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The Future of Small Brokerage Firms

Sep 3, 2020 1:00:00 AM

Are you stuck in no-man’s land between being a selling/managing broker or just a managing broker? Here’s some interesting insight.

In our past research, we found that approximately two-thirds of the National Association of Realtors® member broker-
age firms have fewer than 10 agents. Depending on how the numbers of brokerage firms are counted, this could mean there are approximately 60,000 residential brokerage firms that fit into this category (90,000 brokerage firms times .67).

 Clearly, there’s a strong desire among real estate professionals to own one’s firm. Further, this segmentation has been in evidence for many years. The percentage of firms with fewer than 10 agents has been mostly consistent with prior years.

 We’ve consulted with a number of these firms over the past 30+ years. We’ve found:

  1. The firms all had the same dream of having a brokerage that would be their own, with a culture they desired, and respect from their agents and the community.
  2. They dreamed that their firms would grow to an extent that would produce additional income (in addition to their sales income), develop into a business that had value (equity), and would become a satisfying investment of their time and capital.

What happens is that even though brokers have the same goals, they all reach them in different ways. This is what we’ve found:

  • There were those who loved what they built, were satisfied owning and running a smallish boutique-type firm and were generally feeling good about what they had done.
  • We found another group that was still planning to grow large enough to provide both additional income and potential equity in their firm but had not come to grips with the transition required to get that goal accomplished.
  • The last group was composed of owners who had grown tired of having two jobs—dealing with the challenges of owning a brokerage, yet still listing and selling to pay both corporate bills and personal bills.

The last two groups were the ones that came to us for the most help. We were not the first to share with them that few people can master two different jobs at the same time. Being an owner of a brokerage, whether 10, 100, or 1,000 agents, is a full-time job. Being a highly productive agent or team is also a full-time occupation and requires intense effort to stay productive. When we counseled them about the steps to decide which course they would take, which job they would focus on, the majority flinched, unable to choose. This is where most of them remain stuck.

Why Go Out on Your Own?

Several years ago, we ran focus groups with two sets of eight top-producing agents who left a large, mainstream brokerage to open their own firm—and also got stuck in the 10- to 20-agent size. They all wanted to run their own firm, develop a separate identity, and build an income stream separate from their production while also building something of value. We asked one basic question: Why can’t you do that while under a larger, mainstream brokerage firm? 

After all, over 95% of the top-producing agents and teams in the country reside within a larger mainstream brokerage firm, and many are accomplishing all of those key objectives.

Independent contractor agents and teams are just that—independent. They’re buying a set of services and tools from a brokerage firm that they would have to reproduce if they had their own firm. You either pay for these support services with a check to a brokerage firm, or you pay for it yourself. One path is a fixed cost, and one path is variable.

In other studies, top teams stated that the most valuable services provided by a brokerage are legal and regulatory assistance and having a strong local or national brand name. When asked what more a brokerage could do to add value, survey respondents mentioned more legal and regulatory assistance and business coaching—not sales coaching. 

Given the intense level of competition among agents and teams, we truly feel for those pioneers who want to own their firm, try their hand at building a sustainable brokerage firm and accomplish the income and equity goals of their dreams. Absent a true assessment of how willing these top agents and teams are to leave behind their sales careers, and the willingness to want to build others’ careers, most firms will never get to where they want to be. When we visit those firms, we often remind them that, in most cases, they can accomplish those goals within an existing brokerage firm.

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