Unintended Consequences

Brad Anderson, Owner, RE/MAX Lakefront in Little Elm, TX

Brad Anderson, Owner, RE/MAX Lakefront in Little Elm, TX

Like many parts of the country, the Texas housing market is booming.  For several years now, it seems as if we are setting records with every passing month, with no let up in sight.  It is no wonder that the traditional real estate brokerage model has been challenged and many new concepts have popped up that are certainly noteworthy.  One needs to be mindful of the old adage that a rising tide lifts all boats.  In other words, when business is good, ALL business models enjoy the success.  However, some are becoming more sustainable than others.  Additionally, while some of these models may be less expensive or seemingly more efficient, they have created unintended consequences for both the Realtor and most importantly, the client, not to mention a set of compliance issues that can create big problems for a brokerage looking for a hands-off approach to real estate.

For decades, the traditional brokerage model has been that the agent pays a monthly fee to cover basic office costs to their broker along with a portion of each commission they make.  Some offices have a cap as to how much that agent will pay out while others have royalty fees, but the concept is the same-it’s what’s known as a cap/split model.  After the housing bust came a period of growth in real estate and so did the proliferation of virtual brokerages and transaction-based compensation models.  The basic concept is the agent pays very little each month to their broker if anything at all, in the way of an office fee.  They sometimes get to keep 100% of their commission minus a transaction fee.  This can range anywhere from $200 – $500 per transaction.  Some offices charge a technology fee on top of that or a charge for your local showing service, or even a per-transaction E&O fee.  Regardless, it’s a pay as you go model and it works great for some agents.

If one compares the traditional brokerage with a cap/split structure, you typically find that they have a full-service culture.  They provideREMAX_mastrBalloon_RGB_R frequent and robust training to their agents, they are in a brick and mortar storefront, they have meeting rooms, a receptionist, and often times, on-site staff to perform transaction coordination for the agents.  A transaction-based or virtual brokerage, due to the low-margin compensation structure, typically does NOT have a brick and mortar storefront, not much training or interaction for their agents, and most likely, the broker has their own book of business that takes them away from developing their agents.  This can create compliance issues, especially with newer licensees who need more attention early on.

What is missing from the virtual and transaction-based brokerages is a culture of any kind of human connection.  Ask most people how they prefer to learn and they will tell you they want an in-person experience.  This allows them an opportunity to ask questions and benefit from the natural interaction with other attendees.  If the only option a brokerage has for development is online training, much will get lost.  There is huge difference between training and training materials.  Anyone who has been on a conference call knows how difficult it is to interject or to talk over someone else.  Retention of the material becomes compromised when all of the learning is done online.  Most agents also want to be trained and developed by their own broker.  A virtual learning platform prevents any kind of connection to the broker.  This may not seem like a big deal if you are the broker with their own book of business, until your turnover rate becomes excessive.  It’s simple.  Agents, like our clients, want a relationship and want human interaction.  A virtual brokerage or a transaction-based brokerage favors the transaction itself-not the relationship.  As an agent, we all know that referral business is key and that is being undermined by the very culture a virtual brokerage is building.

remax lakefront.Perhaps the greatest unintended consequence of a virtual or transaction-based brokerage is sustainable customer service.  We may be helping our clients buy and sell homes, but make no mistake about it-if you don’t’ have a sustainable relationship, you have nothing.  Selling real estate is a serious business.  As Realtors we have the highest level of fiduciary and ethical responsibility there is.  However, with virtual brokerages, there is no place to take your clients to meet, no place to go and receive training, no place to sign contracts.  To meet someone in a local coffee shop to sign a listing agreement or buyer’s representation agreement is simply playing in the minor leagues.  It compromises a Realtor’s credibility instantly and creates suspicion of competence amongst our clients.  A common complaint from clients is that the agent didn’t communicate frequently or effectively enough.  A virtual brokerage breeds this kind of culture and gives the agent permission to take a hands-off approach to customer service.  This model says it’s OK to keep the client at arm’s length.  It also cheapens and diminishes the level of importance that we assign to what we do as Realtors.  As a licensed agent, we agree to the highest level of ethics and responsibility to our clients.  If the only asset we have is our reputation for performing these duties effectively, how can this be accomplished in the corner coffee shop?

There are more ways to connect with each other than ever before.  Facebook, Twitter, texting, email, instant messaging was supposed to create more connections and facilitate more human interaction.  It’s ironic that when it comes to buying and selling the most important asset in a person’s life, clients are telling us to pick up the phone and call or even better, meet them in person.

Complete agent development and sustainable systems that create ongoing referral business are the cornerstones of real estate success.  A high level of customer service and human interaction is integral to that success.  When choosing a brokerage model, make sure it’s the right fit-if not for you, for your clients.  After all, without clients, we have no business.

  Brad Anderson – Owner

  RE/MAX Lakefront

  407 W Eldorado Pkwy #360

  Little Elm, TX 75068



  Cell/TXT 469-955-2343

Leave a Reply

%d bloggers like this: