While there have been several firms in past years that had agents as shareholders, the idea wasn’t widely accepted. However, The Group Inc. of Fort Collins, Colorado, and Graham and Boles of Winston-Salem, North Carolina, started their firms with that as a core offering. Others offered shares to some agents, mainly as a retention tool.
Firms such as Keller Williams and EXIT Realty heightened the focus on agents as shareholders in the way they both structured their franchise ownership model, along with profit sharing and some forms of voting influence—some real and some not. Along the way, there have been a few other brokerage firms that had agents as shareholders, sometimes as shareholders in related core services such as title insurance, escrow, and mortgage services.
Now we have two firms, eXp, and Compass, that are offering ownership of the shares of the parent company, in some cases as a recruiting incentive and others as a matter of course. This has raised the level of interest among other, well-established brokerage firms as to the wisdom and benefits of an agent as a shareholder.
In a study REAL Trends did for several of our CEO groups, we asked a few basic questions. First, how many had or have agents as shareholders? Second, how many still had agents as shareholders? Thirdly, how many would offer agents shares in their company again?
Before we get to the answers, we found it important to note that most brokerage firms, eXp and Keller Williams Realty included, view that agents as shareholders are an important part of what they are offering. Their view is that it does cause agents to think differently about their relationship with the brokerage because they are owners. The offering
of shares by these two firms, and many others that ever offered shares to agents, is based on the fact that the ties that bind the agent to the brokerage firm will be strengthened through share ownership.
In examining shareholder benefits, there are three tangibles and one that is more intangible. The tangible benefits of owning shares in any company, public or private, are the chance increased value of the shares (equity), dividends (or profit sharing) and voting. The intangible is the personal satisfaction of being an owner. Whether one is an owner in a Keller Williams Market Center, or through the shares of eXp, the primary benefits of these are the same.
The questions are: First, is there a chance the value of the shares will increase? Second, will I get a share of the profit (dividends)? Will my vote count?
For many agents who either purchase shares or are granted them, the answer to question No. 1 is rarely asked or carefully analyzed. We know as we’ve talked to many agents and brokers about this. Second, since most of the firms that have offered shares are privately owned, and since the brokerage business has relatively low profit margins and is highly cyclical, dividends are low and inconsistent at best. Again, few agents ever inquire as to how and when they might earn a dividend. Of course, there are exceptions.
Voting is another matter entirely and, yet, it’s here that many brokers and agents make a mistake. Brokers who think that agents will suddenly think and act like an owner rather than as an agent find it doesn’t happen much. Agents who think that being an owner (in most cases a minority owner) will give them the ability to influence or change company policy are also dismayed to find out that being a minority owner doesn’t give them the kinds of rights or influence that are commensurate with their ownership interest.
We conclude that eXp and Compass, to name two, are selling or granting shares to agents as part of their recruiting package and long-term incentive programs. Since both of these companies are relatively young, we don’t know what the long-term impact will be.
The truth is, agents must know that whether the shares appreciate or not is outside their control. The same is true about whether they receive any dividends from earnings in the future (certainly not today). Also, they must know that their voting power is severely limited if they have any power at all. Of course, they do still have voting power in that they can leave and join another brokerage, which in its way has been the voting power they have always had.
Most professional top-producing agents are rational business people, so it must be that the intangible value of owning shares is what’s most attractive.
Back to our study. Among nearly 60 large traditional brokerage firms, we found 26 that offered shares to their agents. Of these 26, none of them still had agents as shareholders. All 26 told us they would likely never offer shares or ownership again. (We did not include The Group Inc. in this study as they have a different structure than the firms we interviewed.)
It turns out that agents didn’t start acting like shareholders all of a sudden. It did cause them to behave differently. It did not result in better policy or program development. And, it didn’t improve the retention factor for these agents. It did complicate the life of the brokerage firm.
There are tens of thousands (when you include Keller Williams in this equation) of agents who think there is value in being shareholders and hundreds of brokerage firms who think the same. It’s only that brokerage firms should understand that it’s likely the intangible value an agent gets in being a shareholder that is as important as any other factor and that being a shareholder doesn’t change the behavior or incentives of an agent to belong to one broker versus another.
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