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Are Teams Eating Real Estate?

[Editor’s note: Originally published on Medium]

Some Questions Industry Leaders Might Consider

In August, 2011, venture capitalist Marc Andreessen coined the phrase “software is eating the world” in an iconic article published in the Wall Street Journal. In it, he put out a theory that we were in the middle of a dramatic and broad technological and economic shift in which software companies were poised to take over large swathes of the economy.

Fast forward to November, 2018 when Alex Rampell, one of Andreessen’s partners at A16Z, gave a presentation entitled “When Software Eats the Real (Estate) World” in which he laid claim to the premise that larger companies who can truly leverage technology will have a significant value proposition over traditional agents.

One can make their own assessment of how accurate Andreessen was in his perspective about software companies generally or Rampell’s predictions for the real estate space.

While maybe not as sexy as venture-funded startups using technology to eat something, there is another significant trend in real estate happening right now that may have broader and more systemic long term implications on the industry.

The undeniable growth of agent teams.

Consider these stats courtesy of RealTrends. In 2011, the top 250 individual agents produced approximately 45,000 real estate transaction sides compared to approximately 61,000 for the top 250 agent teams. At that time, these top tier agent-led teams were responsible for about 1/3 more transactions than group of top individual agents.

By the end of 2017, the top individual agents had grown annual transaction count to approximately 51,000, an increase of about 13%. During that same seven-year period, however, the top agent-led teams increased aggregate transaction count to 133,000, an increase of approximately 115%, more than 9X the transaction count growth rate of the top individual agents.

And the production gap continues to widen. From 2016 to 2017, the top individual agents modestly grew transaction count from approximately 49,000 to 51,000 sides. Compare that to the double-digit growth of top teams which went from 118,000 sides in 2016 to 133,000 sides in just one year.

At last count, the top agent teams were now producing nearly 3X the number of transaction sides controlled by the top agents!

Are these just “top-producer” statistics (remember these numbers compared the top 250 nationally in each category), or is team production growing across the board? To help answer this, let’s look at the recent comprehensive Teams Survey published this past October by the NAR.

According to the survey, twenty-six percent of respondents self-identified as members of a real estate team. While that number may not catch your immediate attention, keep in mind that NAR membership today is about 1.3 million. Of that number, a significant number (some believe as many as 50%) are unproductive and do little, if any, business.

Teams are, by definition, made up of productive agents. While a group of non-producers could join in order to not produce together, seems an unlikely occurrence.

So, with some simple math, we might extrapolate that the 26% of NAR members who are part of a team are responsible for well more than a quarter of aggregate transaction sides today.

Another interesting note from the survey. Respondents indicated that the median year their real estate team was established was 2014, with most of the respondents having joined their current real estate team in 2016. So, it’s clear that team formation growth is a new phenomenon. And, while I have not seen national data on team formation growth rates, this survey data and my own anecdotal observations tells me that the rate of team formation is rising significantly.

Unfortunately, we don’t (yet) have definitive national statistics on the relative production of all teams vs. all individual agents. That said, it would be unwise to not acknowledge that teams are accounting for a significant amount of national transaction sides and that it may only be a matter of time (if we are not there already) when teams will be responsible for the majority of U.S. real estate transactions.

So what? Why does it matter that teams may be accounting for more and more of industry business?

Simply put, the impact of a new and powerful collective on the real estate ecosystem.

What I’ve learned in my 30 years working across various segments of this business is that the industry works through a (mostly) constructive tension among various historically defined groups. Whether in the form of market share, broker/agent splits, franchisor/broker relationships, ownership of data, REALTOR association governance and politics or MLS rules, the industry is a microcosm of “Push Me-Pull You” tug-a-wars which generally keeps it in balance allowing each group to have a voice and a place.

Today, teams and more importantly team leaders are not part of any defined industry “group.” They are too new and until very recently not recognized as being a significant voice in the market.

Let’s envision, however, a future where 60–75% of all transactions are performed by agents on a team run under the control of a team leader. Today, many of those team leaders are acting less as individual producers and more about managing a consumer sales/service organization. They do not fit nicely into the historical box of either brokerage firm or individual producing agent. If that future were to occur, it is quite possible that this new collective will want to assert power and influence to further their business interests in ways not previously seen.

To be clear, my intent here is not to make statements either in favor or against the growth of teams, whether the growth of teams is good or bad for the industry (or any particular group) or to suggest specific answers to questions that may be appropriate. My intent IS to get organizational leaders thinking about an industry dynamic that might be very different than the status quo and to consider various questions that might be discussed as organizations look toward the future.

While there are many industry groups that could be affected by an industry dominated by teams, I have focused on three; brokerage firms, REALTOR associations and Multiple Listing Services.

Brokerage Firms

The most direct impact on the industry would likely be the relationship between team leaders and their brokerage firm. As we know, top level gross commission rates are dropping and teams are gaining more market share which translates into more negotiating power with their brokerage on splits. That leaves the brokerage in a precarious economic position between consumers who are paying less and team leaders who want to make more. Despite the recent growth of teams, many brokerage firms today still view their primary customer as the individual agent and with the challenging economics, have not developed a robust value proposition for team leaders.

A few of the questions that brokerage firm leaders may want to ask themselves include:

· How do I create a sustainable economic model that caters to the needs of teams and their leaders and still allows the brokerage firm to operate profitably?

· What products and services might I deliver that are specifically targeted to teams?

· How can my brand and the team brand work synergistically?

· What space requirements do teams want and how does that match with my current footprint?

· Can I build an offering that is highly valued to teams while also being valuable to individual agents, or do I need to consider a teams-only model with a completely different economic structure?

REALTOR Associations

Not to be left out of discussion, the NAR and its network of state and local REALTOR associations may also be impacted by this team growth trend. For decades, there have been two defined and recognized “groups” in the REALTOR structure. Brokerage firm and agent. And each has the opportunity for voice and influence at all levels.

Today, to my knowledge, there is no specific acknowledgment of the role that team leaders play within the REALTOR world. As teams gain in national presence and collective strength, I suspect that team leaders will begin to ask “what about us?” The risk of ignoring them could result in the formation of a new association that specifically caters to team leaders, something that would be detrimental to the industry’s constructive tension described earlier.

A few questions that REALTOR association leaders may want to ask themselves include:

· What specific value proposition do we provide to team leaders, recognizing the different role they play vs. the traditional broker and individual agent?

· Do we need to create separate committees that provide team leaders with a collective voice (e.g. NAR has a committee for the top-75 U.S. brokerage firms)?

· Is the historical dues formula that ties individual member dues to a Designated REALTOR still appropriate or might that be modified to take into account the much higher degree of control and responsibility that team leaders have over the members of their team?

· What type of education programs do we provide that may not only support, but might even encourage, the formation of teams?

· Does the Code of Ethics need to be reviewed to take into account the role of the team leader relative to other REALTORS and the public?

· Does the association governance structure need to be analyzed to specifically provide a voice and place for team leaders?

· Should associations lobby federal and state government to create laws and regulations favorable for teams?

Multiple Listing Services

Historically, MLSs have recognized two distinct groups. Broker (the MLS “Participant”) and agent (the MLS “Subscriber” under the Participant). This hierarchical paradigm is based on the fact that the broker “owns” the listing relationship between the firm and consumer as well as the legal right to collect commissions and the individual agent operates only through that legal construct. Today, team leaders fit somewhere in between this historical Participant/Subscriber paradigm. While the broker still maintains the legal relationship, the practical control over listings is more and more the province of the team leader as is control and oversight of team members.

A few of the questions that MLS leaders may want to ask themselves include:

· Should the MLS deliver technology products and services targeted only at the unique wants/needs of team leaders?

· Should team leaders have their own relationship category with the MLS that acknowledges their role in leading a “micro-brokerage” organization?

· Should the MLS recognize the market power that teams wield vis a vis their brokerage firm and include them in the formal MLS governance structure?

· Should access to MLS data and IDX and VOW rules be modified to take into account the role of the team leader and her team?

· Should MLS rules and regulations be reviewed to better acknowledge the role of teams in the local market and provide greater responsibilities for team leader oversight?

Again, the answers to some or all of the above questions might well be “no”. Maybe the seismic growth in team formation and market share will suddenly stop and the industry can ignore these questions and address the myriad of other issues on its collective plate. Or just maybe, team growth will accelerate and brokerage firms, REALTOR associations and MLSs will be faced with an industry dominated by teams bringing with it a new base of power and influence.

Are teams eating real estate? Only time will tell but I hope industry leaders will recognize the importance of this trend and engage in proactive and open discussion about how it may impact their respective organizations.

The post Are Teams Eating Real Estate? appeared first on GeekEstate Blog.

 As an agent who's an expert in this local area, I bring a wealth of knowledge and expertise about buying and selling real estate here. It's not the same everywhere, so you need someone you can trust for up-to-date information. My background consists of a variety of talents & interests, from History to computers & Outdoor activities. On my free time you’ll find me golfing, hiking, tending to my Ranch, or spending time with my Family. I enjoy researching a multitude of subjects, music, real estate & web development, to name a few. My personal goal is to help my clients buy or sell to make their real estate dreams into realities. There is only one constant in real estate, service wins.   I am passionate about providing a level of service that stands out from the competition. Exceptional service doesn't necessarily mean working more hours, it means leveraging technology to work smarter. Finding out what best works for my client's needs.   There is no better feeling than helping a family find their perfect home.   Serving Cochise County and Beyond!!

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