The death of the traditional brokerage

Good article. I think there is room for traditional brokerage as well as rebate/lower cost brokers. At the end of the day robots can not show and evaluate a property - at least not yet. Stock researchers are still alive despite quants.

Totally agree 300, options are always a good thing. But it does seem like the traditional brokerage model is going to have to adapt to survive.

And these vc-funded companies will eventually have to start being profitable. Call me old-fashioned, but if you spend more money every month than you take in eventually things are going to end badly.

Most of the VC funded companies disappear.

You're conflating two things, Keith: you have found a segment of consumers who like your business model, but that doesn't mean Town closed its doors because consumers overall, or even its consumers, were disappointed in it. Rather (to the extent that we, as outsiders, can see it) the financial disconnect appears to have been an internal cost-containment problem, driven by bidding wars over agents. Law firms seem to be currently having the same problem; you can manage for hypergrowth or you can manage for profitability, but it's hard to manage for both.

Not completely sure where this is coming from, as I haven't posted anything about town or its business model or whether consumers were happy or not happy with them. I'm friends with Andrew and I know he ran an excellent company, I actually rented them their West Village townhouse. I was also very happy working for Andrew.

That aside, I'm simply trying to make the point that along with technology I think consumers expected some cost savings to be passed along to them. Such as it has been in the travel service business, Financial Services business and tax preparation business to name a few.

Keith

The problem I have with the article is that I think it conflates agents with brokers. One issue is that there has been a huge competition among brokerage houses for agents and as a result they are both spending more money on office, technology, Etc and at the same time giving agents higher splits. In return they get "market share" which really only does than any good if they're planning on taking the company public - it doesn't actually contribute anything to the bottom line.

I think at some point there will have to be a model where the agents have to kick in for the fancy offices, technology, Etc or they may find themselves without brokerage houses to attach themselves to, and then they will be the ones who fall victim to the various "disruptive technology" platforms.

And while I am not saying that agents shouldn't take the best deals that they are offered, at some point they will unknowingly he killing the geese that laid their golden eggs. At some point, if there are only one or two large brokerage houses left in New York, agents may find it increasingly difficult getting listing leads because it's one thing when you have five agents from five different brokerage houses pitching the listing, but it's rare to have multiple Agents from the same firm doing so.

Part of the problem is that the barriers to entry for new salespersons and even for brokers is too low. Add to that the decline in fee schedules and increasing access to free market information will certainly result in more changes for the industry. Hard to see how brokerage firms will continue maintain profitability so consolidation and increased specialization e.g. Town seems inevitable. Improving fiduciary responsibility by e.g. getting rid of dual agency and requiring brokers to act more like a registered financial adviser might be a good start as many buyers and sellers don't feel that brokers are working solely for their interests.

The licensing requirement in New York is a 45 hour course and passing a very simple test. I think Colorado is over 160 hours and California is 135 hours?

Back when I got my salesperson's license they were probably less than 1500 agents doing deals in downtown Manhattan (and pretty much everybody worked a small territory). Today there are something like 30,000 agents in Manhattan alone and over 50,000 agents Citywide. And the majority of Agents do deals anywhere. Since there are something like 14,000 sales done per year in Manhattan, that means on average each agent does slightly less than half a deal year.

We have "Deer Season" to thin The Herd and prevent all deer from starving - when does "Broker Season" start?
https://youtu.be/17ocaZb-bGg

Brokerage commissions in Europe are 1-3% and many listings have more than one agency assigned. Buyer brokers are almost non-existent. Agents in Ireland and UK basically need a diploma or degree in real estate studies from a school of higher education. Separate licenses are required for specializing in sales, leasing and management.

I personally would support much more stringent requirements for people to get salesperson's / Broker's licenses in New York.

The amount of licensed agents and Brokers is quite staggering. How many of them are actually productive or should we say profitable? It seems as real estate escalated in price many people jumped in to try to join the party. However as you know 30 years, better than anyone it's not the easiest way in the world to make a living.

I think for the most part especially in sales it takes a knowledgeable, honest and educated person to succeed in this business. The rental business is a free for all, I've got to imagine firms that rely on rental commission income have got to really be feeling the heat. I think that's where you see a great number of new agents begin and soon after end their careers.

That said companies like LG Fairmont that are buying leads and creating their own proprietary lead generating systems and then dispersing them to agents is a pretty big game changer. That along with Premier agent, certainly it's making it a little easier for new agents to get a foot in the door in the sales biz and also taking business away from more traditional brokerage houses.

It's certainly more interesting these days, without a doubt change comes slowly. Most buyers and sellers will still gravitate towards the name brands, but I have to imagine their market share is going to continue to erode. If the top producers in your firm are producing 60% or more of the company's income, and you're paying their teams let's say a 70 or 80% split, not much left over for the brokerage. Especially considering escalating costs for technology, high-end Office Space and back-end support. Most likely only a few of the mega firms Will Survive.

Sorry for all the Caps its a talk-to-text thing...

Keith Burkhardt

This is from the blog of Fred Peters, the Warburg executive:

"Cut to April 20th, the day after the Town announcement. All their strongly performing agents had barely gotten the news when the calls started coming. I know, because I made some of those calls, and so did all my competitors. The deals became more and more dizzying: $50,000 or more in signing bonuses, splits at 95% of earnings on the first half million dollars of commission income guaranteed for three years, $30,000 or $40,000 in marketing budgets. The bidding war had ceased being enacted to obtain a property; now the industry had entered an escalating bidding war for agents."

Are there too many brokers as the large firms are willing to hire them? Why do they keep hiring them? Are they not pricing their tech and office space properly for new comers? Do the starting brokers get paid a salary or just commissions?

Are there too many brokers as the large firms are willing to hire them? Why do they keep hiring them? Are they not pricing their tech and office space properly for new comers? Do the starting brokers get paid a salary or just commissions?

I suspect the brokerage firms are paying a game of musical chairs knowing that only a few will survive in the end. So either you get out of the game or keep playing.

Ximon, I think that's right.

300_mercer,

I don't run a large brokerage, but rather a boutique, but my guess is that Compass and its competitors are all racing to create a large national or international brokerage that they can then take public, arguing to the equity markets that "technology" is so advanced that this super-firm should be valued as a tech company. In that case, the first to cross the finish line probably gets a big payday, the second probably survives, and, to steal a line from Mamet, "third prize is you're fired."

During the race, there are two management challenges, besides growth -- one is to use other people's money to play, and the second is to market "technology."

In my mind the technological advances we've seen in the past few years -- semi-automated board packaging programs, multi-input automatic valuation programs, and better customer relations management, to name the three most obvious-- are just marginal process changes, not earth-shaking industry developments, but of course the competitors in this race are claiming differently. Note that I'm not talking about StreetEasy's role in providing MLS information to the consumer, because that's been an NYC change, and I don't think this little eight-million-horse town is what this game is about.

ali r.

Brokerage firms continue to avoid technology and continue to prefer the traditional "press the flesh" business model. It is almost sad that major firms in NYC fail to take advantage of their proprietary data in order to create better service to their clients. Instead, they turn this business over to third party analytical/valuation firms and of course, something is lost in this translation.

Brokerages continue to rely entirely on their main businesses of finding and executing on leads and on property management but can't seem to see the forest for the trees and the direction their industry is headed. Their property management software is stone age which is why buildings are turning to BuildingLink and other third party solutions. Instead of hiring more brokers, maybe they should concentrate on finding ways to eliminate them.

As for international brokerage, firms like Colliers and Savills are light years ahead of US firms in their ability to do cross-border deals. Another example of "head in the sand" mentality and American hubris.

I think the latest game changer has been VC and the concomitant shift to gaining market share and ignoring the bottom line.

One thing which is confusing me is that I thought that every officer in a real estate concern in New York state had to be a licensed New York State Real Estate Broker.
How are these National Online firms providing real estate brokerage services in New York since I'm fairly certain not every single corporate officer is a licensed New York State Real Estate Broker?
https://therealdeal.com/2013/08/28/only-brokers-can-have-manager-or-supervisor-titles/

30, How do firms like Century 21 and Berkshire operate nationally? Do they off partnership to some one with a broker’s license in each city or state?

Aren't they both franchise operations?

I see. I am not well versed in how brokerage firms work. Thanks.

The question would be more how do firms like Elliman operate nationally? I think the question is how do they handle licensing requirements for each state?

When StreetEasy first started they hired someone with a broker's license to be their broker of record (I'm not sure if that the legal term in NY, or if I'm remembering that from my training in NJ, but you know what I mean). She's now left the company and is a sales coach -- I have no idea who their broker of record is now, though it must be online at DOS.

AFAIK, the new "disruptive" tech firms only need one sponsoring broker per office in NY (at least that's what the two who have approached me to be their sponsoring broker have said). I believe it's also possible to be a broker for more than one company; however, a broker who is managing needs to supervise the actions of all the salespeople under her, so it's not a no-show job. However, I'm not sure you need a broker's license to be, say, the CFO of a brokerage if you're not directing or managing salespeople. One of our attorney friends will have to confirm that.

ali r.

https://therealdeal.com/2018/05/10/watch-are-brokers-becoming-obsolete/

https://therealdeal.com/2018/05/09/douglas-elliman-loses-8m-in-q1/

well, 30, The Real Deal is going to start carrying listings, so arguably the publication (which I used to edit for) has a bias towards saying that broker-less online listings are the future...

Keith,
The most interesting thing I saw that article was:
"Lorber said the New York market is starting to pick up, as sellers come to terms with prices that are down around 15 percent."
Is this the first time we've seen someone say prices are down 15%?

Ali,
I had heard The Real Deal was going to start carrying the REBNY feed (but I thought that was supposed to happen months and months ago), but since (as far as I know) those will only be listings that are with its member brokers I'm not sure how that constitutes a bias towards brokerless transactions?

It's certainly A Tale of Two markets right now, maybe even two markets and two cities! Brooklyn under 1.5 m is absolutely on fire! Best in Class apartments in Manhattan under say about 2.5m also feels to be pretty strong. But maybe it's just that our clients are bidding on the best of the best! I was recently on the phone with a broker that mentioned 'that's not too bad considering the state of the market'. I wasn't really looking to chit chat however after considering her words I realize she meant the market was kind of sucky...

On the other hand all the listings we've handled over the last 6 months have sold in less than 30 days. Two or three of them after the first open house.

Keith

I have been very disappointed in the brokers I have worked with in my search for an apt. and will not use a broker again.

I don't see why the Seller of an expensive apartment can't hammer rival brokerage firms on commissions and push them down to 4% (or perhaps lower). Who is going to turn her down?

Why do you think SE never pursued a broker's license just in case? Conflict of interest with their customers?

Ernest, the problem is that you need to engage buyers' agents who represent most buyers, 3/4 or more

Ernest, Expanding on Captain's post. The issue is commission split. At 4%, buyers gets 2% and not enough buyer's brokers will be interested at that. What you need is a broker who can work for less and still offer buying broker their 2.5%. Big ones can not afford to do that. Of course, the rich owner can sell it themselves to direct buyers only and save all the money. However, most people do not have much success with that due to the amount of work involved as well as due to the fact that most buyers are represented by a broker.

No doubt the role of traditional brokerage is changing. It has a lot to do with the rise of technology in the field of real estate.
So for a brokerage to survive, it has to adopt the relevant and cutting edge technology that is being used today.
https://www.fingent.com/blog/proptech-and-the-changing-role-of-real-estate-agents