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What Makes Brokers More Broke?

August 13, 2008

Today I was talking to a broker who uttered, yet again, the tired old cliche that sets my teeth on edge. The one phrase that makes me wish I’d taken the blue pill. That same old phrase that - regardless of the test of time, history, facts - it seems like everyone is doomed to utter it until we finally destroy the real estate industry for good:

“Well, it’s all about the agents.”

Let’s set the record straight. I love agents. There isn’t a group of harder working anyones anywhere. Most agents actually work TOO hard for what little they get paid. And it’s not even their fault: overwork for underpay is always a management problem, not an agent problem. If you can’t make someone effective after 40, 50 or 60 hours a week of effort, then there’s something wrong with the management, not the agent. Obviously, no manager told the agent the right things to do; so the agent’s bad behavior is more from lack of knowledge, not lack of effort. And, says Yoda, that’s why they fail.

Sure, sure, there are lots of lazy, unqualified, no-sale-skills agents out there in companies. But it’s a self-fulfilling process that the unskilled will also be unwilling to put in the effort. And if they’re still hanging around, whose fault is it again? Right. The Manager’s.

But that’s not even the point; at least not the one for this posting. What I’m really thinking of today is this: Brokers keep getting more broke because their agents’ bad behavior keeps repeating itself. And nobody seems to realize that agent bad behavior isn’t going away on its own. Not for the 90% of agents who run around chocking up the broker’s expenses all year round, without nary doing a sale.

As usual,  I invite you to examine the facts:

  • 34% of sellers who sold their home last year used the same agent from their previous sale
  • The average seller who sold had previously sold a home 3.3 times in the past
  • The average seller moved within 18 miles of their previous home
  • The average seller sold within 7 years of their last purchase/sale

Now, what does this all mean? Start with the “bad behavior” component which is the first point:

Only 1 in 3 people who sold their home last year used the same agent from the last time.

That’s the crisis number, because the cost to acquire a new customer is exceeding the final profit at the end of the transaction. Brokers are paying more than $175/customer to generate leads, but that’s all that is left over after paying everyone from the sale of a home. Ergo, repeat business is critical to profitable listing-based sales.

But it appears that most brokers are achieving that only 1/3rd of the time. I wonder what the repeat rate is for other industries? Lexus enjoys a 60% repurchase rate for their cars; Honda similarly. Even IBM Thinkpad users are significantly more likely to to purchase another Thinkpad than home owners are to re-hire their last agent.

Why?

Well, it can’t be the SELLER’s fault. They understand the need for an agent and the selling process, because 85% of them use agents and they have sold enough times before to “get it.” And it couldn’t be due to the fact that the seller moved “far way” from their last agent, because most moved within 18 miles, which is just about anyone’s market area, except for big city brokers who usually won’t deign to go to the suburbs, even for a repeat client. Ahem….

Could it be due to the fact that the agent was NO LONGER IN THE BUSINESS? Yes, that’s a distinct possibility. NAR stats tell us that 60% of agents leave every 18 months and 90% turn over every 5 years. So there is a BIG possibility that the agent wasn’t in the business any longer.

But, who cares? Really. Let’s be honest. If the agent leaves the business - for greener pastures, because they couldn’t do it well, feet first, whatever - who cares? Then the statistic that only 1 in 3 people re-use their agent might be “really good.”

If you like to lie to yourself with statistics.

The person who should care is the BROKER. He’s still around. Most brokerages from 7 years ago are still here. Maybe some have gone, but not 65% of them. Which means that the brokerage company the seller used the last time was within the market radius of their past client when they decided to sell again.

Only….. the client had mostly forgotten about them. That’s why they didn’t re-use them. Because the broker relied upon the agent to “keep in touch” with the client. To get the repeat business.

And more importantly, the broker never told the agent that their MOST IMPORTANT job was keeping in touch with past clients to create more profitable future deals.

Instead, the agent kept on doing everything they do because “it’s all about agents!” Running MLS reports of why they are beating that other agent from the other company. Uploading their high-school pictures on MySpace. Promoting themselves on the frontside of postcards.

The reason the brokerage didn’t get another MORE PROFITABLE listing-sale is because nobody is willing to tell the agents the truth: It’s not about YOU!

Now, if you’ve read this carefully, I’m not blaming the agents. It’s true that their behavior is bad; that they are doing the wrong things. And they do it well - repeatedly, even in the face of facts, like the cost of mailings and the failure to generate leads. But they are not the responsible party. It’s always management. It has to be. It’s management’s job to organize the forces of productivity - which means money, time, and human effort - into a process that can create desired results. Which would be profitable sales. Which come from repeat business, not first-time-customer deals.

So if brokers are going more broke, maybe they should understand that it’s one thing to say their agents are behaving badly. It’s another thing to recognize whose job it is to correct it.

The alternative is to keep putting the “broke” in “brokerage.”

Written by Matthew Ferrara · Filed Under Featured, Management, Next Generation 

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