The real estate market is cooling but agent recruiting is hotter than ever
Brokerage leaders, we’ve seen the headlines and the market data. The market is slowing down and has been for some time. This environment can trigger a number of thoughts about how agents need to position themselves for success in a slower market.
While the market might be slower for your agents, we believe that recruiting is a huge opportunity for you right now. Today, we will quantify the opportunity resulting from increased levels of agent movement between brokerages, explore different recruiting organizational options, and discuss how to effectively recruit for growth and profitability.
First, let’s take a look at the numbers in Miami, which should be representative of most major real estate markets in the United States.
*Calculated as licensees with at least one sales transaction & based in Miami (Note: Data calculated as of 9/30/2022)
In the last 9 months in Miami, 21% of agents switched brokerages. This is a staggering amount of movement between firms in a short period of time. With a view toward history, this trend is actually expected given agents are more prone to move in slower markets because they’re less busy and want to position themselves for success when the market comes around. 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 consider switching brokerages for every one who does. This implies some 60% of all agents in Miami have at least considered switching to another firm in 2022.
Most agents, including those on your team today, are projected to produce significantly less in the next 12 months as compared to what they brought in in 2021, a banner year. Furthermore, the agent migration observed in recent months suggests that it would be wise to assume that several of your own agents are considering if not preparing to leave your team in the coming months.
But rather than viewing agent migration as a headache to deal with, we suggest that you get on the offensive and use recruiting as your core lever to achieve your 2023 revenue and profitability objectives.
As many agents have fewer active listings & pending transactions and the majority are contemplating how they achieve long-term success, now is the perfect time to invest in recruiting.
Let’s walk through the key questions to consider when thinking about how to make recruiting your focus:
How are companies organized for recruiting?
In real estate today, we have observed two main types of recruiting organizations: local and centralized. Here, we discuss the benefits and challenges for each.
This type of recruiting is usually performed by office managers and sales managers. These individuals cover many different functions inside of a firm like managing the office, overseeing agent support, implementing new technologies, training agents, managing financial operations, and retaining agents, to name a few. In spite of the importance of agent recruiting to brokerage revenue growth, managers typically spend less than 15% of their time recruiting agents.
When recruiting agents, managers tend to focus on the candidates they have the best chance of converting into new hires. Given the highest conversion rates in recruiting come from personal connections and warm candidate introductions, managers typically keep short-lists of agents they personally know while also soliciting their own agents for candidate recommendations.
Managers are some of the best closers. They are the ones who will develop a relationship with that agent and support their growth over the long-term. However, because they have many other responsibilities, it is hard to build a consistent pool of quality candidates at the top of the funnel. It’s also difficult to find the time to prepare for each meeting with a personalized pitch to each candidate.
With locally-run recruiting, managers are constrained by the time they have allocated to recruiting and their own ability to source warm introductions from their agents systematically.
This type of recruiting tends to take place in larger firms, where recruiting is considered one of the core pillars for top line company growth. Certain brokerages, like Compass and eXp, have placed significant resources and incentives behind agent recruiting.
The activities tied to recruiting are performed either by sales managers who are enabled by a centralized recruiting function that provides names for managers to target, or by dedicated recruiters who sit at the regional or office level. Many of these brokerages also offer stock and cash incentives to their agents to bring others on board.
The goal of centralized recruiting is to systematically identify which agents present the most exciting revenue and profitability opportunities for the local managers. This is done today by analyzing the historical production of agents. Certain firms that place an emphasis on internal culture will also screen potential candidates for their “fit” or likeability with their existing agents.
The challenge with this type of recruiting is the software tools available to these recruiting organizations do not identify the best candidates to target and do not speed up the time it takes to prepare personalized outreach.
Pulling agents by historical production alone is likely to produce a list of agents who have high expectations of split and who are already being called by all of your competitors. Similarly, agents with full inboxes will frequently ignore generic emails. Further complicating things, many agents who recently experienced sales volume growth are unlikely to replicate their success in the future (a topic we’ll cover in more detail below).
What are recruiting best practices?
Now that we have identified how different companies are organized around recruiting, we want to dive into best practices that can be a game-changer for your recruiting.
Mine your network & take advantage of your connections
When it comes to recruiting, cold outreach produces the lowest conversion rates and the worst outcomes - Courted research suggests that less than 1% of candidate outreach results in agents switching brokerages.
It is crucial to keep in mind that there is a large and ever-growing network of candidates that are connected with your brokerage - your agents are constantly working with or “cooperating” with other agents on transactions.
The opportunity here is to use these connections to build your recruiting pipeline. Technology is needed here to keep track of this network as it grows and evolves each day. Tapping into this existing network provides managers & recruiters with a great opener for their outreach by being relevant and personalized, which brings us to our next point.
Agents are constantly inundated with calls and emails from managers and recruiters from brokerages who are looking to bring them over. These messages are most often generic, not personalized or targeted.
For example, one CEO of a brokerage we know received an email from a recruiter asking him to switch firms - this was clearly a generic email blasted to hundreds of people holding a real estate license. Generic outreach is not only ineffective for recruiting, but it also can generate negative brand awareness for the brokerage doing it.
Managers and recruiters struggle to invest in personalized outreach due to a lack of time. Researching candidates’ backgrounds, preparing highly personalized communication, and delivering it to the candidate takes a lot of time.
Again, technology is needed to help the manager or recruiter prepare for this outreach quickly. It is possible to efficiently arm the recruiter with talking points - both relevant to the candidate and specific to the opportunity that switching brokerages presents. Data can be a very powerful asset here - e.g., explaining the actual growth in agents’ businesses after joining your firm, or congratulating the candidate on being top 5% in average sales prices for townhouses in the local zip code last month.
Identify candidates who will grow in the future
The main reason why agent recruiting is so crucial is because agents bring a future revenue stream when they bring 95%+ of their clients with them when they move to a new company.
Let’s think about it in terms of the stock market: you want to buy stocks that are undervalued and sell them when they are priced higher. In real estate, the same principle applies: finding the right agents early and supporting them as they grow is key to sustainable, profitable revenue growth for the brokerage.
The earlier in their trajectory you find agents, the better your agent-level profitability will be given the realities of split dynamics (where split expectations rise as sales volume rises). On the other hand, this means that top producers (with higher splits) contribute lower profit, on a percentage basis, to the brokerage.
The vast majority of managers and recruiters use existing software to analyze the last few years of production and draw a trendline into the future. Unfortunately, historical agent production is not a reliable indicator of future sales volume. As you can see from the chart below in which agents are represented by the dots, individual agent sales volume fluctuates dramatically from year to year - sales volume change in 2020 did not reliably explain 2021 sales volume change. This means that recruiting agents based on last year’s growth is not enough to guarantee you future revenues as a brokerage. Further still, there’s a resulting danger in recruiting agents who just had the best year of their career by offering them a top-tier split, only to have their business shrink alongside your profits.
*Sales Volume analysis for Miami Realtors, 2020-2021
So how can you focus on recruiting agents who will actually grow next year and the year after that? There are now advanced analytics techniques that can be extremely powerful for this specific purpose (think of the same types of models that attempt to predict home prices or a homeowner’s likelihood to sell their home). We’ll explain how you can take advantage of this below.
Finding agents at the right time
Another big question is, how do we know when agents are willing and ready to leave? An agent could ignore your phone call one month, only to switch to a competitor the next month. Timing is crucial. Getting it wrong results in low candidate conversion rates.
From a contractual perspective, there are times when it is easier for an agent to switch brokerages - we’ll review two right now.
- When agents have no active listings or pending contracts, they can avoid a messy fight with their current brokerage over who owns that client relationship. In certain states, the current brokerage may own those listing agreements or pending contracts which could result in the agent missing out on compensation from their client.
- When agents are a few months away from their contract anniversary dates. Given some brokerages offer incentives that are subject to claw-back policies, agents signed up on these types of Independent Contractor Agreements (ICAs) could be forced to pay back lost commissions, marketing incentives etc. if they were to leave prior to the expiration of their contract.
Technology can be used to identify both of these situations as well as other events that trigger more agent departures from a given office, such as a manager change, or departure of a top producing agent or team.
How do I recruit the best agents for my firm?
Recruiting agents is critical to top- and bottom-line brokerage success, and it’s almost always required to maintain revenue given the scale of agent migration between firms & uncontrollable macroeconomic cycles.
We reviewed some considerations to keep in mind when organizing your recruiting function and setting up your recruiting operations. The last step we recommend is to use modern technology that is built specifically for your recruiting purposes.
We have created Courted Talent Solutions. Our software brings predictive modeling & advanced data science, insights derived from a powerful agent network, and easy-to-use tailored solutions to brokerages to unleash next-generation recruiting. Our platform goes above and beyond any other technology available to brokers, managers & recruiters today through:
- Custom matching. Discover the agents who have a lot of connections to your office and would be a great culture fit. Learn who has worked with your agent in real-time and be the first to congratulate those you might want to recruit.
- Predictive growth modeling. Our best-in-class data science team has created "Moneyball for real estate" - easily identify the rising star agents that you can recruit today at an attractive split and capture profit as they grow.
- Predictive attrition modeling. Understand which agents are likely to switch brokerages in the coming months and why - whether it’s a contract anniversary date, a lack of pending sales, or negative momentum at their current brokerage.
- Advanced analytics. Available at the agent, office, and brand level. Bringing you beyond GCI and sales volume, understand the broader picture through proprietary stats like momentum and side-by-side comparisons.
- Clean, easy-to-use interface. Whether you have 30 minutes or all day to spend on recruiting, we make it simple to understand how to effectively spend your time.
Does someone else handle recruiting in your firm? We’d love to speak to them as well. Please email us at email@example.com.
This article was written by Sean Soderstrom. Sean is the co-founder & CEO at Courted. Previously he led national expansion & growth at Compass and was an Associate Partner in McKinsey & Company’s real estate practice.