Real Estate Brokerages Act As If Size Matters

Real Estate Brokerages Act As If Size Matters
Everyone acts as though the size of a real estate
brokerage matters

Two weeks ago Crain's reported on a lawsuit brought against Baird & Warner by @Properties regarding B&W's Chicago area home sale volume during 2017. According to the article B&W claimed to have done $8.8 B in business last year but @Properties claims that the real number is closer to $5.6B. @Properties is asking "a judge to require Baird & Warner and its agents to halt all use of materials that include the $8.8 billion figure, destroy any copies and issue a retraction."

In fact, a week later Crains' ran another article on the 2017 sales volume of the "top" five brokerages in the Chicago area and the data seems to support @Properties' position. According to the data from RealTrends B&W did $5.8 B in business last year. My own analysis of the data is in line with @Properties' claim that B&W did a bit over $5.6 B.

I'm reminded of the famous Rubio - Trump hand size argument during the Republican primary campaign. As if the size of a candidate's "hands" really mattered? However, it might influence less sophisticated consumers who believe that high volume brokerages have special powers that will give them an edge. As the @Properties lawsuit says they are worried that it will "affect consumers' decision regarding which real estate company to choose" and it will "affect the choices of potential employees deciding whether to apply for employment at B&W or @properties."

Knowing that consumers think this way I play the game also and market our team's top producer status but we have a unique business model. For a traditional brokerage sales volume really doesn't matter and here is why:

Brokerage Volume Is Primarily Driven By Agent Recruiting

There is very little that a traditional real estate brokerage does to drive more or less volume. What very few consumers realize is that a traditional brokerage is nothing more than a loose federation of independent real estate agents who bring in their own business. The brokerage generates very little of their own business so they really shouldn't take credit for the volume they do.

Furthermore, these free range agents can do whatever they want, subject to minimal supervision by the brokerage whose only concern is that their agents follow the law and whatever basic rules the brokerage puts in place. The only influence that a traditional brokerage might have on their real estate agents' success is through occasional training on generating business. So, again, the brokerage doesn't really deserve credit for their agents' success.

Mathematically, a brokerage's sales volume = # agents X $ volume/ agent. It can't be anything else. So it all comes down to recruiting - how many agents you recruit and how much volume those agents produce. Most brokerages hire anyone who can fog a mirror (hence the large number of incompetent agents out there) and simply focus on hiring as many agents as possible. Other brokerages can be a bit more selective or their splits/ fee structure is such that they tend to hire more productive agents. When you look at the sales volume numbers by brokerage it's totally consistent with the known recruiting strategies of the corresponding brokerages. And brokerages that take credit for having recruited highly productive real estate agents are just like selective enrollment schools that brag about their test scores. Like they had anything to do with it.

Let's look at a couple of examples. First, according to the second Crain's article B&W grew their sales volume by 10.7% in 2017. According to my data it was more like 10.3%. However, the database that I'm working with shows a 6.9% increase in the number of their agents reporting sales for 2017. Hence, most of their volume increase came from more agents.

An even better example is that of a new brokerage that came to Chicago late last year, targeting the highest volume real estate agents in the area. After only a couple of months of operation they did around $40 MM in business in March. But all they did was recruit some of he highest volume agents.

Agents That Do A Lot Of Business Aren't Better For Consumers

The Top Producer Myth is well entrenched among consumers who believe that more sales volume somehow translates to magic dust. You can read the original post behind that link I just provided for a lot more detail but, although higher volume agents have a lot more experience, they also have a lot less time for you. When an agent closes 48 deals in 12 months that means they probably have one month where they closed 8 deals (an actual example). That means those clients only got 20 hours of attention max - actually significantly less because that same agent is trying to generate new business and also worked on many deals that didn't close. I get uncomfortable when our agents start to approach 24 deals in a year.

The Notion Of Internal Networking Is A Fantasy

I suspect that some consumers believe (and sometimes they are actually told this) that working with a large brokerage gives them an edge when selling or buying because the brokerage "has buyers" or it "has listings"and this is going to give them access to something they otherwise wouldn't have. But this is an archaic concept that is totally inconsistent with the cooperating structure of the MLS. The brokerage's listings and buyers are equally available to any agent at any other brokerage and there is absolutely no advantage to an agent of keeping the other side of a deal inside. Remember, they are all independent contractors and they get paid the same regardless of who is on the other side of the transaction.

So traditional brokerages can argue all they want about who is bigger but in reality it doesn't matter - unless the consumer insists on paying attention to it.

#ChicagoRealEstate #RealEstateBrokerages

Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.

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