Inside the Brokerage Numbers, Part 2 (AKA, Our People Are Our Most Valuable Resources. NOT!)
In part 1 of this series, I looked at per-person productivity numbers which simply made no sense. Thankfully, people like Russell Shaw and Jay Thompson stepped in to provide at least an explanation. Simply put, there are too many agents chasing the same number of deals.
So despite large improvements in personal productivity of a realtor thanks to technology, sales per agent had to go down as the denominator (# of agents) increased throughout the industry.
Seems logical to me.
So I looked at recruiting and training figures. Oh, how fun!
Show Me The Money
Again, according to the 2007 REALTrends Brokerage Performance Report, the average and median spends (as a percentage of GCI) look like this:
Average: 0.39%, Median: 0.19%
Average: 0.45%, Median: 0.30%
REALTrends thinks that recruiting costs went up “somewhat” over the past few years, while training costs are back to 2004 levels. Then they make this statement:
With the assumption that training and recruiting are linked together, it follows that where brokerage firms are spending less to recruit or have less success in recruiting due to market conditions, then some proportionate decrease in training will occur. (p. 28 of Report)
If true, then here lies another significant issue for brokerages. In this post on OnBlog, I ran through some assumptions to get at what the GCI involved is, and came up with $12.6m in GCI for the “average” or “median” respondent. Let’s go with that for the purposes of illustration.
That means the average brokerage spent $56,700 on training in 2007 (0.45% of $12.6m). We have no way of knowing how many employees that represents, but the company I picked to generate that GCI number (#250 on the PowerBrokers 500 list) had 255 total agents with two offices. That means this hypothetical brokerage spent $222 in training costs per agent. Keep this number in mind.
According to this study by the American Society for Training and Development:
The average direct expenditure per employee in the consolidated sample of organizations rose to $1,103 per employee in 2007, an increase of 6.0 percent from 2006. The average learning expenditure per employee in both ASTD Benchmarking Forum (BMF) and ASTD BEST Award-winning organizations was higher than the consolidated average. For BMF organizations, average direct expenditure per employee was $1,609 in 2007. The BEST Award winners spent an average of $1,451 per employee on learning and development.
In other words, real estate companies spend one-fifth what other companies spend on training. There’s more.
Because of the jankiness of my data (all sorts of assumptions going on there), I can’t say for sure that real estate brokerages actually spend less than half ($222) of what McDonald’s or The Gap spends ($519) on training. But I think it’s pretty clear that brokerages are closer to retail than they are to technology in terms of training expenditure per person.
But here’s a way to gut check the numbers. Let’s pick a brokerage at random from the PowerBrokers 500 list. (Shake, shake, shake… roll dice — #173) Okay, #173 has 480 agents doing $580m in transaction volume. If this company were to spend the American corporate average, as per Bersin & Associates, its training budget would be $611,040. Does anyone believe that any real estate brokerage company spent $600K on training in 2007?
Our Assets Walk Out the Door Every Day
Back in the day, when I was thinking of law, a senior partner at a major NYC firm told me, “Our assets walk out the door every day.” Which seems obvious. Can’t really have a law firm if you ain’t got no lawyers.
The same holds true for real estate brokerage. Again, this seems obvious. No agents = no brokerage. The best website in the world, the best marketing, the best office space, the most comfortable chairs — none of these things will mean a thing if the people stop showing up for work.
So what gives?
I know a part of it is that the agents are all 1099 independent contractors who can walk at any time. So a brokerage has very little incentive to train an agent only to see her walk out the door and across the street to a competitor. I believe this is a fundamental weakness of the brokerage model — but there are small companies and teams that overcome that weakness.
Perhaps another part is that the training happens prior to someone being hired, as people have to study for the real estate license exam. But a licensing exam isn’t the answer. One, licensing exam tests factual knowledge, not sales technique or customer management. Two, it is a well-known fact that real estate licenses are notoriously easy to get. Easier in some states than getting a hairdresser license. So relying on licensing schemes strikes me as a non-good way of getting ‘trained’ professionals.
Maybe a third is NAR training to get the REALTOR designation. I haven’t heard anyone talk about how hard the REALTOR designation is to get, so I’m classifying this one as “too easy, too many” type of a deal.
From my perspective, the apparent lack of training (if true) really helps me to understand a bunch of things that I couldn’t understand before. Like, why do so many agents suck so bad? Why are so few of them informed about their own market? Why do so few of them do an adequate job of followup and CRM and marketing? Why is it that so few of them can speak intelligently to intelligent professionals?
I had a lot of trouble squaring the number of poor experiences I’ve had personally over the years with various real estate agents with the smart, professional realtors I’ve met over the years working in the industry.
Well, no longer. The pieces are falling into place. They are not trained. They are not trained. They. Are. Not. Trained.
When it appears that the average fry cook at McDonald’s is better trained than the average real estate agent who is handling the most important purchase of a consumer’s life, the claim that realtors are licensed professionals is a joke.
The apparent lack of training — if real — points to a fundamental problem in the industry. This isn’t something that can be fixed with a blog. Or a nifty agent website. When the basis of the business is on trustworthiness, expertise, and professionalism, spending so little on training is going to yield precisely the expected result: crappy agents.
No wonder that the Per Person Productivity numbers are down across the board.