Should I stay or Should I go? A question most agents are asking now
Agents, we’ve seen the headlines and we can see the market data - rising interest rates, increasing months of inventory, longer days on market and few bids on open listings - the market is slowing down and has been for some time.
This environment can trigger a number of thoughts about how to position yourself for success in a slower market. Today we want to explore one of the less-discussed but critically important decisions that agents make every day: should I stay at my current brokerage or should I find a company that can better support me in this new market context?
First, let’s look at the numbers in Miami:
*Calculated as licensees with at least one sales transaction & based in Miami (Note: Data calculated as of 8/1/2022)
In the last 9 months in Miami, 21% of agents switched brokerages, which is a huge amount of movement between firms in a short period of time. Historically, agents move significantly more in slower markets given they are less busy and want to position themselves for success when the market comes around so we expect the number of switches between companies to go up in the coming months.
As we speak with members of the Courted network, we estimate 3 agents are considering moving brokerages for every one that does. So extrapolating that to the Miami agent population, some 60% of all agents have at least considered switching to another firm in 2022.
Let’s walk through the key questions to consider when assessing the best brokerage for you:
Should I stay?
While the majority of agents do stay at their brokerage each year, agents are more often than not making a passive decision to stay rather than an active decision. As an agent, it’s hard to forget that you are the one bringing in the clients, the transactions and the commission income to your brokerage.
You are paying your brokerage
As a result, the brokerage should earn the right to keep you every day.
Similarly, you should be excited to be at your brokerage and happy with the support it offers you. In a down market, we’re hearing agents more interested in support than splits. This shift was recently described by Mark McGlaughlin here.
A key part of the agent’s contractual relationship with the brokerage is the Independent Contractor Agreement (ICA). These contracts were initially designed for 1099 contractors to guide key commercial terms between the agent and the brokerage.
While the majority of these contracts allow for the agent to leave at any time and without any cause or notice, in recent years, brokerages have been adding language to these documents to claw-back incentives, such as a marketing budget, assistant contribution or lost commissions, as a result of you leaving before the end of your contract (typically 1-3 years in length).
In some states, such as Florida, under standard agreements, your current brokerage owns your active & pending transactions and that can lead to a difficult situation when trying to leave while you have active client deals in-process. Agents should make sure to understand these terms very carefully, in consultation with an advisor or counsel. For example, renewal language can include hidden terms that can claw back incentives from the original contract. In other words, if an agent leaves before the end of the renewed contract, they would be forced to pay back the incentives they were granted years ago during the original contract. It’s important to understand what you’re signing, so you never feel misled or trapped in a situation you want to get out of.
Real value or inertia?
With the mindset of “I paid my brokerage $X, what did I get for it?” you should ask yourself about the true value that your brokerage provided to your business. What was quantifiable about the support, the leads or the time saved through tools, training or human support that you received? Did you receive the referrals you thought you would from colleagues in other offices? Of course building strong and trusted relationships with agents across the country takes time to develop but it’s worth measuring at the end of each month, how much value did I really get for the commissions I paid back to my brokerage?
Many agents are also overwhelmed by the thought of starting over at a new brokerage, revamping their brand and switching technology tools. These are certainly important considerations but, in practice, many agents are up-and-running in a new environment that is a better fit for them in a matter of days or weeks.
Inertia, the stasis that can occur from not actively asking yourself these questions, can prevent you from accessing opportunities that might result in step-change improvements to your business.
If you’re happy at your current firm and feel that you’re getting the value you’re paying for, our Career Concierge is available to help you confidentially plan your contract renewal negotiation strategy to ensure you’re getting the best deal possible. As a rule of thumb, three months prior to your renewal date is a great time to start planning.
Should I go?
So if you’re part of the 60% of agents who are considering a move to another firm, there are some equally important areas worth considering. Let’s walk through them:
Today, there is a spectrum of brokerages that exist and it’s important you familiarize yourself with the different types of brokerages and what they can offer you.
At one end of the spectrum are 100% split brokerages. These are firms that allow the agent to keep all of their commissions and make money by charging the agents fees that exist whether you produce or not (e.g., desk fee, annual admin fee) and transaction-based fee (e.g., transaction fee, contracts to close fee, marketing fee). These companies have essentially worked to “unbundle” the support of the brokerage so you can pick and choose what you need and there’s a clear price for each service.
At the other end of the spectrum are the high-support brokerages. These companies typically appeal to the aspirational (e.g., early but high-potential) and luxury agent segments. Here you’ll typically see lower agent splits and a variety of included services, such as time with on-staff marketing advisors, branding & logo support, contract-to-close / transaction coordination services and many provide technology (in-house or 3rd party) to help you run your business. As these firms have their own profitability goals in mind, it’s important to understand which of these services are included as part of the split and which are priced separately.
It’s also important to clarify specifics around the service level you should expect for each offering the brokerage provides. For example: how many times per month can I meet with the marketing coordinator? Will they be designing and executing my social media campaigns or will they just advise me on best practices? For firms that lean into their technology offering, it’s critical to understand exactly what that technology provides and how it will improve your business: will it add more leads to the top of your funnel? Will it help you save time? Will the brokerage own my client database if I use their CRM?
As an independent contractor, you never know when the next client is going to complete a transaction. This uncertainty in future client decisions means that it’s imperative for you to negotiate hard in your ICA.
The key terms to consider are: contract duration, split, royalty (this exists at franchised firms and can be calculated “off-the top” - i.e based on the Gross Commission Income - or “off-the-side - i.e., based on your take home commissions - ), marketing incentives, cash incentives, stock/options incentives, fees that you are required to pay, fees that you can choose to pay for services and claw-back terminology if you leave.
We also recommend performing a “take-home-pay” calculation to understand both what you should expect to make and pay yourself so can appropriately budget under different scenarios of your future production. Understanding what the brokerage is making - or losing - on your proposed commission structure is a helpful way of understanding your worth.
Many agents are looking to join firms for other reasons, such as the quality of agents at that brokerage. It’s important to figure out how much collaboration, co-broking, mentorship and referrals occur if this is a key part of your decision-making. Agents often talk about the culture of their brokerage and how valued they feel - it’s important to make sure you have access to success stories and direct peer feedback to ensure that you have the right expectations moving forward. You can also use Courted to connect with agents at your target brokerages to learn about their experiences.
How do I actually move?
This article is truly skimming the surface of the complexities and nuances associated with brokerage dynamics and how they can affect your business. We recommend a three step process to ensure you are well set up for success:
- Regularly check-in with yourself to assess the value provided by your current brokerage. At the very least, perform this evaluation 3-6 months before your contract anniversary date.
- Speak confidentially with a Courted Career Concierge coach. This is a free service to agents to help you understand your options and limitations based on your current agreement, develop a short-list of brokerages and teams that could position you for success and get you 3 offers in 3 days.
- Once you have received the offers, speak to agents at your target brokerages and most importantly, speak to agents who have chosen to leave your target brokerages. This is a great way for you to have a more balanced input into your decision-making process.
Given this is a process that is both critical and one that you should embark on regularly, our Career Concierge is open and available to help you at any point in your consideration and evaluation process. We’ve helped many agents find their dream brokerages in the past two weeks alone - take a look at Ruben Chamorro and Rob Fuller’s success stories to learn more.
We’re also helping established team leaders find great team members and vice versa. We will explore team building and finding the right team in a future article.