Telescope or a microscope?

Originally published on REB

Our industry has been under increasing pressure on fees in recent years.

While some will play the race to the bottom, quality agents will encourage vendors to understand they need to think about how much they’ll end up with in their pocket, not about the commission percentage charged. The natural follow on is that the quality agent will get the best possible price, inevitably resulting in more money for the vendor. The fee then is a value proposition, not just a number.  

That’s elementary, right? Help the client use a telescope to look at the whole picture, not get stuck on a microscopic view of isolated elements. 

Because we all know this, it always stuns me how many agents get caught out by microscopic thinking when it comes to the decision of which brand to operate under. Lured by promises of high splits or “being your own boss/brand”, they seem to brush over the bits that aren’t included, often until it’s too late.

I should preface by saying high-commission models are not new. The concept really took off in Australia around 20 years ago when RE/MAX first came to Australia. Paying out 92 per cent and charging a desk fee for backend services under a contractor model, the radical new structure was a massive shock to the real estate industry. Agents flocked to the brand. 

Many businesses, even some of the largest brands, copied the desk fee model in an effort to retain their best people. But ultimately, it all ended in tears. Many of those businesses almost went bust. RE/MAX’s rapid growth stalled. Today, RE/MAX themselves no longer offer the same model. Why? Because it just doesn’t work. The numbers don’t stack up in the long run. 

I’ve become increasingly concerned recently to see a new rash of low-cost models popping up. Salespeople are spoilt for choice in this space, each one offering a more enticing story than the one before. Of course, these models are almost always start-ups. That’s concerning to start with because, according to the data, the failure rate of Australian start-ups is more than 70 per cent, perhaps as high as 90 per cent. ABS data shows 60 per cent fail in the first year alone. 

I do worry about the high level of risk involved for the individuals who put their faith in the promises made, particularly when the model itself has already been proven to be flawed two decades ago. Let’s face it, working under a failed brand is not great for anyone’s career. 

But it’s not just the sustainability risk that’s a concern. To be successful, you have to start out with a vision of where you want to be and how you can get there. The value of a known brand and all of the support that should come along with that can’t be underestimated. 

I had a great conversation with an agent last week who was considering a role with us versus one with a low-cost “brand”. In essence, we worked out together that with a massive rent roll delivering more than 100 sales every year directly into our small hub team, there was a clear lead source that the other offer couldn’t match. Add to that the value of a known brand to help in gaining outside appraisals, along with our training, support, mentoring and community, not to mention the opportunity to build a saleable asset — we both could see the offers were just completely different beasts.

It’s not all bad though, when it comes to these new models. I’m grateful to all of the entrepreneurs who are doing their best to disrupt. I think it’s important that every brand continues to be challenged on its value proposition and we welcome that competition. For us, it’s most recently made us once again review the way we structure our commission model and we’ve made some really positive changes as a result.     

Of course, the decision on which brand to join is entirely personal and great agents will naturally gravitate towards other like-minded people. But after all is said and done, I’d encourage anyone on the journey to pack the telescope. Much more use than a microscope. 

Craig Gillies is the director of growth at Coronis.