Commission percentageAt conferences, relative strangers have interesting conversations. At breakfast one morning, we encountered a great agent from Santa Monica. She subtly revealed to me that she had no problem paying 1/3rd of her commission to Zillow for procuring cause referral; “70% of something is better than 100% of nothing” she stated. 

She is thinking of changing brokerages. Today, she is aligned with a franchise that pulls 6% off the top, a ransom that she says “delivers nothing to my business.” What she is really saying is that her franchise brokerage is not helping with Procuring Cause – something that she finds to be more valuable than anything else she gets from her broker. 

The Two Sided Coin

We have seen many brokerages focus on technology as a key value proposition for agents recently. What we have learned is that technology is important to agents. They need sharp tools to cut through the competition and serve the client better. Generally speaking, the normal amount that a brokerage lays out for agent technology ranges between $75 per month and $150 per month. One of the fastest growing brokerage firms in America is Side – they provide a brand-less brokerage experience. Side is technology, plus deal management. The agent becomes the brand – but Side is not really helping with procuring cause.

The other side of that coin is Zillow (plus a few cohorts like, OjO, etc.) who have all adopted the role of lead generation, incubation, and referral. They do the heavy lifting that creates Procuring Cause. That is worth 33% of an agent’s commission and they do not need to offer any technology or deal management.

If you are flipping the coin – which side of the coin are you going to call?

Imagine a Path Forward

I am convinced that it would be a small step for Zillow to hire agents under their brokerage license. In fact, I think that they should. Given their experience with transaction management and the tools they have available, it would be an incredibly small step. Today, I imagine that Zillow’s brand in housing is as big and strong as any brokerage brand. The real estate agent might know that the Zestimate is often significantly inaccurate – but consumers don’t care. Like horseshoes, it’s close enough. They warm up the consumer, develop procuring cause, and get a payday beyond the brokerage income.

We have seen this brokerage model in action. It’s called Redfin. I really do not understand why that company – with all of their success online – has not taken a higher rank in the markets they serve. In every way, they are a near perfect twin of what Zillow would look like as a brokerage. So maybe Redfin is the case study that prevents Zillow from taking that next small step?

Redfin is doing a great job developing business for their agents. The office manager is the missing part of the formula for Redfin. Over the years of working with America’s largest and most successful brokerages, we learned that office managers are the key to winning and losing in brokerage. They are the culture carriers. If you get the culture of your company right, everything falls into place. So I guess that Redfin might want to consider a configuration for office managers.

Beyond the office manager, we presume Redfin is not doing a great job maintaining customers for life. Guaranteed they know exactly how many consumers are repeat buyers, but it’s wondered how much they know about a customer who uses – but chooses not to use their company or their agents in a transaction. It’s an interesting puzzle. They have nailed consumer engagement and lead generation, but something else is missing. 

Traditional Brokers Need to Focus on Lead Generation

Lead GenerationFor years, firms like Howard Hanna dominated consumer search in their area. Zillow has surpassed them in some markets today, but the success of their consumer website generates a phenomenal amount of business for their agents. It always gets under my skin when anyone throws a stone at Howard Hanna Real Estate Services (HHRES). These internet experts may not see all of the ingredients that they believe brokers should have, but they are missing the point. HHRES generates tons of business because it ties a trusted brand, with a community of well known agents operating for generations, with a search experience that is perfectly fine. They drive traffic to the website through tens of thousands of yard signs, radio ads, billboards, newspaper advertising, even a take-over of airport signage in some key cities. 

Howard Hanna is not alone. Many of The Realty Alliance and Broker Resource Network firms have unlocked this old thinking. If you bring customers to agents, agents are happy to pay you a referral fee in the same way that Zillow or their cohorts do. The unfair advantage of a brokerage is that they can spend more than any agent or team for lead generation, and conversion rates are better for companies than they are for individuals. 

Customer for Life

Real estate agents want technology and need technology – but what they want more than that is customers. Many brokerages who champion the effort to deliver leads to agents fall down when it comes to helping with homeownership. The sale closes and the broker and the agent ghost the client. Don’t count drip marketing as relationship maintenance. The master of helping with homeownership is Jacksonville based Watson Realty. They have business units focused on residential, commercial, new home, mortgage, title, insurance, and property management. They also have businesses focused on electrical work, plumbing, HVAC, and other maintenance and homeownership support. It took them many years to develop all of that, and it works. Watson has never been a chest pounding company. They just keep their eyes laser focused on ensuring that their managers are supporting their agents, and that they are wrapping the customer with the warm blanket of homeownership support. If you are a homeowner, a home buyer, a home seller, a renter, a business owner, or a builder,  – call Watson. Watson has a full service business that is pretty hard to compete with, and might be delivering the best consumer experience in America. 

Homeownership VendorsIf you want to recruit and retain agents and turn a profit in real estate as a broker – own the consumer. Know great service providers in landscaping, plumbing, electrical, roofing, HVAC, etc in your marketplace? Why not talk to them about adopting your brokerage brand? Find an economic arrangement with the best ones. Imagine service trucks rolling through neighborhoods with your brand – helping consumers keep their home in good shape. Adopt products like Milestones and give them to your clients so they can order these services simply. Get out there in the community and win on the street with hand to hand combat; your business will prevail. Be a good neighbor. When you think about touch points, imagine a hand shake, not a hit on your website. 

Avoid the Race to the Bottom

There will always be companies offering discounts to consumers and high commission splits to agents. It’s a business model that manages to the bottom- But if you want to build an enduring company, aim for the top. Set your sights on offering full-service with reasonable margins serving a wide range of shelter services.

Zillow is setting its sights on the share of agent wallets. Obviously, that is a pretty big opportunity as they are among the most valued companies in the shelter business. In some ways, brokers think that way, too. That is the genesis of the agent/broker commission split. But if you want to really surge forward in your thinking, think about the share of the consumer wallet. When you have a customer, what are all of the things that you can do to offer competitive services in home ownership? That is the big idea of the future of real estate. If you change the way you see the future, it will profoundly impact how you view your business today, and the decisions you make today. “The main reason why companies fail is that they missed the future,” quoted from Larry Page. The full quote reads, “Lots of companies don’t succeed over time. What do they fundamentally do wrong? They usually miss the future.”

From our perspective, the future is homeowners under management. Define that in your business and you are bound to succeed. Every human interaction with homeowners is a sensor that informs the consumer of your commitment to serving them, and the affirmation that they entrust you with the roof over their head.