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REAL Trending Episode 80: The Future of Brokerage, The Future Profile of Great Agents and Teams, and The Importance of Core Services

Jul 21, 2020 7:36:45 AM

On REAL Trending episode 80, we're going to take a little trip to the future and discuss the future of brokerage, the future profile of great agents and teams, and the importance of core services.

Steve Murray:

From REAL Trends, the trusted source for real estate industry trends and news, this is REAL Trending episode 80. We're analyzing the most important trends affecting brokerage companies and their agents. I'm Steve Murray, president of REAL Trends. Today, we're going to take a little trip to the future and discuss the future of brokerage, the future profile of great agents and teams, and the importance of core services. What do these trends mean now and how can brokers firms best deal with them in the future? So let's talk first about the future of brokerage. I want to be straight and get to the point with anyone tuning in many.

Steve Murray:

Many who've read what we've written here at REAL Trends and heard me speak about this, the big three pillars of successful brokerage, which is recruiting talent, developing talent and spending less money than you have coming in. Putting all kidding aside, in fact, those are the fundamentals, but what does that have to do with the future of brokerage? It's a fact that gross margins have been shrinking for nearly 40 years now as competition for agents has heated up. We grow the number of realtors and agents in this industry to 1.4 million approximately today. We know full well that half of them are not what we consider productive agents. Another quarter of them are marginally productive. The top quarter are highly productive on average.

Steve Murray:

So what does that have to do with the future of brokerage? Gross margins are going to continue to be under pressure, but there's an interesting fact; no brokerage model has ever yet proven, no matter how low its cost to agents are, that they grow forever. They just don't. We've watched the RE/MAX model grow and then level off. We've watched the Keller Williams approach grow rapidly and then level off. We're going to watch the low cost brokers, whether it's EXP or JP or Fathom or any of them, Realty One Group, HomeSmart, they're in fast growth mode today and they still have quite a bit of room to grow, but at some point, they will level out. We've already seen this happen in dozens of markets with strong brokers competing with that kind of model. They all hit a plateau.

Steve Murray:

So if you're in low growth mode or fast growth mode, there comes a reckoning where you still have to go back to recruiting and developing talent because if you absorbed all the agents to whom your offering will have appeal, you must then focus on how you're going to keep new people coming, but most importantly, how are you going to develop their productivity in any way, shape or form? So for brokerage, gross margins probably nearing the bottom at this point, somewhere between 9% and 12% for the national average. Now, there are still brokers who were in the low twenties and high teens, but they're under enormous pressure from competition in their markets. It's likely that they may lose share if they choose to maintain, in fact, their financial model and culture.

Steve Murray:

Brokerage in the future itself will remain a fiercely competitive business because it is in the business of recruiting and developing agents and their skills. Yes, technology may help with productivity. It may help with retention, but this observer believes that the primary focus is still going to be the mix of all those interpersonal skills, relationships, vision, discipline, communication and building a sense of humidity that are going to still bear the most weight in any broker's ability to recruit, retain, and develop great agents and teams. The future of agents and teams is a different story. As we have observed when we compile nearly 15,000 of the nation's top individuals and teams, we noticed that, for instance, the number of teams as a percentage of that total, 15,000, ranked agents and teams continues to increase. The number of small teams is still the dominant segment of that category. That is teams with two to five licensed real estate agents plus some support staff, far more of them than medium-sized teams with six to 10 licensed agents and large teams with 11 or more.

Steve Murray:

In fact, there were 2,400 plus small teams ranked this year by volume, 1400 medium-sized teams approximately, and only about 700 teams that were considered large out of all the teams we ranked, which was almost 4,500 teams ranked by volume. What is going to happen to agents in the future? We believe in our interviews with them, we're studying their practices, how they're growing or not growing; great agents in the future are going to be investors in market intelligence, in their sales practices, in their management practices, whether they're an individual agent or running a team or part of a team. They're going to be far smarter than the general agents about pricing trends, and contract trends, and negotiating trends than the average every day agent. Their skill level will be far higher because we notice that the best individuals and teams are investing substantially in their knowledge, in their education and in their practice. We notice it over and over and over again.

Steve Murray:

We're reminded of Malcolm Gladwell's book, which talked about the rule of 10,000 hours, that in fact, the great people in any practice, in any athletic endeavor, in any business success, the people who invest the most time and effort in their practice are the ones who will tend to rise to the top. We see that happening today across the board with individual agents' teams, whether they're small, medium, or large. These people are investing not only more money, but they're investing tremendous amounts of time in becoming better and better and better. In the future, we still think that the success of agents and teams is going to be based on personal skills and relationships. It is their knowledge base that will add the most to their success in the future. The evidence seems apparent to us that that is the case even today.

Steve Murray:

Lastly, the importance of core services, and we relate it for brokerage companies, mainly. Mortgage, title, escrow, residential, property management, property casualty insurance, and other related services are not just a nice thing to have any longer. With the pressure on gross margins among brokerage companies and the corresponding pressure on profit margins, it's going to be almost vital for any medium to large brokerage company that wants to grow and compete to have some revenue sources for what we call, core or related services. There are numerous ways for brokerage companies to participate in these, regardless of their size. Yes, larger brokers can have their own mortgage banking firms, their own title insurance, their own escrow, property management and property casualty, but even midsize firms now can get into some of those businesses on their own.

Steve Murray:

In the mortgage business, there are a number of firms that are helping a group of medium brokers form a mortgage venture together to take advantage of the scale of two, three, four, five medium sized firms coming together. Once such firm, for instance, is NewRez Shelter Mortgage. They're spearheading the effort to put brokerage companies together in a venture to achieve scale to offer mortgage. We're seeing the same thing in other markets in title insurance and in escrow primarily. Core services is not going to be just a nice addition to a business, it's going to become vital to be able to compete if you are a medium to large brokerage in the future.

Steve Murray:

Learn more about industry trends and successful tactics for brokerage firms, agents and teams, as well as listen to past REAL Trending on Apple podcasts, Spotify, Google Play, and others. Visit www.REALtrends.com/channels. This has been Steve Murray, until next time.

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