The hulking real estate brokerages whose names leap to mind will cease to exist in their current form five years from now.
That’s my prediction based on changes in the industry that have moved from evolutionary to revolutionary.
In the last few years, a number of new firms has emerged in New York with business models that effectively challenge the tired old models in which agents and brokers were treated more like employees rather than entrepreneurs.
(Although one of the newer ones is Charles Rutenberg Realty, with which I am affiliated, this screed springs from a spirit of objectivity. You be the judge.)
Functioning in what I view as outmoded paternalism, the dinosaurs now facing extinction shared the following characteristics:
- Mandatory comprehensive training programs for inexperienced agents;
- Strongly encouraged attendance at weekly sales meetings;
- High levels of supervision;
- Standards of dress and conduct;
- Performance awards meant to encourage competition;
- Firm events aimed at promoting corporate unity;
- Financial support in the form of the provision of advertising budgets; back-office assistance such as compilation of co-op board packages; and supplies of paper, business cards and marketing materials;
- Office and desk space along with computers, copy machines, fax machines and the like;
- Impressive Internet presence;
- Public relations opportunities.
The dinosaurs also extract a heavy price both financially and otherwise. “Otherwise” refers to control — pushing the firms’ brands to the detriment of the individual agents’; frowning on candid blog posts deemed harmful to business (not mine, which didn’t exist at the time that I worked with one of the big firms); and, among other things, demanding a minimum amount of commission revenue lest the agent be banished to the Neverland of having no desk or. . . respect.
As for the financial impact, the brokerages charge hefty fees ranging from well more than $1,000 to at least $5,000 annually just for the privilege of belonging to the firm and in return for the charcteristics in the bullet points above.
Of course, the worst aspect of the hoary brokerages is the amount of money they keep from each commission that their brokers and agents earn — 25 percent from the relatively few top producers to 50 percent from the average individual.
The rationale has been that the amount of support the agents receive and the supposedly resulting business easily justify the degree of commission splitting they endure.
Not so today.
Brokerages are losing some of their most productive agents at a substantial rate — hundreds in the last year — to new firms that tend to take a more laissez-faire approach to management and to adopt extremely generous commission structures.
Such brokerages recognize that their agents and brokers are independent contractors whose individual brands need to be paramount.
Not only are the firms willing to reduce sharply their take from commissions in exchange for lower overhead, but they loosen control significantly.
(To take the example I know best, Rutenberg asks for no more than $2,000 from any residential sale, provides plenty of advice but only transient desk space, conducts sales meetings at which attendance is voluntary and offers no advertising support.)
At the same time, the dinosaurs have been both raising their annual fees and substantially cutting back on the support they provide. I hear their agents grousing about how abysmally little they get in exchange for their money.
To my mind the biggest advantage of the old models is the reputations that they developed over the years and, thus, their prominence in the eyes of some buyers and primarily sellers.
Reputations often outlive reality, and that time, I predict, is fast arriving.
On the one hand, the Internet has a way of leveling the playing field, while consumers have become increasingly sophisticated on the other hand. An ever greater number of buyers and sellers appreciate that it is the quality of the individual agent that matters, not the visibility of his or her brokerage.
Firms don’t bring in business; individuals do. Firms don’t show properties; agents and brokers do. Firms don’t support, coddle or cajole clients and customers; yes, it is individuals who do those things.
Do I think the big-name firms will disappear? Probably not — but only if they adapt to the new world. Whether they do, they are slouching toward extinction in their current form.
Tomorrow: Clear, cloudy or cascading skies?
To take your own bite out of the big apple, search for your new home here.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022