Real Estate Company Models
In Colorado, all new real estate agents are required to work under a licensed broker for two years before becoming their own independent company. When I started in the business in January 2006, I thought all real estate companies were alike. I have since discovered that there are essentially three primary models. It is up to you to pick the one that is right for you and how you want to run your business.
Types of real estate companies:
The Dependent Model gets its name from the fact that the agent is dependent on the broker for their success. In other words, the broker controls the agent and the leads provided/sold to the agents. It is also known as a “Broker-Centric” model.
The Dependent Model is where an agent pays a high percentage of their commission to the company for all closings with no limits. Dependent model companies are a good fit for agents that are not comfortable marketing themselves and generating their own business. They are dependent on their company to sell them leads and do not focus on the idea of building their own business. Dependent companies will run national marketing campaigns to drive the consumer to their company websites then sell the buyer and seller leads to their agents. Many agents that “grow-up” in a Dependent company have a difficult time transitioning to either of the other two models.
Shortly after I completed real estate school, I interviewed with two companies that followed this model. The four things I noticed were that their training program was very limited; one was limited to a large black notebook (granted, this was 2006). The other was that the agents in the office looked at me as if I were their competition, not as a team member, which was not very welcoming. The third thing was that the manager wanted to know that I was willing to track my progress publicly within the office, listing the number of calls I made, appointments I set, and contracts written. I also noticed that neither company asked about my goals, family, or background. Looking back, I now realize it was about the company, not me and my business.
Dependent companies are easy to pick out of the crowd. They are the ones spending large marketing dollars to advertise the company brand at the expense of the agents. The company brand is also the dominant feature of all marketing, to include agent listing signs.
As a member of a team, you will function as if you are in a dependent model company – no matter what the company model. The team leader will manage and assign leads and you will pay a large percentage of your commissions to the team leader. You will work to build the business of the team and the team leader, not your own business. You will also be required to provide your numbers (lead follow-up) to the team. This works for many agents, but not so well with those that want to maintain their independence, though it can be a good training ground for developing discipline for lead follow-up.
For a dependent company, the Stakeholders are the owners. If the dependent company is traded on the stock exchange, stockholders are involved in major decisions and not always to the benefit of the agents. It is believed that this model is on the decline, see Why the Broker-Centric Model is in Decline.
Independent Model is where the agent is less dependent on the broker for leads, but still controlled by the broker and the brand.
Independent Model is advertised as a 100% company where the agent keeps 100% of their commission. But in reality, they are paying a low royalty fee of about 5% on all closings, a set marketing fee (some over $100 a month), and a monthly desk fee to the company, totaling $18,000 or more in a twelve-month period, whether or not they have a closing. Independent companies work well for established agents that have a strong network of past clients that provide a good network of buyer and seller leads.
Independent companies will often include a marketing fee on top of the standard monthly fee to drive consumers to the company websites, again to generate leads to sell to their agents. Additionally, when the market was struggling in 2008-2011, some independent companies shared their losses with their agents requiring an additional fee on top of the monthly fee and the additional marketing fee, often to the surprise of the agents.
Some independent companies will require new agents to work on a team for a required period of time or as an intern under the company label before working independently. During this training time, the new agent is at the mercy of the team for income or even no income working as an intern.
As a new agent, I knew the idea of paying a high monthly fee without having a closing, would not work for me. I needed a company that allowed me to pay when I had a closing. Looking back, not knowing what my total expenses would be each month, would also be a drain on my monthly budget.
The company stakeholders for the independent company are the owners. If the independent company is traded on the stock exchange, stockholders are involved in major decisions and not always to the benefit of the agents.
The Interdependent Model is a combination of the two previous models with the focus on the agent, not the company. The Interdependent Model is less concerned with building the company brand and more concerned with helping their agents build their own business. Keller Williams falls under the Interdependent Model.
With the Interdependent Model, an agent pays toward a cap for company dollar and royalty, which for Keller Williams in Colorado Springs are usually $18,000 and $3000 respectively, but depends on the average sales price for the region. With each closing for new agents, you can expect a 64/36 split (agent 64/local company 30/royalty for international 6). Once the cap is met for both local company and royalty, the agent retains 100% of their commissions until their anniversary.
Each Keller Williams does have a monthly operating fee for various expenses. For Keller Williams Clients’ Choice our monthly fee is about $50 for local advertising, technology, printing, etc..
Because of the Interdependent philosophy of helping agents build their own business, the company focuses on training the agents on generating their own business (leads). One of our founders, Gary Keller, authored The Millionaire Real Estate Agent to help all agents in the business understand the importance of building their own business by generating leads, especially seller leads.
Because Keller Williams trains their agents to do their own lead generation, you will not see national advertising for Keller Williams Realty. You might see Keller Williams agents or offices marketing their brand and business, but not at the national level for the company. This is why Keller Williams allows agents to have custom signs and marketing, though each state’s REALTOR association may require the agent to identify their real estate company on all their marketing.
When I interviewed Keller Williams Clients’ Choice, I still did not understand the different models, but I did learn instantly that Keller Williams was different. As we walked around the Keller Williams Clients’ Choice office, every agent greeted me with a smile and told me that I would like it there. This made me feel very welcomed, and at home because coming from the military, when everyone has a stake in the successful accomplishment of a mission, they are more willing to help others. This is rooted in the concept of Keller Williams profit share within the Keller Williams model. I quickly learned that all experienced agents were willing to provide me assistance to help everyone be successful and increase profits for the company.
The profit share concept is a bit complex to explain in a blog post, but the benefits aren’t. When a Keller Williams office is profitable in a month, a portion of the profits is shared with the agents that helped grow the office by sponsoring new agents to the company. Of course, the owners of the office also benefit, but when an office is not profitable, the owners cover the loss, not the agents. This was huge during the market downturn of 2008 – 2011 when many real estate offices were not profitable. For Keller Williams, the owners were required to cover the loss. With the other models, the agents were often hit with an unexpected bill, so that the owners would not lose money. I prefer that the owners cover the loss, this forces them to be mindful of their expenses.
With the Keller Williams profit share system, all agents of Keller Williams are stakeholders in the company and are involved in the direction of the company from the local level right up to KW International. Each office is required to have an Agent Leadership Council (ALC). The ALC, consisting of “cappers” (successful agents that have recently capped), meets monthly and is responsible for managing the office’s expenses, training, retention and recruiting, and maintaining a positive culture in the office. All ALC meetings are open to the other agents in the office.
As owners of the company, agents have a say in the direction of the office and company. They have a vested interest and a common goal; improve profits by increasing the number of successful agents.
The stakeholders of the company are the owners and agents. Keller Williams is not and never will be a publicly traded company. The stakeholders do not want to lose control of the company to stockholders.
Profit Sharing is passive income for agents that help the company grow. Some agents look at this as a retirement plan, a real estate investment fund, or future income for their heirs. I have only recently made an effort to help recruit agents to the company because I strongly believe that Keller Williams can help anyone be successful if they are willing to work hard at building their own real estate business.
Our local office has profit shared over $2 Million since being established. KW has profit shared over $2 Billion since 1983.
By participating in profit share, I anticipate receiving more in profit share each year than I currently pay in company dollar and royalty. And now that I am vested, my heirs certainly have the potential of receiving far more for years to come.
Flat Fee Companies
“Flat Fee” companies charge a flat fee per transaction. I have little knowledge of how these companies work, though I do know that there can be additional fees not advertised by the company. If you are a new agent and find the flat fee appealing, make sure the company provides you with their fee structures for additional items and support. It might be helpful to ask for a copy of the monthly bill for an agent at the same production level as you. Also, ask to see their in-house training schedule or about their mentoring and coaching programs to help you get your business going.
As an agent, it is important to work for a company that mirrors your values and will assist you in reaching your goals. Ask to attend a weekly sales meeting to see how the agents and management interact. When selecting a company consider how you want to generate your business. Do you want to have the opportunity for unlimited income by generating your own leads or do you want to be dependent on the company or team to provide you leads at a cost? Do you want to be a stakeholder in the company and be involved in business decisions for the company or do you want to be at the mercy of the owners or stockholders? Do you want the potential for passive income or limited to only commission income? These are all very important questions to ask yourself before deciding on a real estate company.
If you think Keller Williams is a good fit for you, please register on my recruiting site and I will give you a call and answer any questions you may have about Keller Williams or the real estate business.