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Commercial Real Estate Broker Splits. Stealing From The Rich To Get Rich.

money1

I don’t think there is too much secrecy about the commercial real estate brokerage model.

A typical brokerage has most of it’s “brokers” on a 50/50 split.

It starts at 50/50 up to a certain level of revenue and then it usually escalates to 60/40 and then to 70/30.

But there is, of course, a “desk fee.” Depending on who you ask and what market you are in that can run from 20-50 thousand dollars a year.

So just to be “at the company” it’s salty to even hang your license.

Most brokers pay for their marketing and tools….unless they have to use “the companies” internal platform. Which of course they pay for.

It still amazes me how often I’m asked what it takes to get started in commercial real estate. People want in.

They see those big numbers attached to the deals and transactions then do a simple math equation. It makes their skin tingle.

I wonder how profitable commercial real estate brokerages are compared to say a residential brokerage?

The key component for the big hitter commercial real estate brokerages is to use those transactions to create income from asset management. It’s a kick ass model don’t get me wrong. Residential can’t get near that; they have no chance.

It makes you think. Are the brokerage pieces of commercial real estate a profit center for the companies overall?

So if they are then why the draconian splits.

What are the real sources of overhead? Office space. Technology tools. Staff. Could the cost of business be that much?

Yea, I know the one big cost for most is The Dark Star.

Yes, I know that inventory and data control = market share or, at least, the ability to compete for it. Without it is there no chance?

Big hitter brokerages use the argument that you are you because we made you. The minute you leave you are no longer the big hitter we made you. Therefore, that’s why we take the split. It’s “found” money to you. Without our brand, there is no deal.

You could put up the argument that the people make the brand. And I’m sure that’s what you would hear from most of the top executives. “it’s our people that make our company great.” Then why not pay them as the valuable assets they are?

“It dosesn’t help the bottom line?” I’ve heard certain people call brokerage offices “cost centers.” It doesn’t sound like any humans are there. It sounds like a place where the money goes from the corporate office to burn.

If you hear that someone is on a greater split, there is the perception that they are somehow less of a professional. Think about that. That is fucking brilliant marketing from the people who control the splits. You make more but are a worse professional for doing so.

Can’t believe I’m doing this but using a sports metaphor to help explain my point.

If Mike Trout and Bryce Harper were to perform the same and be as many, believe two of the best in the game and are paid for that performance (according to the CRE thought process) they are the two worse professionals in baseball. Let me repeat that. They are two of the best and make the most money, but they SUCK as professionals because they are so damn good and get paid.

Sounds absurd.

It is absurd.

BUT not in commercial real estate.

I’m going to call Bryce Harper and say “bro, you are one of the best, but you are killing the game because you make so much money. Next year we go back to the minimum base salary of all baseball and see if you can do it again. Oh, and, by the way, I’m going to take half of all your money because I own the field the bats and the balls.”

What do you think his reaction would be? You can probably figure that out yourself.

“But, but, but Duke that’s not our system. That’s not how it works.”

(If you own a brokerage right now how fast and hard are you going to try and make sure none of the people in your office read this.)

You know what you’re wrong. The system is already in place and seems to be working just fine.

Still stumped?

It’s called residential real estate.

Think of the biggest hitter residential broker in your market. What is the split that he or she is on?

I’m pretty sure it’s 90/10 with marketing credits and incentives to bring in even more deals.

Take a guess at what kind of money these people are making in let’s say the big markets on the east and west coasts.

Do the math. Do the math with your production from last year.

That’s how much more money they are putting in their pocket that you do not.

Don’t bullshit me with the structure of the deal and the data being so much different.

Do you know that there is NO MLS system in New York?

NO MLS in New York.

How in the hell do they do it?

They do it pretty damn well in one of if not the biggest real estate markets in the world.

And they make bank. Major League Bank!

Access to inventory my ass!

I have yet to see any justification for the present system…….other than pure greed and profit.

Is that just doing the business of business?

How about this?

Walk into your managing brokers office and ask to see the books.

The real books. The one’s they show the IRS.

What do you think that reaction will be?

How much money are you making “the company.”

Of course, they pay for things. They pay for things with your money.

Side story: Guy does the most business in the office, and gets’s recognised for being the number one user of the companies tools and assets. The company makes $150K profit from that use. The guy gets a plaque and a $25 Starbucks card.

When you go home, tonight sit down and add up your dollars taken home over the last five years.

Do the math.

If you were on a 90/10 split instead of the industry standard all that time what is that number?

It’s a HUGE number.

Write that number in bold on a clean sheet of paper and show it to your significant other.

Tell them this is what you left on the table…..for the company to keep instead of you.

Don’t have the balls to do it?

That’s the problem, and you don’t even realise it because…

Commercial Real Estate Broker Splits. Stealing From The Rich To Get Rich.

 

+1 Makes you want to run out and do more deals right?

 

 

 

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  • nadinac

    More comparable facts: In some shops in Arizona, residential brokers pay -0- split, just a per transaction relatively small fee. In my shop, KW Commercial (commercial subsidiary of Keller Williams), I pay a 70-30 split with a “cap” at $20K per anniversary year (residential agents cap at $15K). After $20K to the shop, I get 100% for the rest of my anniversary year. I do pay for my very reasonable monthly membership in KW Commercial but for it I get ClientLook (and its strategic alliances), Buildout, ProspectNow, REIS, a personal web site, branding, training, training, training, transaction forms and checklists (newbies need them), access to a corporate-based team to facilitate in serving national multi-site clients, an online transaction portal, HUGE discounts on marketing materials and services, a discount on Xceligent.com, narrpr.com/commercial (free w/my NAR membership) (and its strategic alliances including STDB), 200+ residential agents in my office who make commercial referrals to me, profit sharing from the productivity of other agents I have recruited (lifetime after 5 years w/KW), access to handsome conference rooms and gracious, helpful receptionists in every Keller Williams office in all parts of the market. I have a waiver on subscribing to the MLS because I do not do any residential (I just made a referral to an office residential team to sell 9 $750K-$1Million new build homes in a small subdivision with more subdivisions in the pipeline). And I get to work in my home office, set my own goals and timetables, be my own boss (KW calls it — and facilitates — “building a business within a business”) and not have any corporate seniors hovering over me about productivity.

    I have a KW Commercial colleague who was a KW Commercial member, then migrated to the Phoenix office of a national institutional commercial broker because they have a big national team focused in his product specialty. He brought a significant book of business with him (oh, that’s right — in KW Commercial, YOU own your book of business, not the shop!). Only to learn that his book of business was no longer considered to be his and that in addition to a 50-50 split, he had to split part of his half with some “team leaders” on the east coast who had nothing to do with my colleague’s transactions. He is back at KW Commercial. Ask any KW Commercial agent/broker for more info: we are all recruiters.

    • Fletcher Baldwin

      Seriously,I want to party with this guy. Sign me up.
      Just one question, how do you compete for institutional deals? Or do you have a different sweet spot?

      • They don’t…and can’t. KW Commercial and many similar in the bay area haven’t made it to the top 10 or even top 20 in 100 years. I know, I know, it’s a scam and the big companies are keeping them out because they’re afraid. Numbers don’t lie. Brokers at the big shops NET, NET, make 3-4x small/discount shops on average.

        • nadinac

          @James Kilpatrick Just the attitude and culture (New York and San Francisco being the home of some of the most blindered and provincial people I have encountered) that keeps me away from your type of shop and your types of attitudes. After 15+ years working for top tier law firms in San Francisco and Phoenix, working on transactions with brokers from major corporate shops and working with excellent attorneys whose clients were the same as your clients, I consciously opted for a location, company and corporate culture whose idea of success is “businesses worth having, lives worth living.” And I am more than happy to be able to CHOOSE to escape the uber competitive corporate culture. Top ten, shmop ten, who gives a fig? I’m not impressed — or intimidated. My clients are those whose phone calls you and others in the big corporate shops won’t return. Somebody said the secret of his success is, “I go where they (competitors) ain’t”. There are lots of those folks out there as well as myriad tiers of properties and asset classes and sub classes, especially in the greater Phoenix area where nobody asks who you know, what university you went to and, in my experience, they are enthusiastic and generous about helping one another to succeed. And, oh, by the way — “discount shop” is a total mis-characterization.

        • nadinac

          One more thing — financial disclosure. Keller Williams is, by corporate design and individual market center practice, an “open book management” business. Any agent can see the books and, “capping” agents participate in an agent leadership council which participates in budget development and monthly review of results.

      • nadinac

        If, by “this guy” you mean me, “this guy” is “this woman”. Different sweet spot. Deals might be smaller but I don’t have to deal with the 7 layers of egos making decisions for institutional clients. There are local and regional clients with substantial portfolios who won’t hire the brokers from the corporate shops. If you are really serious, check out my web site, http://www.azcrediva.com for my contact information. I’d love to find out about you and your practice and answer your questions.

  • Two items of note from my history.
    1. Brokerage I worked for shut its doors and I was looking for a new place to go. I’m a “jack of all trades” transactional broker w/ (at that time) over a dozen years in the industry – I handle REO / Distress (you don’t get to pick the asset class) and Investment RE (take the client to the best yield, not your asset class specialty). Company A that I interviewed with said “we love your sales volume” but “if you come here you have to pick a single asset class and not be a generalist”. Well… I asked “wouldn’t that cut my numbers and diminish the “value” I represent to Company A…?” “Probably, but that’s how we work. Let me show you how nice our broker cube farm is.” Needless to say I picked paying my mortgage and putting food on the table over their logic.
    2. When I left the last Brokerage / Company I worked for (for reasons other than splits) to start my own “boutique brokerage” the owner of that Brokerage / Company said to me (light paraphrase) “I’m surprised it took you this long, you’re going to make a lot more money”. Incidentally this was the Brokerage I chose over Brokerage A above (when I interviewed after Company A and told the Owner I was a generalist, he said “Great, just keep selling, close deals.”)

  • abuchanan

    Here is a simple solution. If you want a 90% split in CRE, just join the ranks of Lee & Associates. Call me if you want to discuss it 714.564.7104.

    • Helene Novin Strumeyer

      Please call me 201 873 2564

  • Our brokers are all W-2 employees. They all receive company-subsidized health care for themselves and their dependents. We pay for their reasonable marketing expenses and even reimburse their business expenses when they hit a certain production level. We support their key charitable causes because we believe it’s good business. They have a path to company equity based on production and community involvement. Not all splits are created equal…

    • Helene Novin Strumeyer

      Do you have any employees in NJ?

  • rsky1

    Sweet!!

  • Probably one of your most misguided posts Duke. I know, I know…you need click bait and I fell for it. Allow me to help you, and set the record straight:

    1. Almost zero respectable commercial brokerages (particularly in the San Francisco Bay Area where we are) charge a desk fee of any kind. We never have and never will.

    2. Pay the company for it’s marketing tools? What? This is extremely rare, and no respectable shop does it. We have extremely expensive systems to support our brokers and never have or will charge them for any of it. (As do many of our competitors) We have the full suite of CoStar products nationwide. Exactly “0” zero other shops with discounted splits have this extremely useful tool. (Yes–I dislike CoStar’s policies but anyone without their data is harming their clients and brokers by staying blind to it)

    3. The company will NEVER show it’s books? First of all, all the public companies’ books are hanging out in their SEC 10Ks that I read quarterly: JLL, CBRE, probably soon Cushman/DTZ. Our senior brokers/principals get equity in the company, so they get to see all of our exact financials including line items. Your comment about asset management is just stupid. Look at every public company’s audited financials. Asset Management isn’t “The Key Component”.

    4. We disrespect brokers for having good splits? Wrong again. There are weak shops, with bad leadership, and bad resources that give their brokers 50/50 with no tiers. You are correct–we shake our heads in disbelief and feel bad for the misguided brokers that work there. There are brokers that want to work in their bathrobe from home and just be left alone, and they might have a fantastic split. That’s actually a pretty fair deal. I think it’s a horrible idea for anyone, unless they already have decades in real estate, but it’s a fair deal regardless.

    5. There are many other inaccuracies, but I’ll just give you one final comment on splits: NAI Global has 375 offices worldwide. It’s still about the people, but dont’ kid yourself: Branding Matters. We have a structured regimented training program, with professionally developed playbook and materials. In the bay area, NAI Northern California (my firm) has a company paid for Salesforce platform with unparalleled collaboration tools, a large data team, and curated leads based on real events that are pushed to our Advisors. Exactly zero shops like you’re describing do this. Our splits are substantially better than market, our culture is one of of huge ambition and collaboration without exception, and our results are fantastic. (Not my profit results, the young agents incomes exploding). You’re telling me they should give up all that and work out of their home in their bathroom slippers so that they can get a better split? Come on man. Rising stars deserve better advice.

    (Shameless plug) Come to one of our workshops, “How to succeed in Commercial Real Estate” and ask any and every “hard” question you might like. Transparency is one of our core values.

    James Kilpatrick
    415-449-8784
    https://www.linkedin.com/in/jameskilpatrick

    • Thomas Morgan

      Love both of you guys’ frankness!

  • Ann Stovel Gibson

    When I was first licensed after college in 1992, 50/50 was the norm. That was for Prudential in Portland, OR. My split capped at 70/30 and I paid a desk fee. In 1999 when I moved to San Francisco and a “boutique” firm it was 80/20 and equity partner with a $10,000 buy in. The big guys have more overhead and you pay for that whether you use it or not. Smaller firms are more flexible but in the end I think it’s based on how much revenue (commission) you generate. And isn’t everything negotiable anyways?

  • ScottM

    There is an MLS IN NYC, it’s called StreetEasy, it’s free, and everyone loves it.
    Acquired by Zillow but the left it alone

    • Daniel Black

      Any way you could give me a quick over view on how it works? Thanks

      • ScottM

        Streeteasy.com

  • Rich Edwards, CCIM

    In a realistic world, how would you structure your own CRE firm? What would you offer, what services would you provide to your brokers?
    What type of firm would you offer your potential clients?
    Work within the framework of a self funded entrepreneur on a quasi limited budget. We’re not swing for the fences here. Keeping it real.
    Thank you everybody.