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96.5% of Portland Agents Abucted by aliens
And guess what…there are now the correct number of agents to service the Portland area.
There is no doubt our industry is massively inefficient. It is entirely possible for an agent to close 4-6 transactions per month with the proper support system. In the market area we service there were 687 closings in December with two side per that’s 1,374 sides. agents Required = 1,374/5= 275 agents
That’s right! in an efficient system there would only need to be 275 agents to service the demand for the entire area! I don’t know exactly how many agents we have currently but it’s in the 5000+ range.
Why is there such a dramatic difference? The fundamental problem is in the traditional brokerage business model. The sweet spot of maximum profit is to have a high agent count with low average production numbers. The maximum profit for the brokerage(s) occurs when the total number of transactions is perfectly matched with every agents production stopping at their cap. The cap is a limit to how much the agent pays the brokerage. Caps run around $20,000+-, The agent is usually on a 70/30 split until they reach the cap then they keep 100% of the commission.
example:
cap @ $18,000. Average commission 8,000, split 70/30, Brokerage take = $2,400, $18,000/$2,400= #transaction to cap = 7.5/year, 7.5/12=.625 transactions per month. 1,374 transaction/0.625 = 2,198 agents!
Holy Crap! An efficient system only needs 275 agents and yet the point of maximum profit for the companies occurs at 2,198. Understand that all companies strive for maximum profit. It is what they do, if it is not what you do as a company, you suck as a company!
The basic business model with agents capping at 6-8 transactions per year handcuffs the brokerage. All energy is put towards recruiting, retaining and getting some production our of the marginally effective agents.
This is not a system that can possibly innovate or commit to efficiency because it is direct conflict with it self interest. If there were only 275 agents in our market all of the existing companies would be out of business. There is no incentive for the brokerage, so it is left completely up to the agent to build an efficient and highly productive system.
It is possibly to start from scratch and build a brokrage tht is ideally suited to our new environment that focuses on building the technology and model that thrive with the 275. It won’t happen over night but our industry will move toward efficeincy.
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2 Responses to “96.5% of Portland Agents Abucted by aliens”
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Interesting article, but I have to disagree. Efficiency is not the end all, be all…in any industry. It’s certainly not the end all, be all of real estate. While I agree that an agent, with proper support, should be able handle 5 or so transactions a month, the fact of the matter is that in NO business has production ever been that evenly distributed.
You know the old adage that 20 percent of the agents do 80 of the business? Well that’s going to hold true no matter how many agents are in the market place. If we increase efficiency and lower the agent count, we won’t end up with 275 agents doing 5 deals per month each. We’ll end up with 20 agents doing 25 deals a month, 30 agents doing 10 to 15 deals a month, 100 or so doing 2 to 5 a month, and a 100 or so doing zero. That’s just the way it is. I don’t think buyers and sellers would do well to have so much of the transaction load being handled by such a small number agents. That doesn’t seem to be in home sellers and buyers’ best interest.
The industry could certainly improve its efficiency, but efficiency can’t be…and won’t be…the end all, be all.
I agree it won’t be evenly distributed. some would be doing 10-25/month and some would be doing 2-3. But now one would be doing zero. at zero you are out of business
Agents that can do more gain more expertise and are better agents because of it.
I am not saying that it becomes an impersonal machine either. I contend that buyers sellers and agents are better served by far fewer very good agents with exceptional support systems.
I know this would be a big change but I think big change will come. albeit slowly over time.