In November, Today’s REALTOR®brought you an exclusive excerpt from Real Estate Confronts Reality, a book that prophesizes the likely future of the industry. Written by industry observers Tom Dooley, Stefan Swanepoel, and Michael Abelson, it includes interviews with business movers and shakers on such topics as the consumer of the future, the role of the NATIONAL ASSOCIATION OF REALTORS®, the impact of major brokerage operators, such as HFS Inc., and the wave of company consolidations. And the writers analyze how these industry-shaping developments fit together.
In this installment, the authors examine the impact of RE/MAX’s compensation practices on the consolidating of the industry.
In the late 1970s and early 1980s, as RE/MAX Real Estate Corp. established itself as a national participant on the real estate scene, many regarded the notion of awarding a salesperson 100 percent of a commission (after collecting a monthly administrative or desk fee) as a passing fancy destined to collapse faster than it was launched. They thought a franchise structured on such an arrangement a foolhardy endeavor.
They were wrong on all counts.
RE/MAX has not only grown and prospered. It has also reset the operational mode for most of its competitors along the way.
Brokers witnessed many of their top-level salespeople transferring to a RE/MAX office, where they could receive what they perceived to be their fair share of compensation, and, in effect, run their own show in an environment devoid of newcomers and subpar salespeople.
To protect their own most valuable asset–productive salespeople–RE/MAX competitors quickly adopted their own version of the 100 percent concept. Those who continued to reject the notion of the 100 percent concept nonetheless needed to protect their sales ranks. They altered commission structure, often increasing the share paid to salespeople to 60 percent, 70 percent, 80 percent, or even higher, all the while continuing to offer and pay for support services and mechanisms.
The net result on the industry as a whole has been to elevate the importance of successful salespeople and to tilt the financial rewards in their direction and away from the brokerage and its proprietors. Thus, RE/MAX has long been regarded by many competitors as a major cause for the decline in profitability. As one well-known independent owner once put it, “RE/MAX has taken all the fun and profit out of real estate.”
To be sure, many leading companies have realigned their profit picture upward. They assess various charges to the salespeople previously handled by the company or develop a sizable segment of company-generated business, which they then assign to salespeople at a substantially reduced commission split. But many companies didn’t recover and saw red ink splashed vividly across their income statements, resulting in their merger, sale, or outright liquidation.
Both groups freely admit that RE/MAX reconfigured the playing field.
Tom Dooley, president of TWD & Associates, a real estate consultancy, is cofounder of The Dooley/Dahlheimer Report and a regular contributor to Today’s REALTOR®. Stefan Swanepoel, author of four real estate books, was the director of strategic planning for ERA until leaving in February to become president of U.S. Digital Corp., which develops real estate and mortgage technology products. Dr. Michael Abelson, consultant and author, is president of Abelson & Co., which is based in College Station, Texas, and specializes in real estate management and profitability; he’s also a professor in the Department of Management at Texas A&M University.
Excerpted with permission: Real Estate Confronts Reality, by Tom Dooley, Stefan Swanepoel, Michael Abelson, ©1998. Published by Real Estate Education Co., a division of Dearborn Financial Publishing Inc., Chicago. All rights reserved. (Available in January 1998. 216 pp. $24.95. 800/428-3846)