate industry. When professional expertise and individual talent align, real estate professionals can draw from each team member’s strengths to provide superior service to their customers. Today’s consumers demand better technology, more sophisticated marketing, and a higher level of service. We believe the scale and expertise of high-performing teams are the best way to deliver that experience for the consumer,” said Ben Kinney, co-founder of PLACE.

What do teams want?

One of the apparent things is that teams don’t just want money thrown at them. They are already successful or they wouldn’t have had the resources to grow and create a team. They crave education to teach them how to run a business or they need for someone else to do it for them. But it all comes down to the team lead and their tolerance, appetite and acumen for running a business.  

“Team Leaders often fail to create an agreement regarding material terms, including, the split of the agent/leader commission and also decoupling terms in the event of a demise of the team or departure of one of its members. Team leads sometimes use newer agents as assistants, creating an unintended employee-employer relationship that can trigger wage and hour violations, reimbursements, tax issues, and other labor law infractions, “ said a President of a large West Coast franchise firm who requested anonymity.  

It all comes down to the customer

The person who buys and sells real estate and what is best for them. The customer could care less about how things work behind the scenes. They want an attentive, informed agent who will provide the services they are paying for and legally protect them and while getting a good price for their purchase or sale.

But for a broker, their customers are also their agents and some of their best customers are their team leads. The behind-the-scenes mechanics are the responsibility of the broker to ensure their brand is delivering as promised which gets trickier as more teams emerge.

If traditional broker models could figure out a way to price the services it currently has in-house, maybe they could create a fee-based service model to support teams. Offering a menu of services, such as support from the human resources department would ensure the team lead was compliant in their hiring processes and absolve the broker from liability.

their HR or legal needs may vary, pricing it in such a way that the expense is spread throughout the teams would allow for more dependable budgeting and determine the volume of staff to have available. Even if it meant creating a consortium of external service providers to tap into as needed, that would ensure the services provided were approved by the broker and compliant to preserve the brand expectations and avoid tricky legal situations.

The real answer about these new team service providers lies in the future. Because many of the teams may remain with their brokerage but utilize the support of an outside provider. When legal or financial problems arise, who bears or shares in the responsibility? 

If a team is being advised or using the services of an outside provider, if an employment lawsuit arises from a team member, who are the responsible parties? Even if the team is a stand-alone broker, the provider may bear some culpability. Only time will tell.

Teresa R Howe is founder of TRH Consulting.