The recent RE/MAX TV ads for are wonderful example of clever brand name manipulations. Like their “The Right Real Estate Agent” TV commercial. It’s very “Telly presentable” CEO Margaret Kelly says the following: “Navigating today’s real estate market is complicated – you’ve seen the signs. That’s why having the right real estate agent is more important than ever. At RE/MAX.com, you can find experts in short sales, or bank-owned properties, or commercial real estate. Agents who can help speed up the process no matter how intricate. And that’s good news whether you’re trying to sell or hoping to buy. Because the only sign you really want to see is sold. Nobody sells more real estate than RE/MAX.”
The industry script below would be a more reflective and realistic TV ad that represents today’s real estate market: “Navigating today’s real estate market is complicated – you’ve seen the signs and at Terms & Conditions Realty so have we. In these trying times of foreclosures and bank-owned properties, now more than ever our profits are in decline. That’s why if you looking to sell or hoping to buy, having the right real estate agent on your side is more important than ever. At T&C Realty, you can find the experts (and as you now know good luck on that task) to help speed up the process no matter how intricate. We pay many of our agents between 50 percent to 65 percent commission splits. So folks, just remember, if we receive $20 million in commissions then we can bank up to $10 million of our customers’ money, and that’s important because at T&C Realty the only sign we want to see is the dollar.”
All real estate companies have seen their profits decline. In addition to this, the big brand names are still carrying over their top-heavy management and administration costs from the glory days. The key principle that drives profit for all real estate companies and that also supports the brand names’ massive management “Table of Organizations” is defined by the ideal real estate agent profile. This agent profile closes on transactions that range from $200,000 to $2 million each year and are on broker commission splits that range from 50 percent to 70 percent.
To scale the real estate agents’ financial contribution impact to the industry, let’s take 35 broker cents on every commission dollar x 6,000 agents, who each averages eight transactions, for 48,000 closed transactions.
With an average home price of $300,000 x 48,000 transactions, this equals $14,400,000,000 x the 3 percent broker commission client fee = $432,000 000 x the 35 percent broker split = $151, 200,000, or $216, 000,000 at 50 percent.
Now scale the figure up to real life and use Coldwell Banker’s advertised 2010 $137 billion in closed transactions[i] and the real estate agents’ broker commissions are enormous. Nearly 90 percent of all active licensed agents are on 50 to 70 commission percent splits and it’s here where the industry profits and flourishes. Due to the current market conditions, many experienced agents are leaving the market and this loss of experienced agents is being topped up with inexperienced real estate agents that the outside world will never be aware of because the public does not know how the business operates.