In the competitive world of real estate recruitment, brokerages fight for the attention and loyalty of talented agents who can drive their success. As the lifeblood of the industry, agents play an important role in attracting clients, closing deals and determining the ultimate profitability of a brokerage. For real estate firms, recruiting a high number of agents as well as recruiting the best-fit agents for your firm is the key to long-term success.
Today, new brokerage models and disruptors are the norm. A firm’s ability to adjust to new competitors and evolve its way of doing business will determine if it comes out ahead in the agent attraction showdown.
At the heart of our comparative analysis, we’ll examine two popular brokerage models: the flat-fee model and the traditional model. Each one boasts its own approach to compensating and supporting agents, promising distinct advantages and challenges. By examining the data, we aim to gain a deeper understanding of each and determine which ultimately comes out ahead.
The flat-fee model: Simplifying compensation, embracing independence
In the flat-fee model, the traditional commission-based structure takes a backseat. Instead, agents are charged a fixed fee or a flat monthly rate, which allows them to retain a more substantial portion of their commissions from transactions. This straightforward approach grants agents the freedom to keep more of their hard-earned income, resulting in potentially higher take-home pay.
- Pros:
- Perceived enhanced earnings with a reduced fee structure.
- Flexibility to structure their services and marketing strategies to fit their needs.
- Lower financial risk by keeping costs low, particularly during leaner times.
- Cons:
- Typically, limited support and resources in the form of training, marketing, etc.
- Usually, less brand recognition as compared to well-established traditional firms.
The traditional model: Commission-driven powerhouses
In the traditional model, agents are compensated through the classic commission-based structure. They earn a percentage of the commission from each completed transaction, but a portion of it is shared with the brokerage. This model has been the bedrock of the real estate industry for decades, with established firms carrying well-known brand identities.
- Pros:
- Extensive support and training with a significant investment in agent development, mentorship, and marketing resources.
- Established brand recognition, attracting clients and contributing to an agent’s credibility.
- High-value transactions due to their market position and network.
- Cons:
- Higher cost structure, leading to potentially lower take-home earnings.
- Limited flexibility with agents sometimes bound by brokerage policies and practices, typically leaving less room for individual business decisions.
The analysis
To assess the agent attraction expertise of the flat-fee and traditional brokerage models, we looked to the data. We meticulously examined a collection of 20 of the largest real estate firms; 10 flat-fee firms collectively closing $100B in annual sales volume versus ten traditional firms which were also collectively closing $100B in annual volume [2022 RealTrends 500 brokerage data]. We excluded from our analysis any alternative models, disrupters, luxury brands and any other firms that may skew our findings.
Agent count & average sides per agent comparison
Using 2022 data from RealTrends, we first looked at the number of agents associated with each model as well as the total number of sides transacted. The data reveals that flat-fee firms collectively had a 136% higher agent headcount than their counterparts, the traditional models.
As a whole, the flat-fee firms also transacted more sides than traditional firms; approximately 19% more sides closed. We would expect that flat-fee firms would transact a higher number of deals since they have a significantly higher agent count. However, agents within the flat-fee model on average closed four deals per agent while agents within the traditional model closed eight deals per agent.
Average volume per agent & average home price per transaction comparison
Another critical data point to review is found in the average closed volume per agent. A higher closed volume can indicate an agent’s future earning potential as well as longevity in the business. In addition to examining the total volume, it’s also helpful to review the average size of the deals closed by agents within each model, which will provide insight into experience level and expertise.
The data shows that agents within flat-fee firms close less in average volume per agent, approximately 52% less. We can also see that they also closed smaller deals, on average.
Attracting new-to-the-business agents
Based on the statistical analysis, it becomes apparent that flat-fee firms often focus on a large agent count with high transaction volume. A notable trend emerges where agents drawn to flat-fee models are frequently those who are relatively new to the industry or are brand new licensees. Additionally, individuals attracted to the part-time flexibility that a real estate career offers are inclined towards flat-fee firms.
Consequently, a greater number of agents are required within flat-fee firms to achieve equivalent volume targets. Remarkably, this demand for increased agent numbers has not posed a deterrent for flat-fee firms, as evidenced by their substantial growth in recent years.
Historical shifts
While the initial data analysis reinforces existing assumptions, a more interesting and unexpected dimension emerges when historical shifts in volume and sides across both brokerage models are examined. Following the post-COVID real estate boom, both flat-fee and traditional firms experienced a surge in sides transacted as well as increasing property values, contributing to an upswing in overall sales volume.
However, the scenario shifted in 2022 with the market downturn. Traditional brokerages experienced a sharper decline in sides, attributed in part to agents leaving due to high costs, whereas flat-fee firms exhibited greater resilience. The notion that flat-fee models attract individuals who do not rely primarily on real estate as their main business is worth noting. Most intriguing is the fact that although sides decreased more significantly, the impact on overall sales volume was less severe for traditional firms compared to flat-fee firms.
A plausible theory suggests that agents within traditional firms specialize in higher value properties than flat-fee firms, leading to increased value growth. Their higher production per agent, coupled with greater experience and support, equips them to navigate market fluctuations more adeptly.
Takeaways:
- Stability in challenging times:
- Flat-fee models were less affected by side reductions in bad years, possibly due to part-time agents with diverse income sources.
- Traditional brokerage strategy:
- Traditional models maintained stable sales volume despite fewer sides, likely due to experienced agents handling higher-value deals.
- Diverse model strengths:
- Flat fee emphasized transactional efficiency, accommodating a larger number of transactions.
- Traditional models prioritized experienced agents and larger deals, ensuring steady revenue despite lower transaction count.
- Market adaptation:
- Both models should consider adapting strategies to market conditions and leveraging their unique strengths.
As we conclude our analysis, it’s evident that the many seasons of change in real estate demand a strategic negotiation between innovation and tradition. Agents, the driving force of the industry, now have the luxury of choice. To win in agent attraction, flat-fee models can further bolster their appeal by offering targeted support and mentorship, enhancing their brand recognition, and cultivating a sense of community among their diverse agent base.
Conversely, traditional models can leverage their established brand identities to attract experienced agents while embracing flexibility in their offerings to cater to the changing preferences of a new generation of real estate professionals. By embracing the strengths of both models and charting a course that resonates with modern agents, brokerages can ensure they remain at the forefront of the industry’s evolution.
Diana Zaya is the founder and president of Maverick RE Consulting.
Your two “cons” of the flat-fee model are painting with a rather broad brush. I would refer you to the recent work done by Mike Delprete that quantifiably disproves your statement.