In 2015 The National Association of Realtors published a report entitled “The Danger Report” which discussed a number of forces which are threatening the survival of the Real Estate industry. One of those forces identified is the proliferation of “Real Estate Teams” within the traditional Real Estate brokerage firms. The following quote is from the Danger Report – “Agent Teams threaten the survival of brokerages because teams cannibalize brokerage companies by siphoning off profits, leaving them exposed to all the risk”. First, here are some answers to a few possible questions about Real Estate Teams.
What is a Real Estate Team? – A Real Estate Team is formed by a Realtor, known as the “Team Leader”, who recruits and forms his or her own organization within the traditional brokerage firm. These teams can be relatively small (3-5 individuals) or quite large (25+ individuals).
Why does a Team Leader want to recruit a team? – A typical real estate transaction is very complex and time consuming. If a realtor is doing his or her job properly, they are able to do a limited number of transactions in any given year. A Team Leader recruits a team in order to multiply the number of possible transactions and thereby increase commission income.
How does the typical Real Estate Team function? – The Team Leader is the “up front person” acting as the salesperson. They meet with the prospective client and sell the business. The team members are the “doers”, taking care of the vast number of details inherent in a typical real estate transaction. Such details include drawing up contracts, preparing brochures, arranging for photos, doing open houses, communicating with the client, and many other details.
How does a Real Estate Team differ functionally from a brokerage firm? A brokerage firm, as mentioned in Real Estate 101, chapter 1, published last month, has as its highest calling a fiduciary responsibility to its clients, whereby it puts its client’s best interests above all else. The only way a brokerage firm can effectively fulfill its fiduciary responsibility to clients is by hiring talented realtors, who possess superior skills, and by controlling the behavior of those realtors. The broker exercises control by training them and supervising their activities. This is the only way a brokerage firm can guarantee consistency of services to its clients. The Real Estate Team, on the other hand, looks like a brokerage firm, but does not have the legal responsibilities of a brokerage firm.
The California Department of Real Estate, after becoming very alarmed at the proliferation of Real Estate Teams, realizing that Teams look like brokerage firms but do not have the legal responsibilities of brokerage firms, recently passed legislation which forces Teams, in their advertising and marketing campaigns, to clearly state to prospective clients which brokerage firms they belong to.