commission splits are broken
Issue 74 - March 4th, 2022
The commission split business model in the real estate industry is broken.
The brokers’ view of their value to their agents and the value that agents see in their brokers have grown so far apart that a radical change is needed. Brokerages look at their businesses as though agents are working for them, but this is not how agents see their own business. Agents see themselves as entrepreneurs and CEOs of their own small business, and they need brokerage partners who align with their thoughts to POWER them up to succeed.
Commission split brokerage firms are constantly juggling “services for agents and split negotiations with agents” to keep their revenues in check. The brokerages do not think with an “agent-first” mentality as some may say because in all reality, it is in direct conflict with their money generating mechanism.
In the early days of the industry when commission splits were first introduced, it was a completely innovative and game changing model. Since home sales are sporadic, the commission split made sense for the firm instead of putting agents on a salary. The brokerages took a larger split from their agents but also provided a lot of value for the them in terms of support and marketing and listing distribution.
Then and Now:
Before Zillow and other listing portals were around, brokerages wielded even more power (and provided more value to agents) because they took care of putting agent’s listing everywhere for consumers to see - remember how FAT the Sunday paper was 15-20 years ago?
Commission-split brokers will not admit there is something broken in this model. They will keep chugging along and frantically adding “tech” and doing everything they can to toe the fine line between agent happiness and lackluster service while keeping their lights on as the industry presses forward.
Most of the large industry leading firms have all introduced new fees over the last few years in addition to the commission split - I am sure some of you reading this are shaking your head in agreement. “What is this ‘resource fee’ or ‘admin fee’…etc. etc.”
The industry has evolved and changed tremendously since the “commission split model” was first introduced, but brokerages have not kept up with business model innovation to shift to SERVE AGENTS. A lot of firms talk “agent service” by rolling out new tools and tech, but hardly anyone thinks about rebuilding the entire business model from the ground up to create a new architecture to serve agents and make money at the same time. A win/win partnership where everyone is happy.
Besides carrying out the conventional duties of a broker—providing a layer of inspection and protection for agents and their clients—a truly valuable broker is one who grasps the meaning of empowering agents.
Brokerages who think with this mindset are constantly looking for ways to launch new products, tools, services, education, and partnerships to push their agents forward.
True agent empowerment is only achieved in an environment when the brokerage’s business model and money making mechanisms are in direct alignment with the agents where everyone is on the same page to succeed.
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Newsworthy Links To Share
MyPlace, a social network intended to help users share their private homes with friends and family, has raised a $5.8 million seed round led by early-stage VC firm Freestyle Ventures.
Migration to California has plummeted — from every state. The decline was especially extreme for one region- New England had the greatest decrease in California movers of any region, with Vermont, Connecticut and New Hampshire among the states that saw the biggest drops. (SF Chronicle)
A group of investors wants to simplify real-estate buying and eventually even set up a city in Wyoming using blockchain technology. Wall Street Journal cryptocurrency reporter Paul Vigna joins WSJ Tech News Briefing host Zoe Thomas to explain the new investing structure they used, a decentralized autonomous organization, and the potential risks it carries. (WSJ Podcasts)
OpenSpace, a construction proptech working to simplify job site records, announced raising $102 million in new funding and reaching a valuation of $902 million. The company accomplishes this by attaching cameras to worker’s hard hats, with photo and video recording a visual record of a job site. These records are then uploaded to the cloud, organized via artificial intelligence and stored in a central database for consultation during following phases of construction.
Offerpad, a leading tech-enabled platform for residential real estate, announced its expansion into the Sacramento metropolitan area. By providing sellers with flexible closing dates, Offerpad can help remove the need to move twice or juggle two mortgages. (Bakersfield Californian)
Buying A House Vs Investing In The Stock Market - Unpopular opinion: Investing in the stock market is better than investing in real estate over the long term. Put simply, an investment in real estate earns just three to four percent per year historically; on the contrary, investments in the stock market post about 10 percent annual returns.(Forbes)
In total, iBuyers [Opendoor, Offerpad, Zillow] purchased 70,402 homes in 2021, more than double the previous annual high of 32,726 homes in 2019. They completed 44,933 home sales last year, exceeding the previous high of 28,265 homes sold in 2019. The median markup on homes sold by an iBuyer in 4Q21 was only 1.1%, up from 3Q21’s 0.7%, but down from the all time high in 1Q21 of 8.6%. (Zillow)