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Inside the Brokerage Numbers, Part 2 (AKA, Our People Are Our Most Valuable Resources. NOT!)

October 20, 2008

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.

According to this report by Bersin & Associates, “The average spending per learner is $1,273. The highest spending sector is technology ($2,763) and the lowest is retail ($519).”

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.


6 Comments leave one →
  1. October 20, 2008 5:50 pm

    “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.”

    Becoming a REALTOR entails sitting in a 3 hour Code of Ethics class (no test. Heck, the guy next to me slept for 2 of the 3 hours), raising your right hand and swearing to obey the CoE and writing three checks – one each to the local, state and national Realtor Associations.

    Writing the checks is the painful part, and of course is a yearly event.

    And if I remember right, I had 90 days to squeeze in the 3 hour course. Maybe it was 30. And probably a fourth check.

  2. October 20, 2008 6:15 pm

    Ooo … I must have taken the crash course. I only had to write ONE check to my local association and they handled the dispursement of funds to the State and National.

    I guess I’m less trained than the rest of you folks! 🙂

  3. October 20, 2008 7:19 pm

    It’s a wacky business. More food for thought. The GCI might be a big number, what’s the actual Company Dollar after splits (for split companies). Next, what’s the actual net profit after overhead. Most brokerages, large and small, make peanuts…there’s nothing left for training, let alone modern technology, etc.

    If it’s a 100% shop, no way the broker/owner makes enough from rent, copies, admin fees etc., to fund a training program and buy groceries too. Besides, what’s the incentive to increase the agents skills, it doesn’t matter if the agent sells one property or a hundred, the broker doesn’t make more, the rent, copies, etc. is fixed.

    I wonder how much the average agent spends on their own education…seminars, books, conferences, hours spent figuring out how to deploy Facebook, create a blog, read blogs, understand twitter, set up profiles on Trulia and Zillow, manage a web site, understand internet broadcasting and all those soft skills like communication, presentation, negotiating, problem solving, etc.

    Seems the real challenge is that anyone with a speck of moxie can get a license….then stop growing. Real money makers, as independent contractors don’t rely on their broker/owners, they rely on themselves. The seek out opportunities and venues to learn, grow and prosper.

    I’m hopeful this current crush will wash out a legion of posers and pretenders.

    We’ll see.

    Another solution, raise the license fee or board dues to a serious level…say $15,000 a year. Then only the service minded and career oriented players would step up.

  4. jimkimmons permalink
    October 20, 2008 8:47 pm

    I applaud you for stating what many of us know and get tired of hinting at. The average real estate agent is poorly trained, ignorant of basic skills they should have for their clients, and motivated by commissions before customer service.

    I deal with it in my Taos, NM local market on a daily basis, with gross errors (including selling the wrong parcel of land to their client) and holding multiple jobs, all taking priority over their real estate “career.” I knew it was a characteristic of this laid-back resort market, as when I moved here, the first ad I saw was for a massage therapist and realtor (sic) (in that order).

    I jumped at the chance to write for, and try, with more subdued articles than this comment, to effect what change I can. However, when an associate broker at a major franchise office says “This **** paperwork gets in the way of selling houses,” I just cringe and get out of earshot.

    Though I don’t agree with huge fees to stay in the business, I wish they would test more often or something to see if we actually know what we’re doing. I recently answered a question on LinkedIn about choosing a real estate agent. There were dozens of responses about getting a friend’s recommendation. I said, go read their blogs to see who consistently posts statistics, data, and meaningful market commentary. Since most of us can’t afford a ghost writer, they might just find someone who knows what they’re doing. Ask them an email question, and if they get back to you with a knowledgeable answer quickly, that ain’t ghost writing.

    OK, I’m done. And I feel better. Thanks!


  5. October 23, 2008 6:39 am

    Regarding this –

    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.

    Where would you set the bar for the REALTOR designation?

  6. October 23, 2008 4:15 pm

    @Ken –

    Thanks for the comment, Ken. As it happens, looking at broker profitability is a deep interest of mine. 🙂

    Once we start talking about licensing, however, I feel like we inevitably get into the area of politicking since licensing is a government thing. Not sure if there’s an easy solution there.

    Perhaps requiring more continuing ed to keep the license might help….

    @Jimkimmons –

    Thanks for your kind words — and please, rant away! 🙂 If we can’t voice issues on a frikkin’ blog, where can we voice them? Heh.

    @Jim Duncan –

    Now… that there is a question that can’t possibly be answered in a comment. (And I know we’ve spoken, but for everyone else….)

    Let’s just say that I would look at the REALTOR designation from the point of view of those who currently hold it. If they see no value in the designation, then the bar needs to raised until they do.

    Right now, as a marketer, I don’t believe that the REALTOR brand means anything at all. Other brands, such as “CPA” or “CCIM” or “CFA” have more meaning, and all of those have higher barriers to entry.

    Where would I set it? This is deserving of a whole series of posts, but as a rule of thumb, I believe that if more than 10% (maybe 20%) of the practitioners can claim the designation, it starts to lose value.

    That means, in today’s environment, with some 2+ million licensed real estate agents in the country, no more than 200K people should be able to hold the REALTOR designation.

    Question is… does NAR really want to go from a 1.2m member political powerhouse to a 200K political lightweight?


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