Why You MUST Think Twice Before Owning This Type Of Business

Dated: December 9 2020

Views: 126

The consolidation of real estate brokerages is underway.


About 69% of real estate brokerages in the U.S. have six agents or less.


With major brands like C21, REMAX, Coldwell Banker, Keller Williams… you’d think that number would be much less.


But with about 1.8 million realtors in America, the majority are with small business brokerages competing to deliver world-class service.


The competition is fierce, technology is engulfing the industry at warp-speed… and profits are dwindling.


(Even this author knows the challenges of operating your own brokerage in today’s world. I opened 13 offices overseas, built lead generation systems, websites, physical retails store locations and hired over 60 agents).


Attracting agents who will believe in your vision, what you offer, and how your brand will compete in today’s marketplace is hard.


It’s not as easy to retain top agents in an industry where more automation and technology are the norm. CRM’s can be costly and a must-have for brokerages. You need social media professionals to build your brand. Video is a must for today’s real estate owners. And the amount of lead gen strategies is overwhelming. They’re expensive and change on a daily basis.


And to do that, brokerage owners need a steady stream of money. Yet agent commission splits are rising industry wide. The days when a brokerage could maintain 50% or 40% of the gross commission are long gone. 25% to 10% is today’s norm.


To put that in context, an agent may ask for, and get 75% or more, while the brokerage gets 25% of each commission or less.


That’s in addition to a lower commission rate trend. The days of 6% commissions is slowing dying. We’re seeing 5% - 5.5% common today.


New business models like Reddit, OpenDoor and Zillow are leading this change. These big, well-capitalized disruptors are ultimately seeking to grab a larger percentage of real estate commissions by offering lower rates to the market. They’re putting downward pressure on “the little guys.”


Today, there are brokerages who offer the opportunity for agents to earn shares of stock, to generate additional streams of revenue… and with much less hassle.


Exp Realty does just that. At Exp you can generate business several ways:


·      Sales production

·      Stock ownership by reaching production milestones

·      Their Rev Share model: when you attract agents to your team, you earn a small portion of their commission (from the brokerage side, not the agent).


Over the last year, Exp’s stock rose from about $10 per share to over $55 per share. And they’ve grown their agent count from 15,000 to over 36,000 since 2019.


So, whether you’re an agent considering owning your own brokerage, or an entrepreneur who believes this business offers huge upside and independence… you’re going to face strong headwinds. There are massive changes taking place in the industry to keep up with.


You won’t just open your brick and mortar store, pay your rent, overhead, systems fees, legal, branding, marketing and become a success. You’ll be negotiating with every ounce of energy you have to earn a decent commission split with each agent… and that battle will never go away.


For the 69% of independent broker owners out there today, your business challenges won’t go away. If you have an open mind about how to utilize the tools that are out there, leverage your skills, experience and relationships… you could reduce your stress, bring your agents with you and begin a journey with tailwinds, not headwinds.


Right now, the number of independent brokerages is dwindling, and the rate of this will get increase. Have the hard conversation with yourself about where you want to be five or ten years from now. Then position yourself with industry leaders who are applying future technology, today.


If you’d like to have a private conversation about your brokerage, the struggles you’re facing, and how you could alleviate that while creating a positive and sustainable solution for your team… it’s time we talk.

Blog author image

John Wieland

My real estate passion began almost 30 years ago. It was Orange County, California 1989, when my friend and I began a property management business. We focused on apartment buildings in lower social-....

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