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.
[i] http://www.cbcarolinascharlotte.com/Office/Office.asp?CEQ_OfficeCode=161711
Sue Moss says:
I’m amazed that considering REMAX was just one if the major brand names who helped facilitate the real estate meltdown. They now have the nerve to advertise about a market that is full of short-sales, reo’s and foreclosures which they help create. I’ve sold several of my ex clients homes to new clients for 40 percent less than my original clients 2004 and 2005 purchase prices. But this is a sign which no one in the industry wants to talk about.
Karen Hutton says:
My comments applies to this post and the inequality post.
The public believe that who their Realtor works for makes a difference. Its does not because once the home is listed it makes no difference what company has the listing. All buyers agents use the MLS and customers use realtor.com to search for homes and the first search criteria is price. The name of the listing real estate company no one cares about. So whether the Realtor is with REMAX, Coldwell Banker or Century 21 it does makes any difference to the home buyer. It just shows how much profit these companies make when they can waste millions on pointless TV ads.
The inequality pay tables are brilliant and I’m sure they are going to be a real eye opener for many realtors and more so for the clients, when they see how much brokers take for doing very little work and in most cases no work.
Lydia Gunis says:
I wonder if people are that gullible and buy into these types of TV ads? Do they really make an impact? If I was listing my home it would not sway me to use REMAX.
Megan Stutz says:
The dollar numbers involved are staggering. It very obvious the key to the industries profits are based on its broker/agent commission splits. It is a very simple an effective profit model which is paid for by the clients. So the industry that makes an average of 25 to 30 cents on every commission dollar, is the ultimate middle man collection business.
Rich Waite says:
The real estate industry is in turmoil due to the banks liar loan policies and the brand names like REMAX encouraged their cockroaches Realtors to scurry in the dark to grab the business at any cost. So no-one in the real estate industry ever questioned if 20 percent yearly property prices were normal.
These commercials are very disturbing and the banks are also now on the band wagon of putting themselves forward as the nicest guys in town, there to help you out.
The new Wells Fargo mortgage commercial is such an example.
They portray themselves as giving the extra helping understanding hand on mortgage pre-qualifying. Meanwhile the below article shows how they acted at the height of the market. It is double standards and no-one is holding them accountable. I find it very sad just how gullible the public are as once again they buy into these companies “Happy Days” propaganda who sold them into financial ruin.
http://www.washingtonpost.com/business/economy/former-wells-fargo-loan-officer-testifies-in-baltimore-mortgage-lawsuit/2012/06/12/gJQA6EGtXV_story.html
Reluctant says:
Rich, I agree where is the accountability. Now REMAX openly have the nerve to advertise they have Realtors who are experts at navigating through the cease pit of foreclosures, REO’s and short-sales they help create. They don’t mention that for every one of these home there is a family moving out riddled in debt and they and the other brand names put those people in the homes. I keep waiting for a real estate Mr Rogers wonderful day in the neighborhood style TV commercial to appear. Best TRR.
Ken Montville says:
First, most advertisers play to people’s insecurity. Just look at the beauty and weight loss industry. This is not unique to real estate.
Second, you mention Coldwell Banker but aren’t they part of the Realogy conglomerate of real estate brands that is having trouble staying afloat?
The moral of the story, I believe, is that regardless of the commission split, real estate brokerages as they are now structured are on the decline. What will replace them? Who knows?
Third, RE/MAX is one of those 100% companies that take a flat fee per month from each agent regardless of production. If the agent doesn’t produce the office still gets their monthly stipend. Alternately, they have a 70/30 split with the office picking up the monthly fee but if the agent can’t produce they are politely “let go” (i.e. pushed out the door) and referred to a traditional broker with the traditional split schemes.
Reluctant says:
In my “don’t pay for real estate coaching” post, I mention the diet and golfing industries that are built on people failures. I know of other 100% commission companies but there are fee’s for everything. Like an MLS fee, desk fee, insurance fee and transaction fee. If an agent was due $5k commission I’ve yet to find an agent does not pay a significant amount in fees if they are on 100 percent. I’m curios what would all the fees amount to for a REMAX both a listing agent and a buyers agent who were due $5k commission and were both on 100 percent.
I agree the real industry structure is dated but they are holding on to it for dear life and there is not anyone big enough to come in to break up the current industry monopoly.