Real Estate Disruptors - Part 2 - Cloud Based Brokerages
Steve Murray, President of REAL Trends, and I discussed disruptors in today’s real estate industry. Previously, we considered iBuyers and if they really are different than the disruptors of the past. Today, we will examine the cloud-based brokerage and how this new model might be changing how we recruit and retain our agents today.
Bundled and A la Carte Brokerages
There are two basic types of brokerages:
The Bundled Brokerage - the more traditional brokerage, where an agent pays a graduated percentage plan and they are provided with office space, coaching management, technology, software systems, support staff, marketing assistance, etc.
The A la Carte (Unbundled) Brokerage - this is the cloud-based brokerage, where the agent pays a monthly fee and a transaction fee, but if they want office space, a CRM platform, access to a marketing platform, etc., they pay extra per the menu of offerings.
About 10 years ago, according to Steve Murray, 70% to 80% of the agent population were more comfortable with the traditional bundled approach, but today that number is less than 50%. Steve also says, “In 2019, about two-thirds of realtors did 0-3 transactions in a year and the great majority of them don’t have the desire to invest the time, effort, and money it will take to go beyond that.”
Meaning, that the majority of the agent population out there aren’t interested in the traditional model anymore because the cloud-based model gives agents some flexibility in how little or how much business they want to do. A lot of people are getting licensed and there’s fewer deals at the bottom, but the people who are successful are going to continue to be more and more successful.
According to Realtor Associations nationwide, there is a lot of churn in the industry. It’s almost for every new member to an association, there is one that drops off. So it would make sense that most of these agents doing 0-3 transactions a year would consider an a la carte options vs. the more traditional brokerage. Brokers who want to be a large market share brokerage have to rethink some of their offerings to move closer to the unbundled model.
How Should Traditional Brokerages Compete with Cloud-Based Brokerages?
First and foremost, focus on retention. Working with the agents who have already chosen you is much easier and far less expensive than recruiting agents who do not already know you. Review first what you can do for agents who are on your team. Manage their expectations, make sure you are supporting them with what they say they need to be successful in their business. Offering training, one-on-one coaching, and leveraging the right software to build and strengthen your agent relationships is key.
Also, it’s important to understand that there will be agents who may already be working with a cloud-based company (i.e. eXp, NextHome, etc.) and they want to do more than 0-3 transactions per year, however they are not getting the one-on-one coaching, training, and systems they might need to get there. They may be looking for a brokerage that can develop their skills. If you can appeal to them, they may be willing to transition to the traditional model.
The best advice for the traditional brokerage is to recruit great talent and have an extraordinary training model. According to Steve, “The brokerages who are making a 14% margin are being very selective about who they recruit.” Ensuring they are recruiting a team that has the willingness to invest in their business and are not happy with just 0-3 transactions per year. This may mean a more rigorous interview process or making sure that your leadership (sales managers, relocation managers, marketing team, etc.) within the company is talented and compensated accordingly. Also, accountability is crucial for successful brokerages. Define how you are going to measure success and hold the agents to that measure.
What Should Traditional Brokerages Do Moving Forward?
Brokers need to learn more about their target recruits. Don’t just ask the question of how much an agent sells. Ask will they fit with who we are? What are their interests? How can we help them get to where they want to go? These are most likely not the touch points a cloud-based company is connecting with.
eXp is a fast-growing cloud-based brokerage. They have a really, really good recruiting system and presentation. They offer shares of the company with their agents and they can earn more shares by meeting certain standards. According to what they are seeing at REAL Trends, eXp is adding 1,200 to 1,500 agents a month. “In 2019, they had somewhere between 15,000 to 18,000 agents doing 70,000 transactions a year, which is not quite 4 transactions per agent.” These agents may not be the agents to target for the traditional brokerage, but
As a broker, this may mean you spend more than 10% or 20% of your time on recruiting tactics and really identify who it is you want to join your team. There are a number of tools out there where brokers can leverage data and find who is likely to consider a move right now where they are able to cut down the potential from 10,000 people to 500 people that have expressed a desire to move to their company. Use your resources on those 500 rather than the 10,000.
At some point, companies that are experiencing growth will plateau and level out. The demand for brokerages who can offer more of a holistic approach to support agents who want to do more than a few transactions a year will increase. Moving forward, the traditional brokerage can use the technology there is today to effectively recruit and retain the right agents who want more than what the cloud-based brokerages can offer.
Bottom Line: “The traditional brokerage model is not complicated and hasn’t changed in a long time. You have to be able to recruit talent, you have to develop that talent, and you have to spend less money than you have coming in.” Steve offers as advice.
