So really? All the commission to the agent? How does the business make money? Many 100% commission brokerages have this conundrum of offering basically a huge financial incentive to Real Estate Agents along with Support Services and Amenities. So Yes really, how does it all work? Whats the catch?
Many 100% Commission brokers set up shop and quickly realize that overheads add up quickly.. mainly in advertisement, systems and association fees. For those that have physical locations, rent will be an issue as well. There is no free lunch and every agent that joins a 100% Commission broker will need to know that they have to pay some fees some how.
Different 100% commission brokers generate revenue through different channels. Flat fee/file, flat fee/file with a Monthly plan, Monthly plans no flat fees, peripheral services like Transaction Coordinator support, advertisements, referral lead splits, legal support, mortgage services or escrow. The rise and fall of any 100% commission brokerage will be how quickly they reach critical mass of agents and how they manage these agents. Agents are largely of two types. The utilitarian version which will move with the next cheapest broker and the hedonic version who will stay for the rapport or cultural comfort.
The critical mass of agents is one that is needed to recover the operating cost of the brokerage and at the same time generate a profitable sales revenue. That is not easily achieved as administrative manpower is needed to support every tier of agents in the brokerage. On top of that, the Workers Comps and E&O insurance will also increase per headcount. 100% Commission brokers have to rely on huge volumes of transactions to be profitable and this comes wither with a large number of agents (hopefully more are active) or a smaller number of very active agents.
The management of these agents will be critical to retain head count and more importantly compliance with legal and DRE requirements. The Archiles Heel in any real estate brokerage business is to be name a CROSS DEFENDANT in any law suit. This is the biggest threat to the 100% Commission Broker business. The threat of this business is not from agents switching around competition, not from competition advertising recruitment pitches, not from competition search engine results, not from law changes but simply from any clients in every transaction that can possibly name the 100% commission broker as a CROSS DEFENDANT in any nonsensical lawsuit.
The 100% commission broker model is a model that is great for the agent that want to save more income, pay less fees and have more freedom. However, the risk of real estate transactions in terms of lawsuits have all been passed on to the broker. With huge volume, comes huge risks. One lawsuit settlement is enough to sink the 100% commission broker even if the party is not at fault and especially when the insurance company executes its exclusions.
It is important that a 100% commission broker be mindful of the transaction volume and be hands on to manage the risk associated with each transaction. Find out more about how we manage risks here at STANFLES REALTY - the gold standard in 100% Commission Broker.