BIG BOX vs. INDEPENDENT,… What You Should Really Look For in a Real Estate Brokerage

WHY BIG IS NOT BETTER !

Over the past 30 years or so, large real estate companies, often franchise organizations, have grown to dominate the market. However,… during the last few years technology has made such drastic changes to the real estate industry that the tide has changed,… bigger isn’t better anymore.

What I am referring to is the difference between the large national chain real estate companies and independent boutique real estate brokerages. The traditional thought is that if you list your home with a “Big Box” real estate firm your home will have more exposure to more potential agents that can sell your home.

But is this actually true anymore with the Internet and new technologies playing such a big role in real estate sales and marketing?

Can a smaller company compete with the “Big Box” real estate firm, or can they not only compete but at the same time beat them out in service and added value?

LET’S EXPLORE THE DIFFERENCES

Looking back, in the not-so-distant past, the real estate industry relied on print advertising to display their listings. Full page ads in the local newspaper or home magazine left a clear message with the public;… “we are big and successful”. This drove much of the buying & selling consumers to those larger firms. Believe it or not, there was a period of time when brokers could only advertise their own listings on the Internet and other sources, then came broker reciprocity. With the advent of reciprocity and listing syndication, virtually all MLS listings are displayed prominently on every participating broker or third-party website (incl. large sites like Zillow and Realtor). This has created a profound equalizing factor in promoting a listing and advertising homes for sale. The web has leveled the playing field with shared information.

THE ROLE OF THE AGENT

Now, let’s define what a real estate agent’s daily responsibilities are. There are two basic functions of a real estate agent or a Realtor (if they belong to the national association of Realtors). Those functions in simple terms are, working with buyers and sellers of real estate.

An agent that works for the “Big Box” firm will generally be working there for one of three reasons and none of which benefit you the client (home buyer or seller).

1. They are new to the business, require supervision and work there to gain more information or are in need for more training.

2. They have a friend that works there.

3. They believe that the “Big Box” name recognition will benefit them in their personal career and provides them with more leads.

Question: does any one of those reasons benefit you the buyer or seller? I think you get it, but those agents will tell you that they can pitch your house to all of the agents that work in their organization. Just imagine, 100,000 agents just work for you. That might sound good, but it is just an empty promise,… nothing more than a pie in the sky.

Further,… ask the agent how often he or she is actually in the brokerages office and the answer might surprise you. In today’s real estate world everything an agent does revolves around the Internet and modern communication tools. Agents no longer have to go to the office to “pitch” their listings to colleagues. Their peers are all connected to the internet with access to every listing in the market.

In fact, as an agent today, we all have the same source to see newly listed houses, and that is the Multiple Listing Service or (MLS) which is now done all on line. We have access to all listings, irrespective what brokerage we work for. In the “good old days” the MLS was published in a book and agents depended on other agents telling them what was on the market. This is how the business was done for years until the Internet came along and changed everything.

CONSUMERS MINDSET AND PERCEPTION OF VALUE

Old habits are hard to change with respect to the mindset of consumers. So, the concept of using a “Big Box” firm to list and sell your house has changed but, not in the mind of most unaware buyers and sellers. Many still believe that “Big Box” has an advantage. Another aspect of real estate is what value you receive for the commission rate charged. What do you get you ask?

At most “Big Box” companies you get an agent that will list your home on MLS, put a for sale sign in the ground, create a simple one-page flyer (if you are lucky), possibly advertise your home in a local print publication, and will hold a few open house events, inviting potential buyers to see the home. You also get the professionalism of a contract that is written to a high legal standard. Those are the basics of what you receive from the majority of “Big Box” real estate agents. If your home is not selling, rest assured that you will be asked to consider reducing the asking price. At the end of the day your commission helps pay for that nice “Big Box” office that you will probably never go in, and their huge corporate overheads, franchise fees, royalties, etc.

As a buyer of real estate, the commission your agent gets doesn’t really matter to you, as it is not paid by you. However, beware that the “Big Box” agent is mostly trying to show you homes that are listed by their “Big Box” corporation or franchise chain. Although, the commission that is paid to them is not really your concern, their ability to negotiate a good deal for you is. Just think about it,… how will you get the best deal if the selling listing agent and your agent are both working for the same “Big Box” brokerage?

THE QUALITY OF AGENTS

This is not to throw any one individual or company under the bus, but some “Big Box” real estate companies bring in agents who aren’t that good. Perhaps you’ve heard of the 90/10 rule. This phenomenon is true in most big traditional real estate brokerages. While 10% of the agents at the top bring the listing inventory in and sell most homes, the remaining 90% just survive with a few sales transactions per year.

While I have found most agents I have worked with are honest, hard-working and trying to do the best they can, there are numerous agents I would not feel comfortable recommending. This statement is not intended to disparage any individual broker or agent, but why would I send a buyer or seller off to another agent without complete confidence in their abilities?

Over the past few decades, many if not most “Big Box” companies in town have moved into the suburbs with localized branch offices. Delivering the real estate business to the consumer’s door brought convenience and local knowledge. Then came the highly sophisticated on-line information systems we use today. Real estate brokers, agents, and the public now find that they can gather amazing in-depth information with just a few hours of highly-effective “Google time.” Consumers can be fully-informed with much less time invested. This has left many large “Big Box” brokerages struggling to fill their underutilized office space. Burdened by buildings they may own themselves, brokers are tempted to bring in agents they may not have under different circumstances. Many large brokerages see agents as a source to share costs with, and especially the inexperienced rookie’s often fall into the “Big Box” recruitment trap.

GOOD AGENTS ARE GETTING MORE INDEPENDENT

All of the agents I know and respect, the real pros, have become fully self-sustaining. They create their own brand, have their own office space, hire their own staff, virtually or otherwise, and it is no longer a novelty to have all the necessary tools to conduct business out of their homes. What this group needs is a convenient and occasional workspace and a comfortable conference room to meet clients, and such facilities are readily available everywhere to rent as needed. These agents also tend to embrace technology much more than the traditional Realtor. At our firm, we find ourselves on the verge of going completely paperless. Technology is making our job much less cumbersome, and we are embracing the freedom that allows us to be much more efficient.

THE “BIG BOX' - MORE BUYERS MYTH...

Those agents representing a “Big Box” will say 'BIG' means more buyers will see your property. But is size an important issue when it comes to exposing your property to the market place? Does ‘BIG’ really mean more buyers?

The “Big Box” agency will argue that due to their size they have more listings compared to their 'smaller' competition (this part of the myth may well be true) and they tell you because of this they attract more buyers (this is the part of the myth that needs testing).

Additionally, if the “Big Box” Realtor you're interviewing is part of a network (i.e. franchise group that's spread across the country or also overseas) they'll say that their large network of offices helps to expose your property to more agents who work as a team in trying to sell your property. In other words, when you list with an agency in a 'BIG FRANCHISE GROUP', your property will be exposed to more buyers. But is this really true?

There's no doubt, there was a time where 'BIG' did mean more buyers. But that was in the pre-Internet days,… and that time is long gone. Before the Internet, one of the avenues buyers had to find their next home was to go through a real estate chain. That happened in the past. Today, a “Big Box” real estate chain network is not attracting more buyers.

CUSTOMER EXPECTATIONS HAVE CHANGED

Let’s face it, big business has lost much of its luster. Consumers seem to demand personal attention more than ever before. Most large real estate companies got big because the old pre-Internet days gave them the opportunity to grow. They now face the challenge of competing with smaller independent brokerages that are driven to remain faster, hands-on, more flexible and mobile, as well as highly selective in their associations. Additionally, small agencies aren’t tied down by bricks and mortar, or bad investment decisions from the past.

EVEN THOUGH THE NUMBERS ARE DROPPING, WHY ARE MANY REAL ESTATE AGENTS STILL ASSOCIATED WITH THEIR BIG-BOX BROKERAGES?

Realtors have their reasons for choosing to work for the “Big Box” brokerages, most of which are not reasons meant to help you as the consumer. Some agents believe or assume they have better opportunity to make more money. That’s a perception and many agents just don’t know better. Truth is, they have to pay for that “Big Box” association and are charged by most large brokerages for almost all support services they utilize. In addition they have floor duties and are often constraint by corporate or franchise policies.

The rates that brokers charge their agents can range from 50% or more of the commissions the agent earns,… plus monthly fees, to a flat fee per closing. Most “Big Box” real estate companies apply a CAP calculation and reduce the commission withholding progressively based on the agent’s sales performance. Top performers can achieve a better split, but most large brokerage firms take in average 30% of their agents commission to cover their huge corporate overheads and franchise fees.

Realtors associated with independent and more modern boutique style brokerages usually earn up to 95% of their commission and the 100% commission model is spreading like wildfire throughout the industry. Contrary to the “Big Box” corporations, independent brokerages generally provide their agents with more attractive compensation plans. Why is that important? It follows the philosophy that happy agents make the best agents, providing the best service to their clients.

In addition, as more money an agent has available as more he or she can invest in promotional and marketing activities to sell a client’s home. That’s very important for you. On a case by case basis, “Big Box” real estate companies usually have less money available to promote a home. A significant portion of the maximum achievable commission is used to cover their corporate overheads and that automatically reduces the budget for individual promotional activities. It is a numbers game — no matter how you slice or dice it, you can only spend what you have. “Big Box” chains are stretched thinner per transaction and need all the revenue they can get. That’s also one reason why they are less likely to fight for every dollar on your behalf.

But back to the question why are there so many agents working for the “Big Box” chains?

In the world of real estate, in my opinion there are two types of Realtors.

1. A true professional, who is on top of his game, knows a lot, is a specialized expert, understands marketing and can not only explain it, but also execute a successful marketing plan, will give you outstanding customer service, and is well prepared to produce results for you.

2. An order taker going with the flow. Someone that could easily work at a fast food joint, in which case, sometimes your order doesn't come out the way it should. The same in real estate. There are Realtors that will tell you what you want to hear, even if they don't know if the answer is correct or not. They feel more secure being part of a larger chain organization mainly because their background is not entrepreneurial.

Again, there are very good people at both large and small real estate companies. But based on experience and reams of unequivocal consumer reports publicly available, it seems like there are more order takers at the larger chain real estate companies now than ever before.

HOW INDEPENDENT REAL ESTATE COMPANIES COMPARE?

OK, now let’s look at the independent boutique type real estate companies. Nowadays the smaller brokerages and their agents, can offer all the same services as the their “Big Box” competitors, but they also have the opportunity to offer much more, and most do.

Listing a home for sale is incredibly easy. However, implementing and executing a successful marketing strategy, as well as selling the property at the highest price is much more difficult. It requires expertise and know-how. You want a person that knows this and has the experience to do so on your side.

At the independent boutique style “non-franchise” real estate companies agents typically have far more business experience than those in the “Big Box” companies. This expertise also allows them to provide much more sophisticated services and advantages the larger competitors can’t offer. This ability to offer unique methodologies and proprietary services not only benefits clients in the time they save, it also saves them thousands of dollars and adds significant value to the process of selling or buying a home.

WHAT DOES THIS MEANS FOR YOU?

More important than the actual company, is the individual agent you hire. As I described previously, there are some great agents out there, but you will also find many lousy ones. The key is to select the right one for your needs.

So, let’s recap the differences between large “Big Box” and most independent boutique style real estate firms. A large firm has high overhead, many agents that are there often for selfish reasons, and the “Big Box” size really does not provide any advantage for you.

The smaller independent boutique style real estate companies have low overhead, are more flexible, offer more tailored services, are often highly specialized and have agents that are more entrepreneurial, usually with more sophisticated backgrounds, and generally have more years of relevant business and sales & marketing experience. Irrespective of their size, they can make a big impact for you.

It is still your choice on who you pick to help you with your real estate needs, but now you know more about the differences between a smaller independent real estate firm and a large “Big Box” one.

ABOUT:

Michael Turwitt has long represented buyers and sellers in the purchase of fine properties and high value assets. Specialized in extraordinary quality homes and luxury property, Michael Turwitt enables clients to successfully navigate the complex North East Florida – First Coast Real Estate Market. For more information, visit www.turwitt.com

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