Today’s Real Estate Industry is Flawed

Today’s Real Estate Industry is Flawed

In every industry, when one seeks out a practitioner’s services, they are in fact hiring an entire organization. From marketing, administrative, strategy, and accounting departments, to massive budgets, formal systems, and standards of excellence, there is multi-faceted coverage to ensure the client receives the product. The average consumer would hold the perception that they too would be the recipient of an entire organization if they were to hire Coldwell Banker, Keller Williams, or the multitude of other agencies with tens of thousands of agents and employees. But today, that could not be farther from the truth.

In the 1970’s, most Real Estate companies were built similarly to today’s large corporations. They had various departments and the agents would sell a home and split their commission 50/50 between the company and the agent. This allowed the company to continue building better systems, create and deliver more aggressive marketing campaigns, and strive to deliver excellent customer service and representation to their customers.

Then in the 1990’s, Remax out of Denver, Colorado developed the idea that they would simply charge each agent a yearly flat fee in exchange for a large brand name, a professional office, an office receptionist, and a managing broker. From there, each agent could develop their own marketing closing customer service and accounting program that suited their budget and their needs. The benefit to the agent was that they would keep 100% of the commissions. The program was so successful that between 1990 and 2010, virtually every traditional Real Estate company was turned upside down and transformed into what is now called “The Desk Fee Platform” or “a 100% Company”.

Fast forward to today, virtually 95%, if not more of the Realtors today operate at a “Desk Fee” or at an “100% company”. This means that they are 100% autonomous and are juggling the entire business management process while trying to sell homes.

So what is the problem? Consumers are led to believe that they are hiring an entire organization that is national, if not international, but in most cases they are typically ending up with one autonomous business person. This is where the flaw lies: because ultimately, the consumer is paying 6% of a sales price in commissions between a buying and selling agent while their respective companies are earning little or nothing on the transaction.

Today’s Real Estate companies are truly like athletic clubs seeking to add as many members as possible and provide á la carte services and tools for the agents to use. The more members they can get, the more revenue. Many of these companies do not rely on actual home sales to generate revenue, but rather rely on the agent’s commitment to pay the annual desk fee. Thus, these firms are truly agent centric, and their models are built on attracting Realtor members rather than selling homes.

On the other hand, the traditional company is the antithesis. They are customer centric. Customer service, client representation, aggressive marketing campaigns, and producing results/sales is how they generate their revenue. What’s in it for the Realtors?  An entire organization and platform behind them to execute the promises they make to their clients, ultimately freeing their time so they can invest their energies elsewhere. Though this abundance of time, Realtors can provide better customer service, spend more time in the field studying inventory, and becoming expert practitioners. Rather than making fliers, postcards, tweaking their personal websites, or designing an ad for a magazine publication, Realtors at a traditional firm focus on the art of Real Estate – contracts, negotiations, strategy, and sales. It is this area where true professionals can potentially earn or save their clients an extra $10,000 depending on who they’re representing.

All said, most Realtors are attracted to the idea of keeping 100% of the commission. It allows them to sell fewer homes each year and make the same amount of money as an agent who might sell 3-4 more homes than them. At ELEETE Real Estate, we are in the minority. We are a traditional firm and are trying to grow and attract agents who share our values. As a result, our 39 agents are customer centric and are focused on our wholistic approach to be the best practitioners, delivering expert counsel and providing premium service. They know that this cannot be accomplished alone.

Of course, bottom line revenue is important to our Realtors at ELEETE Real Estate too. Most “Desk Fee” or “100%” focused Realtors see our traditional model as being expensive. What they tend to overlook is that according to the Portland Business Journal, in 2017 our agents at ELEETE Real Estate sold on average 6.85 million versus the National Franchises’ average of 3.95 million and the Local Real Estate Companies’ average of 4.83 million. (of the firms shown below)

* Largest Residential Real Estate Firms in the Portland Metro Area.” Portland Business Journal, 15 Mar. 2018.