Brokerages Ignoring the Obvious Solution, Part 372

Forgive the rant, but after lo these many years, I have to get this off my chest. Since this is rant — though potentially a helpful one if you are a brokerage owner — do feel free to skip it completely. Won’t hurt my feelings, and you might not want to confront reality.

On Facebook today, I read this from Greg Fox, a broker I happen to know, like and respect:

Offer to change your perspective. As a tech leading brokerage for 20 years, I can say my largest battle is Agent Adoption. No matter what I provide, how I encourage, teach, beg, if I get 20% adoption rate I feel good.

One example, I paid for a CloudCMA Homebeat for the brokerage, first company to brand it and purchase brokerage wide. I started roll out in August, having 4 webinars, emails, begging people to get try it. Finally in January, one of my top agents listened to their admin who said “we should at least try it”. Next day, they had 6 listing leads, and phoned me to thank them.

At least they’ve tried now, 60% of my company haven’t tried, and I have a low average age agent (43).

We have lots of problems in this industry: Average agent age is one of them, along with how we work (can’t make an Independent Contractor use something), busy agents, A quick buck in the next sale, and more.

Brad, it’s not just Leaders agents need to encourage to invest in Tech – Agents need to as well.

Last word – comments about high tech companies, and extra low splits – Right. High Tech aint cheap. And agents aren’t flocking for high tech (believe me, I really know). Agents have every bit as much blame as the Leaders do.

Greg was responding to an Op/Ed in Inman by Brad Inman himself, in which he blamed the situation of the industry on a failure of leadership:

The big real estate firms and the local brokers have a multitude of assets to leverage, but they must be all in with an end-to-end digital strategy, like Disney did and Zillow is doing.

Don’t over think it, just do it.

In a way, they’re both correct. But they’re both ignoring the elephant in the room, the obvious solution staring everybody in the face, that brokers everywhere assiduously try to avoid making eye contact with. That elephant? As Greg wrote: “can’t make an Independent Contractor use something.

Netflix, Amazon, Disney, Zillow

Brad invoked the names of Disney, Netflix, Amazon and Zillow to exhort the leaders at “big real estate firms and local brokers” to go “all in” with an end-to-end digital strategy. Yet, he might take a moment to consider how many independent contractors Disney, Netflix, Amazon and Zillow have in their ranks.

You cannot have an end-to-end anything if you can’t tell your people what to do.

That’s not how “strategy” works. Imagine:

Coach Dabo Swinney: “Okay, we’re in the red zone. So we’re going to fake it to the running back, then do a screen pass to the tight end.”

Running Back: “Wait a minute, why fake the handoff? I can totally run it in. I’m not faking it. You can’t make me do what you think is right; I’m an independent.”

Quarterback: “Screw that, I’m not handing off when I can pass for a touchdown. I’m an independent contractor; convince me to hand it off.”

Tight End: “I’m not feeling like catching any passes today; I think I’d rather just block.”

That football team does not need any strategy. In fact, it’s not even a team.

Isn’t this fact obvious to everyone?

Independent contractors = no end to end strategy. It means no strategy at all, actually, besides cajoling, persuading, and whatever. Turns out that the big real estate firms and local brokers have next to no assets to leverage, because you can’t leverage a damn thing when you can’t tell your “workforce” to do anything at all. The assets that these firms and brokers can leverage are limited to corporate staff, to branch managers, and the administrative staff… who are all paid W-2 employees. Yes, the leaders of the giant firms can have their branch managers talk to the agents… but they can’t make the agents do anything afterwards.

Which should provide a clue to anyone interested in finding one.

The Obvious Solution, So Carefully Avoided

So we turn to Greg’s comments, which are 100% correct… however… read again what Greg wrote:

One example, I paid for a CloudCMA Homebeat for the brokerage, first company to brand it and purchase brokerage wide. I started roll out in August, having 4 webinars, emails, begging people to get try it. Finally in January, one of my top agents listened to their admin who said “we should at least try it”. Next day, they had 6 listing leads, and phoned me to thank them.

It took six months of webinars, emails, and begging agents to try this new technology before ONE of the “top agents” actually listened to the admin… and got six listing leads. I’m sorry, but you can’t build any kind of a strategy on that, never mind some “end to end” strategy where you go all in.

If the problem is that as a broker, you cannot get your agents to adopt your technology offerings, business models, business plans, whatever because they are Independent Contractors… isn’t the solution staring you in the face?

Make your agents W-2 employees. It’s really that simple.

I wrote a free white paper called The Future of Brokerage on this very issue a few years ago. It’s been downloaded a few hundred times. As far as I know, no one has actually implemented it. I don’t know why. I know that brokers know what they should do, have to do, but they so carefully avoid doing it.

I don’t get it. Everything I’ve looked at says that brokers who go W-2 and get control over their agents will see higher productivity, higher tech adoption, better consumer experience, better customer service, and most importantly, higher profitability. Yet, they try everything other than the obvious solution, and instead blame third parties, blame NAR, blame the MLS, blame the agents, blame fickle consumers, blame the economy for all their woes. Then they resort to begging their own agents to please, please, please try this new technology I’m paying for.

It makes absolutely no sense, and yet, here we are.

A Modest Proposal

Let me end this rant on a semi-positive note.

If you are a broker, and you do not wish to go down the W-2 route, then please stop talking or thinking strategy. You have no strategy, because you do not control your workforce. You don’t need a strategy, beyond figuring out how to recruit more agents. Do not invest in “technology” other than what you need as a shiny object to recruit agents. Do not invest in business consultants or technology consultants or whatever; invest in recruiters and better graphic designers who can make the same old thing you’re peddling look prettier. Invest instead in motivational speakers and training to become more convincing.

If you are a broker, and you do want to engage in strategy, stop everything else you’re doing or thinking about or investing in and look into converting into a W-2 model. Nothing else matters, because nothing else can actually be implemented if you don’t have a W-2 model where agents will do what you tell them to do. There is absolutely no point to the best damn strategy in the world (and I like to think I produce some of those) if you can’t get people to implement.

Zillow can have a strategy because they can implement it. Redfin can have a strategy because they can implement it. Opendoor can have a strategy, Disney can go all in, and Netflix can invest in real game-changing technology because they all can implement because their workforce doesn’t get to sit there and go, “I don’t have to listen to you; I’m an independent contractor.” The same goes for you, the broker.

If you don’t control your people, you don’t control anything. Either stop wasting time with “strategy” you can’t implement, or look the obvious solution in the eyes and do something about it.

-rsh

 

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Rob Hahn

Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

12 thoughts on “Brokerages Ignoring the Obvious Solution, Part 372”

  1. Rob you hit the nail on the head. To build upon your argument:

    If you want to join a highly successful brokerage/team as a 1099 licensed Realtor, you need a pulse and 60 hours of “education”.

    If you want to join that same brokerage/team as a W-2 admin, you might need upwards of 3-5 years experience in a comparable role.

    That’s how we get to this scenario:

    “Finally in January, one of my top agents listened to their admin…”

  2. I’m honored! I can’t fully embrace your conclusion, but I love the debate.

    I also can’t agree with Mr. Paris “you only need a pulse”. I have no doubt that is true in many places, not in my shop.

    I think we have to be in the middle, somewhere. I’d like to see the ICA rules/laws changed to allow a managing broker to mandate more training. If we are responsible, I’d like the ability to direct more. But I sincerely challenge that merely changing to W-2 will fix everything. How many agents would open a solo shop? How many agents would join “1 broker, 4,000 agent” shops? How many agents would still resist training? I know LOTS of employees at all kind of jobs that skip, or skim training. And if they have results, they get away with it.

    What happens to Agency in a W2 situation? Is everyone in the company now required to represent the client? Or would Agency go away? Should agency go away, or is it important enough to retain?

    And what of the client. Personalized service is pretty enticing if done well. We have a system that provides fairly well for many walks of life. Would a assembly line of W2 workers make that better or worse? And what happens as each larger company needs to make more money? Would the client appreciate the control a W2 shop exercises?

    OR – My Son is an ER Doc. You can’t ever begin to imagine the metrics that he is measured on. And the paperwork is so overwhelming. He spends twice as much time on Admin as he does with patients. Yes, people go to him, because they lack insurance, or have true emergencies. And their personalized care is greatly diminished. Do we want to add to agent loads all the other metrics, reviews, paperwork on top of what they already have? (This is a pretty weak argument – but sometimes you just can’t see what some outcomes will be).

    My thought on all this was to argue Brad’s point of Blame Owners/Leaders. Yes, I want change, and it will happen. I’m just not sure the best way to get there. I’m not saying Rob’s answer doesn’t have merit, or should be considered. I say the problem is bigger than a single, fast answer.

    • But that’s one of the things I like and respect most about you, Greg 🙂 The rational debate and discussion. So let’s go through some of your points.

      1. “But I sincerely challenge that merely changing to W-2 will fix everything. How many agents would open a solo shop? How many agents would join “1 broker, 4,000 agent” shops? How many agents would still resist training? I know LOTS of employees at all kind of jobs that skip, or skim training. And if they have results, they get away with it.”

      I don’t think that changing to W-2 will fix everything. I think that without having W-2 employees, you as a broker/employer cannot have a rational strategy. Your example is the best example: why would any brokerage pay for software knowing he can’t get his agents to USE the damn thing? What kind of strategy can you make with that?

      As for employees who skip or skim training, that’s a *management* problem, not an employee problem. No good operation I can think of lets employees keep their jobs if they’re skipping mandatory training. I can 100% guarantee that Zillow and Netflix employees are not allowed to use their own CRMs to talk to the company’s customers. And so on.

      2. “What happens to Agency in a W2 situation? Is everyone in the company now required to represent the client? Or would Agency go away? Should agency go away, or is it important enough to retain?”

      Agency is between the BROKER and the client in every state I’m aware of. That’s the basis for why you get to supervise your salesperson agents. So nothing changes, except that you as the BROKER with the client agency relationship get to assign people to represent that client.

      3. “And what of the client. Personalized service is pretty enticing if done well. We have a system that provides fairly well for many walks of life. Would a assembly line of W2 workers make that better or worse? And what happens as each larger company needs to make more money? Would the client appreciate the control a W2 shop exercises?”

      Two things. (Referencing below) Is your son an “assembly line doctor” because he’s W2? Is your lawyer just filling the time? Do you have brokerage managers? Are they just “assembly line” workers? You’re BHG — do you think Sherry Chris is just an assembly line worker filling time and not giving a shit? She’s W-2.

      I honestly can’t understand this odd assumption.

      4. “OR – My Son is an ER Doc. You can’t ever begin to imagine the metrics that he is measured on. And the paperwork is so overwhelming. He spends twice as much time on Admin as he does with patients. Yes, people go to him, because they lack insurance, or have true emergencies. And their personalized care is greatly diminished. Do we want to add to agent loads all the other metrics, reviews, paperwork on top of what they already have? (This is a pretty weak argument – but sometimes you just can’t see what some outcomes will be).”

      All I can say here is that healthcare is all kinds of messed up. But do you imagine it’ll be better if your son were a 1099 independent contractor? “I don’t really feel like following this procedure in the ER; I have my own way that’s better.” Or, “Yeah, I know you bought this X-ray machine, but I like my own X-ray machine, so I’m gonna use that.”

      I don’t particularly care what the agent loads and metrics and all that are. I care that the brokerage have metrics and reviews that make a damn bit of difference.

      5. “My thought on all this was to argue Brad’s point of Blame Owners/Leaders. Yes, I want change, and it will happen. I’m just not sure the best way to get there. I’m not saying Rob’s answer doesn’t have merit, or should be considered. I say the problem is bigger than a single, fast answer.”

      And my point is simply that you as a brokerage cannot have a single fast answer or multiple slow answers if you don’t control your people. You don’t control your people, hence, none of this other stuff matters. You can’t solve the problem without solving for that lack of control first.

      -rsh

    • Greg all good points. Appreciate your perspective.

      Regarding my initial comments, they may not apply to your brokerage/team, but they certainly apply to many (if not most) brokerages and teams. There are Realtors who pride themselves on upskilling and continuing education, and there are Realtors who get in the middle and outsource most of the job to a salaried employee. It’s a case-by-case problem that doesn’t lend itself to gross generalization.

      That said, here’s a good thought experiment for the 1099 vs. W-2 debate. In every market, there will be at least a few high-performing teams who pride themselves on their “high staff-to-agent ratio”. Imagine that:

      A.) Half the Realtors left the company, or…
      B.) Half the employees left the company?

      Which scenario would have the greatest immediate impact to the operational efficiency of the company?

    • “I’d like to see the ICA rules/laws changed to allow a managing broker to mandate more training.”

      If you want to treat agents like W-2s then pay them like W-2s (which means then agents have employment rights). Can’t have your cake and eat it too.

  3. I was ROFL-ing hearing your Dabo Swinney reference, because YES! that’s exactly what it’s like trying to tell IC agents what they should do. Having been a broker/owner of a medium sized company I agree completely with Greg Fox’s original embedded comment that the failure often isn’t in leadership – it’s in the fact that ICs cannot be forced into anything. Regardless of how amazing the tech, 10-20% max is the max adoption rate of almost anything. And Rob, you’re right that without the ability to control–as employers can do to employees but brokers cannot to do IC agents–there can be no real strategy.. at least the fully integrated way that companies built atop employees can do.

    I’m also one of those who did download your The Future of Brokerage whitepaper, and have referred to it dozens of times since. I am convinced it is the best model for the consumer, the firm, and even the employee-agent!

    Why are not more brokers doing this, you ask? Why, for the same reason you’ve already identified–WE CAN’T MAKE THEM DO IT!

    I promise this is not circular reasoning. I would venture that for 75-80% of agents, the most highly valued trait of our business is the very fact that they are ICs. Sure, we *say* it’s because we love helping people, or serving others, or just love everything about homes and decor and real estate like on HGTV. But for the majority of agents, the REAL draw is the flexibility and the independence. Only in real estate can you be your own boss, we say. In real estate you have true freedom! You are your own business owner, a real entrepreneur! These are the things we say to draw people in, and that’s what they value. In a word, that’s WHY they’re here.

    If a broker were to announce that all IC agents must convert to an employee or be let go, I’d guess that 98% of all the agents would transfer their license elsewhere within a week. Thus, you should not only not be surprised that it hasn’t happened, you should never expect that any broker of any significant size will ever do this. To do so would effectively be to close the company.

    This doesn’t mean I don’t think it is possible; it just won’t be existing brokerages that convert over to that model. I think the best, most likely way it occurs is within a very small team that is still able to convert their 2-5 team members over to an employee model.

    • Drop me a line, Aaron, if you’d like some help but here’s my take:

      “Only in real estate can you be your own boss, we say. In real estate you have true freedom! You are your own business owner, a real entrepreneur! These are the things we say to draw people in, and that’s what they value. In a word, that’s WHY they’re here.”

      This is entirely true… but then, if you are a real entrepreneur, a real business owner, then you have to generate your own business and enough to feed not only yourself, but others as well. Those people become equity partners, and are business owners.

      Everybody else who can’t generate enough business can either become an employee of the business owners, or get out. What do you lose as a brokerage if some agent who does a deal a year leave? 20% of some small GCI? Let it go.

      Existing brokerages, IMHO, face a stark choice: convert, or fade away. Most of them, I think, are just holding on until they can retire or sell to some bigger fading-out brokerage. That’s 100% their prerogative. But if so, I am simply advising them to stop with spending $$$ on consultants and branding experts and technology and so on. You are choosing slow decline, so save your money, maximize the owner draw, and let it slowly die.

      • Thanks, Rob. I may.

        I believe your whitepaper largely hits the nail on the head. To explain why it resonated so much with my own experience: I first started as a successful solo agent, then ran a successful team, then made the massive mistake of opening a 100% commission brokerage and learned why I was called the broker: because I was broke-er than my agents, lol.

        When my franchise term ran expired, I folded my company into a team at Side, Inc. Side I believe introduces several aspects of your 7DS model, in that they relieve me of several of the burdens I had as broker, whose time burden killed off my personal production: compliance, training, recruiting, commission accounting, creating and enforcing standard operating procedures, transaction doctoring and dispute resolution, to say nothing of the endless hours spent on agent adoption and wondering why it often seemed that I cared more about their success than they did. Side (who calls their team leaders Partners, and everyone else Associates btw) takes these burdens from me, allowing me to reallocate my time back to personal production. It’s a vastly better value proposition compared to being broker/owner of any franchise or independent company, and better than running a team within any brokerage in my market.

        As you described in your whitepaper, there’s much I admire about Redfin’s model of deploying hundreds of millions of dollars into generating leads and building a great software stack and infrastructure around agent employees that are arguably the most productive in the industry. Though I don’t want to be their employee, I’m very happy to a shareholder.

        The irony in my story is that when I introduced the conversion from a 100% commission model (in which most agents were averaging 88-92% net of fees) to Side, whose no-fee comprehensive split was awfully comparable to their existing splits net of fees but offered vastly superior everything whose effect was proven in their average 36 sides closed/yr and 45% annual compound production growth. In the end, they’d save time, have a far superior set of marketing tools and support, make roughly the same split while increasing their production 45% a year. A FAR better option, right?

        Except.. 2/3 of them left. All the low producers left, to other 100% commission companies on the logic that they only do a few deals a year, so they really need to extract every last commission dollar from each one of them. Fine, no big loss to me. But almost all the top producers left too, also to 100% commission companies. Their logic was strangely similar: they thought their production would be more or less the same, and they didn’t want to be told to do it a different way, they didn’t want to be controlled (as they perceived it) with things like having to use the company-branded email domain in order to integrate with Side’s amazing tech stack. So they left too–over commission splits and control.

        Remember, this was just a mild to moderate shift. You can imagine, if it’d been a conversion to an employee model. I’d be the only one left!

        This is not to say that I disagree with you. To the contrary, I have the same conviction about running a company on the model of a professional services firm. My pivot from being broker/owner of a 100% commission franchise to a team with an independent DBA in my local marketplace while having Side, Inc as my official broker is my own first step towards your 7DS model as described in your paper.

        But here’s the thing: Most companies WON’T make the pivot. They won’t be able to, because most agents WON’T make the pivot either. My belief is that the employees that work within a 7DS model will come from only these two sources:

        1. People who would like to enter the industry, but wouldn’t unless they could do it as an employee. Whether of mindset or of economic necessity, they want/need to be an employee. But that’s fine, because in the end it’s only the people that WANT to be employees that will last as employees anyway.

        2. Existing agents who, for various reasons, recognize that the IC path is not for them. They know that without the existing lead flow, structure, and support of a team (and the consistency of a paycheck and benefits) they won’t make it; but that WITH those things, they can.

        By definition, none of the agents currently in the industry fit category #1. And perhaps only 0.1% would fit category #2.

        Good thing there’s 1.3 million of them.

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