How Great Agents Challenge Discount Brokers

Last week, WAV Group founding partner Marilyn Wilson and I had the privilege to speak to a packed room of nearly 1000 real estate agents and brokers at the Real Estate New Technology (R.E.N.T.) conference in Paris. (If you visit the website using Google Chrome, you can translate it.) The show had about 4000 attendees and more than 200 vendors. It was very well done, and I encourage you to set time in your calendar to attend next year, if your budget permits.

I really appreciate the invitation extended by the event's owner and producer, Herve Parent. The experience and the hospitality was outstanding and it is always good to see my friend Eric Calosci. It was also nice to see the familiar faces from Centris in Montreal. CEO Eric Charbonneau along with a small contingent had a booth displaying their implementation of Matrix and Instanet. Everyone was soundly impressed at the amount of technology this organization delivers to real estate agents.

Real estate in Europe is very hard. There is no MLS, and many of the listings are not exclusive. It's like an entire ecosystem of pocket listings. Funny thing is, they do not seem to mind. American and Canadian brokers provide a steady amount of pressure on our MLSs and REALTOR® associations to improve. From time to time, perhaps they should be thankful of the many things that are done well.

One gentleman described the American model as "opaque, poor value, unreliable, and largely inaccessible to the consumer outside of 'normal working hours," and "A proposition based upon a bygone age of fragmented, secreted data and buyers registered in silos, hidden from view except from those agents that they know," and "Their proposition is clunky to an extreme, and filled with more layers than a New York deli sandwich." And he even called me out for not knowing that Purplebricks launched in California.

A lot of this happened after I spoke. I was challenged to talk about five trends that have changed real estate and five trends that will. Part of my talk was to contrast discount brokerage with 100 percent commission brokerage.

A quick definition of discount brokerage: Discount brokerage is a full service real estate firm that cuts the commission rate. For example, 1 percent fee to the agent or a fixed fee per transaction. There are many discount brokerages in America and some do a damn good job at attracting consumers and funding. However, none have really conquered top marketshare. They have never been able to break though to become the leading brokerage in the marketplace.

A quick definition of 100 percent commission brokerage: The brokerage charges agents a fees for services provided to the agents, and agents keep 100 percent of the commission. Again, there are also many examples of this model. To some extent, RE/MAX and Keller Williams have a shade of this in their business model. HomeSmart and other 100 percent shops take it to an extreme. These brokerages charge desk fees, technology fees, training fees, transaction fees, apply production levels that lead to 100 percent, etc. Again, they are all different. But the biggest difference here is that we see those companies commanding top market share or top five market share in areas where they operate.

As a consultant to firms that operate every kind of business model, we could care less about how a brokerage chooses to model their business. Our endeavor is to help them develop their strategy and execute it effectively. We identify centers of excellence that align with the company's values, its customers, and its agents. We do not build the box, we make it better by finding incremental opportunities for improvement and growth.

In my talk, I was challenged to defend these different models on their merits. What I have observed in my experience is that discount brokers have a hard time keeping fantastic real estate agents. Once a real estate agent hones and shapes their skills, and builds a client base of trust – they leave discount brokerages and go to traditional brokerages where they get paid more for their service. Agent retention is difficult in any business, but it is particularly hard for discount brokerages. Redfin may be the exception because they reach more consumers online than any brokerage firm, filling the agent's pipeline with transaction ready consumers. They are on the right track, but have not turned their business into a market share leading profit maker yet. We wish them the best along their journey.

The 100 percent commission model has legs for great agents. RE/MAX is a place for top producers to run their book of business. Keller Williams is a training company that develops agents from the bottom up whilst developing a down line of income for their top agents and teams that cap out quickly to earn 100 percent. In parlance, not only do an elite group of KW agents get 100 percent, but they get a bonus on the profitability on top of that. HomeSmart agents pay a tech fee and a transaction fee and keep all the commission.

My synopsis

You will see top producing discount brokerage agents leaving to join traditional brokerages or 100 percent commission brokerages, but it's rare to see 100 percent commission agents leaving their firms to join discount brokerages.

When challenged about Purplebricks, my answer was pretty direct. In truth, I did not know that they opened an office in California, and I live in Los Angeles where they opened. I study market share on behalf of our clients, and they don't show up. I study marketing efforts and they don't show up. I looked at their website and saw an okay experience that is definitely subpar to Redfin and has IDX violations. I tried to contact an agent and they did not deliver on their promise of 24-7 service. Live chat was not live (at 8am) and the phone number did not have an operator available.

I wish Purplebricks the best of luck. Heck, we could probably help them polish their entry into the marketplace. At the end of the day, companies that make headlines need to develop real, profitable, sustainable businesses. That is done with agents and consumer relationships – not technology. The good news is that there is plenty of room in the U.S. marketplace for all kinds of business models. The companies that execute their plan the best are the ones that prevail. I do not see that changing anytime soon.

To view the original article, visit the WAV Group blog.