The "Bigger is Better" trend of banks, telecommunications firms, health insurance providers, airlines, and almost every other industry, has enveloped residential real estate companies as well. In case you haven't noticed, there are only a handful of medium sized (150 to 300 agents) real estate offices remaining in the Bay area.

Many companies feel they will be unable to effectively compete during a time of dramatic changes in the business. The rationale given to the public is that these mergers benefit the client with greater service, convenience, value, and the power of a larger network. But, is bigger really always better for you as a buyer or seller?

Do you work with an agent or a company?

Your choice of both agent and company is important. When selecting an agent, you will want to ensure he or she is associated with an established firm that has a reputation for integrity.

Sometimes, when people tell me, "We're working with XYZ Realty," rather than naming their Realtor, I get the feeling they do not really understand the value of a top-notch agent. It is the agent, not the company, they will be dealing with and talking to on a weekly, sometimes daily, basis. Their agent is the one who will either have looked out for their best interests — or let them down. 

When agents do a good job, they win the loyalty of their clients. If their experience was a good one, buyers and sellers tend to do repeat business with the same agent, even if this means following him to his new company.

Different offices within the same firm will have different managers, staff and agents. Within a company, large or small, some offices are bound to be better than others. It therefore follows that your experience as a buyer or seller will be dependent upon the quality of both the office and the agent and not on the company name alone.

As a former sales manager of a large firm, I can testify from experience that most companies recruit agents based on production (sales generated), or potential production. Despite the rhetoric, client care and protection is not a priority item in the hiring and retention of agents.

Diversity helps profits

Residential real estate is a high-risk business with low profit margins; therefore, it is not surprising that companies want to expand their opportunities for profit by creating or partnering in ancillary businesses.

These include mortgage companies, homeowner's insurance, title and escrow services, moving companies, corporate relocation, and others. This is the one stop shopping that some busy clients find convenient. Convenience, however, may come at a higher cost than shopping around for these same services.

There is some concern that pressure from large companies to push their related services could create a conflict of interest for agents torn between the needs of their company and the needs of their clients. This is especially true if the agent receives compensation for these referrals.

Agents are independent contractors

I do not know any Realtors who are employees; all are independent contractors. That means they work on commission only. They get neither salary nor benefits. Without closed sales, there are no paychecks. 

The operant word here is independent. They are "supervised" only in the sense of doing business ethically and in a manner legally mandated by the state. Real estate salespeople come and go as they please; they do not take orders on what to do or when to do it. They are in their own business. Agents share commissions with their broker in exchange for using office facilities, staff and supplies.

What agents want in a company

Salespeople can leave a company or be asked to leave at any time. Despite what you may assume, a higher commission split is not the number one reason why most agents move to other companies. The two most important motivations are, 1) to work in a positive, energetic environment with other high-level professionals; and 2) to receive support and recognition from their manager and the office staff. 

The most enlightened companies realize their job is to provide for both their clients and agents. Some in the industry question whether mega-organizations, with staff and headquarters thousands of miles away, will act as though the company were more important than the individual agent. In the past, this has lead to high agent turnover.

Recently, about 100 agents from an office of one company all switched to another broker on the same day. This coincided with their original firm's merger, which obviously did not please them. 

Flexibility will mean survival

A slowly evolving shift in the business is the move toward offering clients a menu of services, each with its own fee. For example, earlier this year a buyer was referred to me who was purchasing a rental home directly from the owner. He wanted my services as a consultant in drafting a purchase contract and advice on items he needed to consider. 

This buyer personally knew a Realtor from a large, local firm and had originally asked him to assist on a consulting basis. The agent had to refuse because his company would not allow it; it had its guidelines and consulting was not part of its services. Business was lost by the larger company because of a lack of flexibility. 

As technology increases the availability of information for those not in the business, I believe the public will increasingly insist on paying only for the services it needs, not on what companies mandate. The survivors will be those who adapt to client needs.

The future

The slow market of the first half of the 1990s caused a shakeout of agents. California Association of Realtors (CAR) membership decreased dramatically from approximately 150,000 in the late 1980s to today's figure of 92,000.

 Although the current active market has brought more agents into real estate, it is doubtful that former levels will return. Technology now allows each agent to handle substantially more business than was previously possible.

Paradoxically, the technology that has impelled the trend to bigness will also allow smaller operations to flourish. Even a one-person office can have numerous listings advertised on a sharp Web page, belying its size.

Like farmers forming cooperatives, smaller offices are getting together to pool their buying power for classified advertising, training, business forms and other supplies. When the dust settles, I believe well managed companies of all sizes will survive and prosper.

Final thoughts

Real estate is a personal business that requires individual service. For buyers and sellers, the type and cost of services will change in the future, but not the need for quality. Choose your agent carefully according to your needs, not by the size of his or her company.

Related Articles: How To Interview Agents - Part 1, Part 2, Part 3, and Part 4 and Use Local Agent.