Episode 44 - Why Real Estate Teams Could Be Extinct in 12 to 24 Months!

Welcome to Episode 44 of the "If You List, You Last" podcast with Bob Mangold! In this episode, Bob discusses a game-changing topic:

• Why Old-Fashioned Teams & Brokerages Will Go Broke in 24 Months: Discover the critical factors that will impact the real estate industry in the coming years and why traditional business models are failing.
• Key Mortgage Market Update: Bob shares the latest mortgage and interest rate insights, including auction reports and inflation data.
• Industry Facts & Studies: Learn about the eye-opening data from Housing Wire and Account Tech that reveal why 80% of real estate businesses will become unprofitable.
• The Next-Gen Team Model: Bob introduces a revolutionary approach to running real estate teams without the traditional overhead, leading to more control and efficiency.

Bonus: Join the Real Estate Asset Advisor Facebook group to participate in the conversation and explore business-building opportunities in California, Arizona, Texas, and more.

Join our Facebook Group at: https://www.facebook.com/groups/realestateassetadvisors

Visit our website to watch replays of our Wednesday "Elevate Business Briefings" at: www.RealEstateAssetAdvisors.org

Download a copy of my book, "If you list, you last!" at www.IfYouListYouLast.com

Transcript

Hey, welcome fellow listing agents. Bob Mangold, the listing coach here with episode 44 of the, If You List Your Last podcast. Hey, listen, as always, thanks for listening, sharing, and downloading. Today, we've got a pretty important topic for you. We're going to talk about why old fashioned teams and brokerages will go broke in the next 24 months.

So if you're on a team. This is critical information for you. So grab a cup of coffee and settle in. Just a reminder, make sure you join our Facebook Real Estate Asset Advisor Facebook group, so you can join in on the conversation, share your thoughts, comments on any of the topics I discuss right here on the podcast.

And one more thing before I get started, if you are an agent in California, Arizona, Texas, Florida, Illinois, or Kansas,  and you're a high performing agent that would like to talk about starting and growing a listing agency in those markets, If we feel you're the right leader, we'll invest in the marketing and infrastructure of your business without taking any overrides or royalties.

Now, if you're open to conversation around that, make sure you join the Facebook group and send me a DM. With that, let's get into this  week's mortgage update. Gonna be pretty quick here.  Let's just talk about the reports that are coming out. Tuesday, we have a three year note auction. That's gonna be a fairly important deal because it's gonna determine.

What the strength is for the mortgage backed security market And it's going to help us a ton. Wednesday is going to be mortgage applications and the CPI, the consumer price index. So that's a big deal. It's going to tell us what that inflation number is. It's going to have an impact on the Fed. Again I personally believe The Fed's only going to drop rates by quarter basis point in September which happens, what is that, next week.

And at the end of the day, it doesn't have a huge impact on mortgage interest rates. Again, it's the car loans and the credit card debt that'll be impacted, but it's starting to show signs of that happening. And the way that mortgage backed securities in the 10 year treasury is tracking right now, it's all extremely favorable for interest rates to be coming down.

That's actually what determines the interest rate, folks, is the mortgage backed security market. We're in a position, we've been in a position now for the last, really, month, where it continues to be very favorable to see interest rates coming down, which is why I've said, I believe by the end of the year, we're going to be in the 5 and 3 quarters to 6 percent range.

On Wednesday, also, there's a 10 year note auction. Ten year notes can have an impact on mortgage backed securities because that's what's competing for money, right? So as an investor, do I want to buy ten year, ten year treasuries? Or do I want to put it into a mortgage backed security, which is based on mortgages and repayment and things of that nature?

So that's why the ten year is actually important that technically has nothing to do with mortgage interest rates But it does compete for those dollars, okay? And then Thursday, we have the producer price index. So that's the cost of producing things. So Wednesday is consumer, meaning how much this stuff costs for them. 

And then Thursday is producer price index. How much does it cost for the producer? Because folks, if the cost to produce goods goes up, what happens to the price? It's inflation. And then Thursday, we have jobless claims again for as much as we want to believe those things. So if you listen to me for any amount of time, I have absolutely no faith in those.

Unfortunately, the markets in the street do respond to that. And then finally, Thursday, we we have the 30 year bond auction, which that has a bit of, again, it has an impact on mortgage interest rates only because it competes for dollars. Okay? So that's what's going to happen this week in the mortgage arena.

Again, I think long term. We're going to be okay. And you're going to see rates come down, folks. So now let's get into today's big topic. Going to be a little controversial here. Why old fashioned teams and brokerages will go broke in the next 24 months.  How could I say such a thing? Who am I to say that?

Folks, what I'm going to share with you is an article in a study published in housing wire. So these are the facts that they produced in their studies that I'm going to share with you today. So it's not my opinion.  These are just numbers that are coming out. So what they said was if real estate brokerages fail to make changes to their operations what does failing to make changes to your operation mean?

Folks, it means cutting staff, closing offices, things like that.  79 percent of them will be unprofitable. If the terms of NARS nationwide commission settlements lead to typical agent commissions dropping to 2 percent folks. So what happens or what they're saying is if. Commissions actually dropped to 2%.

I don't see that happening either, but I do think between two and two and a half, you're gonna see 80% of the businesses be unprofitable. Folks, if they're unprofitable, how do they stay in business?  You gotta think about that. Now for the purposes of today's call, and I'm gonna break down some things, some differences between team and brokerages.

They're one and the same, right? If a brokerage can't make money. How would a team make money? So if you're on a team, you need to understand that. Now, this accounting study was done by a company called account tech. What they did was they analyzed the operations of a hundred randomly selected brokerages with agent counts ranging between five and 5, 000.

So that's a pretty good, breakdown anyway,  according to the report, the study calculated the future net profit for brokerages while assuming That sales volume company overhead and agent split percentages remain at current levels It found that even a minor decrease in the commission rates charged to sellers made the companies in the study unprofitable  So I want you to think about that folks if We left splits the same, company overhead the same, and sales volume stays the same, which I think for the next year or so, we're probably not going to see a huge breakout.

If all those things seem equal, 8 out of 10 companies will be unprofitable.  Then the only question that you have to ask is how much of a cash cushion do they have  so that they could stay in business? Because after that, they closed the doors.  And folks, here's the question. If you're a broker, you're a team leader and you're losing money month after month, and you don't see anything changing in the market for the next year. 

How long would you keep that business going?  So I know it's a terrible discussion to have, but it's a real thing.  Now the industry's completely aware that going forward, the market changes are going to make their current models untenable. So they're going to have to address it. It's just common sense, right?

So while now, while nearly 80% of the firms would be unprofitable, if commissions dropped to 2%, the study found that 60 cent, 60% would be unprofitable if commissions dropped to two point a half percent. Currently they're only at about 2.65,  so it doesn't seem like that's gonna be a big stretch to drop to two point a half folks that still mean six out of 10 companies and teams would be unprofitable.

Now, additionally, the study looked at how agent count and physical office count impacts profitability. It found among companies with three storefronts, only 14%  Would remain profitable if commission rates drop to two percent  per side, right? When it comes to agent count the study found that for firms a hundred to five thousand agents 88  will be unprofitable if the average net commission drops to two percent 88% folks.

So if brokerages hoped to break even, account tech found that if the commission rates dropped to 2%, more than 75% of firms analyzed will need to increase their income or cut expenses for every agent in their firm by $2,908 per agent. That's $290,800. Or a year for a hundred age for a hundred agent firm now these challenges come as brokerage gross profit margins Have fallen to a nationwide median of 15  Folks, gross profit margins  is the margins before you start taking away the expenses.

Now, that's due to a variety of factors, including increased pressure on brokers to provide agents with a larger split of the commission.  That's going to be a dilemma. Additionally, rising labor and occupancy expenses have driven up operating costs, putting even further pressure On the firm's top lines, revenue  folks.

If you're working for a hundred percent company and it's a flat fee,  does that impact them?  It does.  So commission compression is a real thing, but there's more to it than just the commission compression folks. So if you're on a team, let's talk about that  because typically teams run on  Leads that they're buying from zillow as an example or realtor.

com they may spend some money on facebook or google pay per click and things like that  But at the end of the day the large majority of the teams especially ones I know Are using zillow and realtor. com they've changed their model to going to a percentage like 40 percent of the income So if commissions drop to let's say two and a half percent forget two Let's just say two and a half  and then you have to pay 40 percent of that  To zillow  the broker's got to get their cut.

The team leader's got to get their cut What's left for the agent  and the answer is not much  it's not enough to run a business Therefore if a team is running based off of zillow and realtor. com  Leads all the time. They have no other sources of business  Those teams are going to be extinct within the next year. 

Next, the marketing expenses have they've risen dramatically. Let's just look at direct mail.  Direct mail just went up again  by 15 percent about a month ago or so. So if you're using direct mail and you're farming and things like that, that got more expensive, folks.  And if companies like Facebook and Google understand that businesses can't do direct mail because that got out of hand and TV advertising got out of hand, and more and more people flock to the Facebooks and Googles. What do you think they're going to do with their advertising rates? They're going up and they're already ridiculously expensive  So at the end of the day if a team leader has got a team  Zillow's taking more and more from them all the costs of generating business are going up  There's only a couple things they can do folks  In order to remain profitable, they're going to have to start staffing cutting support staff.

When you do that, agents are going to need to become more self sufficient. That results in them questioning why am I paying a team leader then?  Agents and team models have become accustomed to low conversion leads.  That require time to nurture right which results in the need to consistently flood the funnels with more low quality leads I'll never forget about eight years ago One of my coaching clients called up and he said hey, I need to like really ramp up the number of leads I'm getting and I said really why is that?

And he said my agents have gone through the leads and Like they're not ready to buy and things like that  And he said, so I just got to get more.  And I said, no, I actually don't agree with that. I think what you need to do is you need to take and go through an audit. What your agents are doing with the leads that you have. 

Number one, I think you're going to find that most of them aren't really even calling them, or if they do, they leave a message and when they don't return a call, that's it, they don't call them again. That's not follow up  and then if they do talk to them, then they don't follow up afterwards if they go Well now it's still going to be 6 to 12 months  They still don't follow up with them because folks Here's what I can tell you after 33 years in the business if you tell me 6 to 12 months means about 90 days  And so they're constantly having to fill the pipeline with more and more leads because agents simply are not working improperly They need to work with the ones that are going to feed their family today.

They don't have time for nurturing that requires an agent to do a lot more work to generate closings, which isn't particularly efficient  And it's extremely expensive for the team leader  training time for agents  Is going to require a huge part of your time and attention  Because if you don't do that folks turnover is going to skyrocket  The truth is turnover is going to skyrocket anyway for both teams and brokerages.

Here's why they're going why am I going to pay a team call it 30 40 50 percent of my commission? I get these crappy leads I used to have my flyers made for me and things like that but they had to lay those people off and now we're not doing as much training because The team leader's got to go out and produce  None of that's conducive to running a team efficiently, is it? 

So whether you're a team or a brokerage y'all have the same thing now If you're a broker that doesn't supply leads for your client or for your agents, you don't have those pressures But if you're sitting on a team right now, i'm just telling you folks within the next 24 months  You're going to have to learn to fish and eat on your own  because they simply won't be able to stay in business.

Financially has nothing to do with them, their capability or any of it. If commissions come down and expenses go up,  there is no choice, but to disband period  and go back and produce for themselves doesn't mean they're bad team leaders or anything like that. It's just the economics of it.  I guarantee all these lawyers and everything.

They didn't take into account any of that because the real question is folks, when there aren't real estate agents around, who's going to handle Highly litigious  transactions.  So sorry to be the bearer of bad news, but is there good news? Is there anything you can help me with that helps me to know that while I do have a choice that I could do something about it here's what I would tell you could form a next gen team.

What is a next gen team? It sounds like a cool name, next gen, right? If you get outside the box and you start to think about real estate differently, what if you had a team where you got compensated for training the agents so that they didn't have to swipe their credit card for coaching,  where you focused on listings  and your listings would generate the leads because you could do open houses that.

Got hundreds of people to it.  So what if we, again, I've been training this for years now to focus on listings guys, you can't argue the math with me. You can do more listing transactions and you can do buyer transactions. Period. It's just a fact of life, the time that it's spent.  So at the end of the day, I can close about three to four transactions that are listings to every one buyer. 

That doesn't mean I don't want to work with buyers, I just want somebody else to work with the buyers.  And I'll take an override from them, because they're working my listings.  Does that make sense?  So if you're a listing agent, it allows you to gather market share, it allows you to work efficiently in the areas that you want. 

Let's just use Phoenix as an example. If somebody says to an agent in the northwest side of Phoenix that, Hey, we're going to move to the southeast part of the valley  without traffic, folks, that's an hour and a half drive. With traffic, it's at least two.  Do you really want to be a buyer's agent spending two hours going back and forth? 

And they need to look at 20 homes to do it.  It's not efficient, is it? It's nothing against the client. It's just not efficient. But when you're at a listing agent, you can target where you want to take listings from.  You go, Bob, why do I need a team for that? And the answer is technically you don't.  But what if you could have 5, 10, 15 listings  and you have open houses on all of them? 

Now we do, the way that I teach it, we do open houses differently than your average real estate agent. Again, our record  was 1, 224 buying units at an open house weekend, April 3rd and 4th of 2023.  That was our record. When I say buying units, what does that mean? It doesn't mean four people walk in, mom, dad, and two kids.

We don't count that as four. We count that as one buying unit. If I could have an open house or two going on each weekend, and let's just say I have a hundred people at each one,  and we could train the agents how to actually talk to the people coming in  so that they could pick up additional transactions. 

We teach it as five from one. How do we get five transactions,  five additional transactions, from one listing? There's a lot that goes into that. It's circle prospecting. It's door knocking. It could be direct mail afterwards. It's converting that traffic from the open house.  But what if every listing you had, you could get five more transactions from it?

20 listings would equal a hundred transactions. 75 of them, let's just say they were all buyer transactions, the additional ones.  There are going to be listings in there, but let's say there's a 75 buyer transactions and each one of your buyers agents picked up five transactions from each one.  It's 350 transactions, and you're taking a 25 percent override on that. That's why you'd want to focus on listings. Now, is it going to be easy to teach them how to do five from one? No. You have to hire the right agents. Yes. Can we help you with that process? Yes.  Next, you need to focus on building referral focus business.  So here's what I teach.  Three groups of referrals local national global. 

You have to have systems in place to do that. They're simple folks But  what if you had a group right? We all have people come to us and say hey, bob Do you know a good mover? Do you know a good plumber? Do you know a good electrician things that relate to the house a good home painter carpet company things like that carpet cleaner?

There's probably  25 of those where people are always asking us for those referrals. That's the first place you start You  And then we have a strategy to promote their business, create a social media platform to really get that out there to literally thousands and thousands of people in an area for our local vendors.

We actually have the ability to track the number of people that we send to them to do a transaction with them.  How cool is that?  So that we can sit there and sit down with those business people and say, Hey, you know what? Last month we sent you 20 clients.  I'm going to need your help, man. Referring some people to me. 

We say it nicer than that, but nonetheless, what if you had a business built on that? You had agents from across the globe sending you transactions again, it doesn't have to be many. What if it was three to five a year  and you have national attention from agents in other parts of the country. Let's say you had 50 of them and they sent you, I don't know, half of them sent you a deal a year. 

That's 25 transactions.  And then you had a whole listing a local referral group.  Wouldn't that be a better way to control your business? You could spend time generating the referrals while the agents on your team work, the transactions paying you an override, make sense. Thinking and working smart, not hard. 

What if we started to focus on lead generation from your database, right? You own the database, not Zillow, realtor. com, or even your broker. See guys, you got to remember when you're running a business, that's focused on buying leads from someplace.  You're a prisoner to that business. You don't own those leads.

I promise you guys, they're selling those to 25 different people.  You don't own that. What if you had a database of people that you knew  had a high likelihood of selling their home  and you work that database.  What would that look like? You go, Oh, working a database. That sounds like, gosh, that sounds like cold calling. 

That's one thing you can do. And I recommend it,  but I'm smart enough to know. And I've been around long enough to know that most agents will not pick up that phone. So what if you made available? trained ISAs to make those phone calls to set appointments to set listing appointments for you to go on the listings  So that your buyers agents could work with the buyers from the open houses in the circle prospecting that your ISAs did for you  What if you ran a business like that a team like that  and because it could be cloud based Means you don't have any overhead to run it.

Then, what if you started focusing on your personal brand, both online and offline, because here's the facts of life, folks. Even when you run a referral based business, what's the first thing somebody does when they get referred to you? They run to Google, right? They go online and check it out and see if you're a live person.

And if they can't find anything about you, What are the odds that they're going to hire you? And I can tell you guys, the answer is abysmal.  Agents don't even go to Zillow and realtor. com and homes. com and fill in their profile. Like it's free to do it.  Usually guys, that's the number one search result that most agents have. 

So if you Google your name, you're going to see like a realtor. com, a Zillow. com, et cetera.  And then people click on it and there's nothing there. What  do they think about you then? What does that make me think about you about being referred to you?  I'm not really looking at working with you to be honest with you.

I just if you don't have reviews I know my friend referred you to you, but nobody else  so unless I have really strong feelings about  You know the person that referred you to me I'm not feeling really good about you. So it's not a function that you have to build a personal brand or not. You need to do it online and offline,  so that people can see you're a real life person, and that you're active in the industry.

Like, how often do you post something on your Facebook page? Or, how often do you Post on Instagram or Google my business. They just need to see that you're alive and you're active, but reviews, I promise you will make a big difference if you have those. And by the way, you guys, when I talk about building a, an online profile, it doesn't mean you're doing dancing videos on Tik TOK either.

That goofy stuff does not work for real estate. It gets views for the kids. Don't get me wrong, but it doesn't make me want to hire you to sell my house.  So you've got to build a personal brand online and offline.  And then, what if you were able to offset your expenses through collaboration? To the point that you didn't have any expenses.

You could actually run a team  without expenses.  Yet, you're still able to provide massive value and service.  Now that's going to require that you run a business, a team, I'm sorry, differently than the way they're being run right now. We're not talking about using Zillow and Realtor. com leads, things like that.

Because guys, I promise you, all these team leaders right now are trying to figure out how in the world do they pivot their business, stay relevant, and most importantly, stay in business.  But if you didn't have any overhead, and you didn't have any expenses, and you had systems in place to generate business, to generate referrals, and it comes from your online presence, can we agree, boy, it doesn't matter what  changes.

You're in complete control of your leads. You're in complete control of your referrals. You don't need a Zillow. You don't need a realtor. com.  And you didn't have any overhead to worry about. Wouldn't that be A better way to run a team.  Now,  we've already pivoted that way. We already have this in place. So we can help you with this.

So again, if you're located in California, Texas, Arizona, Florida, Kansas, or Illinois,  and you want to look at a team model like this, you can reach out to me by visiting my website, www. bobmangold. com and click on the link to schedule a call with me. Okay. Now, if you're really interested in doing this in other states, You can still go ahead and make a call.

You just might be the first one in that state. That's all  and then we're Truthfully, we're going to have to go and figure out if you're going to be a good fit.  Think of it this way guys  We have really clear criteria about the people that we back right think of it this way If we're going to invest in your business Financially,  we need to make sure  That we're the right fit  both of us, right?

We have to be a good fit for you, but you have to be a good fit for us  Make sense? Now, what's important to us is, first of all, we want to have fun working with people that we work with.  We want to impact lives, both our agents lives and our clients lives, and we want to be around people that are like minded and driven towards delivering amazing experiences and results for our customers.

See, with our customers, what we do is we help them build personal wealth from the home that they live in. If they want to invest in more real estate, hey, we're happy to help them with that. But we can turn anybody into a cash millionaire using their home and their mortgage. So we're focused 100 percent on providing amazing benefits to the people that we work with.

Do we have to give them good service? Of course we do.  We've got to be better than that, and we're looking for people who want to be better than that. When challenges arise, which they always do,  I have to be honest with you, what we're looking for are people that will help us find solutions.  So that's what's important to us.

With that in mind,  I hope that helps give you an idea. I don't like painting  a glum picture, a gloomy picture. But guys, it's just the reality of the real estate industry right now. We have to accept it. Or we can do something about it, right? When challenges come up, we look for solutions. We don't complain about it. 

That's what's important to us. So I hope that helps. I hope it gave you something to think about. And Hey, again, you can visit www. bobmangold. com click on the link, schedule a call with me. And Hey, we can talk about it. See if it's a good fit. We'll just go from there. No promises one way or the other.

Okay. Most importantly, folks, remember this. If you list you last. We'll talk to you next week. Have an amazing week and go out and make a bunch of money. Talk to you then.