Consider a major difference in MO:

• In St Louis and St Charles each party in the contract pays their own title expenses and each choose which title company they want to use.
• In the Kansas City area both parties usually use the title company chosen by the Seller.  The Seller is also responsible for all fees.

Consider a major different in CA:

• In the LA area parties use an escrow officer that is usually paid on a commission to procure deals for the company.  This party handles all the processing of the paperwork but does not provide directly any title insurance.
• In San Francisco most individuals use a title company which does all of the paperwork and also provides the title insurance policy directly through their company.

Now lets look at the differences state to state:

• Licensing: some states require as little as 40 hours of training to be able to sell someone’s most important asset, furthermore some states require little to no extra training to manage teams of agents.
• MLS: some MLSs provide excellent access to information.  Some don’t even allow you to list if a property is a foreclosure, thus preventing clients from being able to make sure searches.
• Branding: some states allow agents to advertise without indicating their brokerage company name in any of their advertising, other states require that the brokerage name, logo, and phone number be listed on all advertisements.

My suggestion is just like there exists a UCC (uniform commercial code) for business, why can’t their be a UREC, a Uniform Real Estate code?  Meaning the laws from state to state, and operations would be somewhat standardized.  I’m certainly not suggesting that every state must have the same rules, however some standardization.

Consider that if I have gone through and become a designated broker in MO, it might take years before I can achieve the same certification in TX.  Furthermore, many of the reciprocal Securities brokers don’t have this problem.  Lawyers can apply to work “pro hoc vitae” where they are allowed to practice law in another state for a temporary basis.

Some states are already seeing that this is a need.  I’ve seen some allow for commercial real estate agents to apply to sell one property in a different state. (MO and other states call this “portability”)

Why not make it an easier process to have licenses in multiple states and why not create a uniform code for most transactions?

Today I received word of Billy Mays’ tragic death.  It got me to thinking and realizing that I’ve learned a lot from him over the past 10 years about branding and pitching.  So I started creating the below list: What Can Realtors Learn From Billy Mays:

1. Passion – No one can doubt that when Billy Mays appeared on a commercial he was passionate about what he was doing.  That passion was exuded in his hand motions and vocal delivery.  After a significant amount of polling, I heartily believe there are many Realtors that simply aren’t passionate about what they do and that’s part of the reason the average agent makes so little.  You could always tell that Billy loved his job.  Be passionate about selling or find something you are passionate about.
2. Branding – Billy Mays wouldn’t do a commercial for a product without a wow factor.  Something that could be communicated on TV.  What is your wow factor as a Realtor?  Are you insane about customer service (and do you actually follow through with that?) Do you provide the best technology to your clients allowing them to do more than other agents?  Do you compete on price and follow through on your promise without a bait and switch?
3. Selectivity – Billy would constantly discuss how he looks at thousands of products to narrow down to a select few.  He only worked with the best.  He would test out products with potential buyers before pitching to see if there were flaws. Are you the best product in real estate? Are you with the best brokerage?  Are the people you work with putting out a good image that you can be proud of?  Does your broker’s brand promise carry through all the agents?
4. Persistence – Billy Mays worked on the Atlantic City Boardwalk selling products before the days he appeared on TV.  In an interview he claimed that his first day, he wanted to quit because people were yelling and laughing at him.  But he stuck with it.  He begun learning from others that were more successful on his first day.  He saw opportunities open up to expand the units sold by beginning to work home shows and pushes into higher end markets which eventually rewarded him with a life of luxury.

Billy Mays (1958-2009)

The Salary Based Realtor

Real estate brokerage is a very interesting market due to the domination of the independent contractor agreement.  One of the biggest problems with independent contractors is that in general they are allowed to spew any brand message they would like regardless of what the company does.  So if the company brands itself as regal and the top-notch choice for service, but then the message isn’t carried through the agents, the brand is tarnished.  A sentiment of mistrust is created in the consumer’s brain.  -The brokerage has little to no recourse (other than sending their license back to the real estate commission) for an agent that violates the rules of their brand.  

Think about all the ways that the regal brand is tarnished each day:

• An agent sends out black and white postcards with skewed graphics and designed using clip art
• A client phones their agent to see a home, they get no response for 8,12,24 hours (as agents are taking other part and full time jobs this is becoming common)
• To save money an agent builds their website using free online tools from their hosting vendor, their website comes out looking “templately” and scattered
• A person trolling around the web finds a great website to search homes, finds one they like and submits a request for information or showing that goes un-responded to for days
• A client starts working with an agent that clearly has no idea what they are doing (due to being a new agent with no training or an agent that hasn’t written an offer in a while)

The next challenge with the independent contractor model is the lack of profitability.  Brokers average a profit of just around 3% (that number will obviously be down this year).  But from the previous post why would investors put their money in a company that gets them a worse return than investing in low risk, tax free municipal bonds?  Due to the nature of the INDEPENDENT contractor, they have all the rights and power in the organization.  If they want to leave to take their sales somewhere else, they can at anytime.  This makes the broker usually cave to their whims.  Do they want their mailings paid for? Their website? A billboard?

These expenses, and the high commission splits that large producing agents demand (90% in many cases), mean that the more an agent does, the less profitable they become.  Brokerages rely on these agents for volume to bring in deals to the less producing agents that are sometimes 5-6x more profitable for the company.

So, what’s the solution to these issues?

Salary Based Realtors

When a Realtor becomes salaried, the value of the agent as a brand is diminished.  I’m going to call this the Goldman-Sachs effect.  When someone decides they want to place their investment account at Goldman-Sachs they rarely do it because of a specific person that works there.  Prospective clients call Goldman because of their sterling reputation and top not brand.  Do you see advertisements for Joe Smith at Goldman? No.  Now you might get a phone call from a junior broker at Goldman trying to get your business, but they aren’t going to talk about what that broker can do for you, they are going to talk about the research and storied history that Goldman brings to the table to assist the client in reaching their goals.

But why does Goldman have the reputation it does (even after the financial services mess in the past year)?  Branding.  They have branded themselves as the leader both directly and indirectly.  If you see advertisements and their logo, you think regal and sterling.  And they carry that message through everything they do.

Goldman also has the ability to tell their workers what to do and how to do it.  They are employees, not independent contractors.  Managers can tell their employees to pick up the phone and call individuals, they can expect that if they give them a lead it will be worked according to Goldman’s strict policies.  Their salespeople can not go advertise on their own, they can’t post their own ratings on their personal websites.  

Their sales managers are trained to get the cream out of their sales people.  And training is no longer something you do for Continuing Education credit to keep your license, but something mandated by your employer.  12 hours every two years?  What about 10-20x that.  If you are a broker, can you imagine having a staff of all GRIs?  Or having one person on your staff highly educated on short sales.  Or maybe another person that used to work in the REO business that can go procure hundreds of listings?  Consider the respect these highly trained agents would command.
Think of the benefits of being a salaried Realtor for the agent:

• True career orientation with potential for advancement
• Guaranteed income
• Company car
• Structured work environment
• Benefits such as health care and 401k
• More solid work schedule
• No self employment tax

So what are the pitfalls of a salary based Realtor to the brokerage?  

• Clients want to look at a home when they are available, which is generally outside normal business hours.  Solution:  Have teams with varying hours.  Instead of having a client work with 1 person they can work with a team that’s available to show to them M-F 9am-9pm
• Since they are employees, the broker is open to more liabilities.  Solution: Many brokers are automatically included on law suits not the agent and are therefore already open to law suits.  Instead of having Errors and Omissions insurance for each agent they would have it for the company.  Theoretically if the company was employee based, there would be stricter policies on how things were handled thus yielding an average reduction in E&O insurance.
• There would be a vast increase in expenses due to employment taxes, company cars and gas, etc.  Solution: Some major expenses would be lower.  Think about the huge offices that many brokers have to house hundreds of agents.  That would no longer be necessary. The other increased expenses should be more than offset by the increase in profits.  Consider the income stream when 100% of gross revenues stay with the company instead of being split. 

One key issue here though is that small underfunded companies are not going to be able to participate in this model.  Without having a book of business to get off the ground with, it’s going to be difficult to fund a correct start up.  Therefore it’s up to the large nationwide recognized brands to make a move such as this.  Companies that doing a test market of 10 agents and $300,000 in salaries and maybe an additional $200,000 in expenses  for one year isn’t even going to be a blip on their radar.  But they can then find out if the model proves successful.  Do they make more than the standard 3% many brokers make?  

Or maybe it’s up to a venture capital fund that sees the potential here to fund someone to take on this project.  It would not even be very difficult to open up 3-5 offices in major cities around the country and recruit the top talent.

The next logical question: who would make the best salaried agents?  We’ll save that for another blog post.