Increasingly independent real estate agencies
Nonaligned real estate brokerages see growth, say reduced fees attract agents
Mike McLeanJune 5th, 2014
Some independent real estate brokers here say their agencies are growing rapidly despite not having the brand recognition of regional and national franchise operations.
Dan Lysek, co-owner and designated broker at Spokane Valley-based Live Real Estate LLC, says he and nine other agents started that independent brokerage in September, and since then it has grown to 34 agents.
“We’ve had amazing success as far as agents joining us from other firms,” he says. “We’re offering a financial package that’s significantly more attractive to the agent, because we don’t have a lot of costs that franchise firms have.”
Lysek says Live Real Estate has no franchise or transaction fees, and compared to the big franchise brokerages, it takes a smaller share of commissions from its agents’ transactions.
The agency also derives its revenue from a monthly fee it collects from each agent, he says. He declines to disclose the monthly fee amount.
The commission split at the independent agency is advantageous to agents compared with commission shares that typical franchise agencies retain, he asserts.
“It’s better than the industry standard,” Lysek says of Live Real Estate’s commission split, adding that the agency is prospering on volume rather than on margin.
He says franchise operations typically retain 30 percent to 40 percent of transaction commission. On top of that, a royalty fee of 6 percent to 8 percent of the commission often goes to the corporate office of the franchisor. Some franchises also charge agents an additional per-transaction fee of $150 to $200.
Under the Live Real Estate model, agents with 20 or more transactions a year could realize savings of more than $20,000 a year compared with the typical franchise model, Lysek asserts.
Melissa Murphy, founder and broker at Murphy Group LLC, which does business as Prime Real Estate Group, says the independent-agency model is more affordable for her and for Prime Real Estate agents than the franchise model.
“I was able to minimize costs while having more control over marketing and what I can do,” Murphy says, adding, “I’m not paying franchise or higher brokerage fees. If you’re an established, high-producing agent, you can do it effectively through your own company if you have the right pieces in place.”
Since Murphy launched Prime Real Estate with four agents two years ago, the agency—located in 2,000 square feet of office space at 417 W. First—has grown to 20 licensed agents, most of whom worked with her previously or have come to the agency through referrals from other agents.
Joe Kelly, a former Seattle real estate broker, returned to his native Spokane a few years ago to make a fresh start here with Soleil International Inc., an independent brokerage.
Today, Soleil, based in a 2,600-square-foot house at 2428 N. Hamilton, has 93 agents here and 14 in North Idaho, making it one of the largest real estate agencies in the Spokane area, Kelly claims.
Kelly says agents conduct 95 percent of their real estate-related work out of their homes or cars, and that reduces building overhead costs for independent agencies like Soleil that don’t need to provide permanent office space for each agent.
“They can still keep some office hours in our conference room or workstation,” he says.
Soleil also recently opened a Seattle office, which has 25 agents, and is planning soon to open an office in Portland.
“Then, basically, we’re going to head south to California,” Kelly says. “If that works, we’re going to seek a larger investment group—maybe an institutional investor—and go national.”
All of the offices will be corporate owned, Kelly says.
“We’re not going to do franchises,” he says. “The franchise model doesn’t work that well for us.”
Soleil charges agents $79 a month, and agents keep 100 percent of transaction commissions.
“In most places, brokerages take a significant chunk of the commission,” he says.
Soleil provides agents the services of a designated broker and other management, technical, and staff support, Kelly says.
“It’s a good model, and things are shifting toward this model,” he asserts.
The business model evolved during the Great Recession. “Agents needed to keep more commissions on fewer deals,” Kelly says.
The market here has improved since then, and Soleil has seen more than 500 percent growth in annual revenue over the past few years, he says.
While the Spokane residential real estate market has stabilized, Soleil’s market share continues to grow, he says.
“We’re seeing more closed deals,” Kelly says. “Last year was good, and this year will probably be around 10 to 15 percent better.”
Kelly says he expects more independent real estate agencies here will adopt a business model similar to Soleil’s.
“This model is more prevalent in Seattle where they’ve been doing this for years,” he says.
Soleil, though, is a pioneer in providing an option to couple reduced fee, wholesale-rate mortgages, with home real estate purchases, Kelly claims.
“We charge a $999 origination fee and have wholesale par pricing,” he says. For example, last week, Soleil offered 30-year, fixed mortgage rates as low as 3.9 percent.
Kelly, who has been a licensed mortgage broker for 20 years, says he created Soleil’s home-loan division to facilitate real estate sales.
“A real reduced fee structure and reduced interest rate kind of drives real estate transactions,” he says.
Prime Real Estate’s market share also is growing, Murphy asserts, while the overall residential real estate market is “stable and steady.”
Despite the recent growth reported by some independent agencies, the franchise model is still running strong, says Melinda Denton, a principal at Coldwell Banker Tomlinson, one of the largest residential real estate franchise operations in the Inland Northwest.
Denton contends the advantages of a franchise affiliation more than offset the costs.
“We’re partnered with a brand recognized around the world,” she says, adding that the Coldwell Banker name attracts visitors to its website and its agents.
“The public knows who we are and they know the quality of service,” she says, claiming that Coldwell Banker offers support through advertising and technology that’s beyond the reach of smaller agencies.
“I know when we went from a regional agency to an internationally known franchise, we were amazed at the number of leads that came through the office compared to individuals trying to get traffic on their own,” Denton says.
Marketwide, transaction numbers are up, and sales prices have been edging upward as well.
The Spokane Association of Realtors reported 1,395 homes sold through its Multiple Listing Service through April, compared with 1,389 homes sold in the year-earlier period. The median price of a home sold through the MLS in April was $169,300, up from $160,300 in April 2013.
“It’s a traditional market—without the crazy peaks of 2005,” Prime’s Murphy says. “Most signals say we should be in a good spot this year.”
Murphy says technology is a great equalizer for independent agencies competing with larger companies and chains.
“Everybody has the same access to information with less reliance on brick-and-mortar offices,” she says.
Live Real Estate’s Lysek says technology also helps reduce overhead costs.
“The vast majority of real estate agents prefer to work out of their homes,” he says, adding that only five real estate agents are based at Live Real Estate’s 2,000-square-foot office, at 12120 E. Mission.
The rest of the agents are based mainly at home offices and only come in to drop off paperwork or pick up commission checks, he says. All agents, though, can meet with clients in the reception area and conference rooms at the office, which Lysek describes as upscale and professional.
Lysek says he’s found that home sellers identify with individual agents rather than the agencies they work with.
“The connection with the agent is usually through a referral from a friend or family member,” he says. “It doesn’t matter if it’s a red, green or blue sign. The relationship with the agent is what’s important.”
Lysek says Live Real Estate attracts experienced agents with better financial compensation.
“With any franchise model, some fee is going to the head office of the franchise,” he says. “That pays for some corporate salaries and advertising. We don’t have someone from Seattle, California, or Texas telling us what we have to do for advertising and what we’re going to pay for it.”
In theory, Live Real Estate gains brand recognition locally through its agents and listings, Lysek says.
“Once we have a higher number of agents and a higher number of listings, that will be our branding,” he says. “The public will automatically see our signs all over. It will happen naturally instead of buying branding.”
Lysek predicts the independent-agency model will become the norm in another five years.
“It’s catching on,” he says. “As people see that we’re stable and we’re here to stay, we’re getting more interest. Those who aren’t financially competitive will be on the outside looking in.”