Technology TransactionsDo Big Firms Have A Sales Gap?
"Bigger is better" is the usual expression, a
bumper-sticker slogan meaning that if you"re a
company you must grow, you must be bigger than
competitors and companies that don"t grow will
likely fail.
Wall Street, for one, certainly believes in the
concept that bigger is better. Woe to the
company that doesn"t show a quarterly increase in
revenues and profits -- shareholder value worth
millions and billions of dollars can be lost once
disappointing results have been announced. You
have to wonder how much of the financial flimflam
and book cooking seen in the past few years has
been a direct result of the bigger-is-better
commandment.
In real estate virtually every market is dominated
by one or more large firms, giants that control 15
or 20 percent of all transactions and sometimes
more. Indeed, the market penetration enjoyed by
the nation"s 250 largest brokerage firms is
impressive.
"According to the Real Trends Top 500 list," says The Future Of Real Estate Brokerage, a
recent study from the National Association of Realtors, "the market share of the top firms -
- as measured by number of agents and sales -- is
increasing. In 1993, 16.8 percent of all agents
were affiliated with the Top 250 largest firms. By
2001, 24.1 percent of all agents were affiliated
with the Top 250 firms. The Top 250 firms in the
United States accounted for about one million of
the six million total home sales in 2001."
Now let"s see: The top 250 firms engaged 24.1
percent of all agents and produced one of every 6
sales in 2001. One-sixth of all transactions is
16.67 percent. Seen another way, 24.1 percent of
all salespeople have a 16.67 percent marketshare.
If being large is such a great idea -- and there
are certainly good arguments to be made for that
perspective -- would not one expect marketplace
efficiencies, bigger ad budgets, greater name
recognition and more offices to result in more
sales per agent? Given such size-based advantages,
should not 24.1 percent of all agents produce
more than 24.1 percent of all sales?
Alternatively, could it be that the broker with
one or two salespeople, a small office and a
limited sales area is actually quite efficient and
profitable? As anecdotal evidence, I remember one
broker with hundreds of salespeople who closed
many offices and started working from a small
space near his home. Why, I asked, had he made the
contraction?
Less hassle, fewer hours and more money, he
replied.
The oft-overlooked reality of real estate
brokerage is that small firms and sole
practitioners -- like lawyers, accountants and
physicians -- can do quite well, thank you. You
don"t need 97 transaction "sides" to make a
substantive income, especially if you live in a
high-cost area and have low-overhead.
But what about those big firms with their armies
of agents? Should they not dump the salespeople
who are not bringing in their share of the
business?
I keep looking at the Real Trends numbers
and my sense is what they likely illustrate one of
the great attractions of real estate: Low barriers
to entry.
What"s interesting and redemptive about real
estate is that you don"t need a college degree,
massive investment or lots of tuition dollars to
obtain a sales license. This means that at any
time huge numbers of people -- hundreds of
thousands each year -- enter the industry. As
well, huge numbers also leave each year, done in
by the realities of marketplace competition. In
effect, real estate offers a chance, an
opportunity, that is simply not available in most
other fields.
Many of the larger firms with huge numbers of
salespeople are performing a public service of
sorts: They welcome entry-level agents and have
extensive training programs in place not because
the fledgling agents offer proven productivity but
because they have potential. It is expected that
many, if not most, new licensees will wash out in
their first few years but the thinking is that the
ability to attract and retain future top producers
makes entry-level educational programs worthwhile.
Adding salespeople has a cost and one could argue
that the present system of taking on new
salespeople does not result in maximized profits
for big firms. But there are other ways of
measuring value, and there is surely a social good
which comes from a localized industry where all
are welcome.
Rather than measuring the 250 largest firms, their
agent rosters and sale volume, it might be more
interesting to look at the 250 largest firms,
their sale volume and the number of agents on
their staff for at least a year or more. It"s just
a guess, but I bet that staff size and
productivity would match-up more closely with the
rest of the industry.
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