REAL Trending Episode 11 : Culture, Gross Margins and Insights From Our Upcoming Consumer Study

I’ve had the opportunity to meet with some of the country’s finest young leaders a week ago here in Denver. Learned a lot, more than I was able to give back. Part of the Leadership Team from REAL Trends, Scott Wright, Alicia Vivian, and I hosted this group.

At one point, we were asked about culture, brand and other factors that will matter going forward with brokerage companies. We had the following things to suggest. Yes, a brand name is important, but it’s probably not the most important part of a broker’s success. Culture is very important. A culture that’s established by the leadership of the company, including the owners.

It is not only important to have a culture, but it is important to be able to describe that culture and reinforce it in the written word, in the spoken word, and particularly in the conduct and actions of the owner and the leadership team.

Point two for all brokers in the United States and Canada for that matter is something serious to consider. With agents, if it were only about the money, then most incumbent brokers would be out of business because there will always be a less expensive brokerage alternative available to most agents. It’s important to think carefully about that because the majority of agents do not go to the least expensive brokerage company.

The great majority are with a whole wide variety of firms. If there weren’t value in those things, everybody would go to the least expensive alternative.

Know that there is some value in your services. There is value in your facilities. There’s value in your culture and the leadership.

-Steve Murray, President REAL Trends Inc.

A third point that we shared with this group that if we were planning for our own brokerage going forward into the future three to five years from now, a safe bet to make, is in three to five years you may need to run your brokerage company profitably at 12 to 14% gross margins. The national average as of the end of 2017 was 14.5%, but there’s still a whole group of brokerage companies, the graduated commission plan firms that are in the low 20%.

We suggested that every brokerage in the room and there was a wide variety of them, ask themselves in three to five years from now, “How would I run this company at 12 to 14% gross margin or company dollar rates?” How would you do it? What would your cost structure look like? What would your office structure look like? What core services, like mortgage, title, escrow, or property management, would you operate? Or what fees might you start charging back for, such as risk management, or marketing, or technology? These are all things for brokers to consider going forward. We’re not saying we know for sure that’s where it will go, but that’s the right way to bet as we look at the environment today.

We just received the results of our 2018 Harris Insights Consumer Study and here is some very good news.

  • 90% of all buyers and sellers used an agent to buy, or sell, or both
  • That’s up from 85% in the same study with the same questions and the same demographics four years ago
  • 18 to 34-year-olds who bought a home or sold a home in the last six months, 91% used a real estate agent to buy or sell a home
  • 64% said because the agent was referred by someone they trusted
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