Yesterday’s Model. Today’s Market.

We Did a Thing

By now, the word is on the street –– and yes, it’s true, we did a thing.

A month (or so) ago, we decided we were going to do what we always try to do –– make moves that cut against convention –– and it seems to have caught the Richmond brokerage market a little bit by surprise.

But, hey, this market requires non-conventional thinking, right?

Yes, it does.

A New Strategic Partnership

So what did we do?

We partnered with one of the largest and most rapidly growing companies in the MidAtlantic, Samson Properties (Chantilly, VA).

The overarching goal of the move was to pair what WE do really well (marketing, sales, market knowledge) with what THEY do really well (scale, technology, administration, footprint) to create something Richmond hasn’t seen before –– a full service brokerage at a fraction of the cost.

Duplicating administrative efforts makes little sense, especially in thin markets, and so we made the decision to divest ourselves of our administrative burden while simultaneously adding a menu of new services and tech.

More for less –– not a hard decision, really.

Scale Matters

Scale matters.

The platform that they have created and tools they provide us dwarf anything we could have ever created ourselves.

Want to do a deeper dive on the reasons why? We talk about it here.

With the partnership, we now have access to:

professional ‘print shop’ level printers
a professional recording studio
‘point and click’ direct mail solutions
a tremendous tech stack (CRMs, personal websites, single property sites)
multiple tech integrations
concierge design services
customized swag

With this move, all of the tools of the modern brokerage are now (finally) at our fingertips.

We Are Still One South

I’ve heard a lot of different versions of what we did –– most of which are incorrect.

No, we didn’t sell anything. Yes, we are still branding as we always have.

Want a tour of the video studio?

So what changed? Not much, other than a lot more for a lot less –– same name, same faces, same logo, and same address –– plus more tools, bigger network, and less cost.

Win. Win. Win. Win. Win. Win. Win.

We are still One South Realty Group, we just have a lot more firepower at our disposal with our association with Samson.

By leveraging the efficiencies inherent in the Samson system, we can now operate at a fraction of what we once could, and more importantly, pass that savings to the agents –– all while adding a bunch of powerful tools.

Want a tour of the print center?

If I’m being completely honest with myself, I wish I would have discovered Samson’s platform earlier.

So Why Does This Matter?

In case you hadn’t noticed, sales are down nationwide.

You can offer up any reason you want to (sellers with ‘locked-in’ low rates, no inventory, elevated prices, expensive new construction, media hype, etc.) but the net impact is that 2023 will close out with the lowest number of closed sales in a decade.

Sales are a function of listings and when nothing is for sale, sales suffer –– and I don’t see anything on the horizon to make me think differently about what 2024 will bring.

2024 = 1993

I’m not the only one who is planning for a slow 2024 –– the best research department on Wall Street feels similarly …

‘The lowest level since the early 1990s’ –– let that sink in.

I don’t know what your broker is doing, but we are making the changes that will ensure our team is equipped to survive whatever the market regresses to.

Agents vs. Transactions

Ok, so 2024 is going to look like 1993 –– so what?

Sorry to be the bearer of bad news, but that is not good for a lot of us. Our industry is sized for something more akin to 5-6M home sales, not 3.8M.

Some quick math tells me that our new collective reality is as follows:

THERE ARE TOO FEW HOMES AND TOO MANY AGENTS TO SUPPORT THE STATUS QUO.

This means the agent count needs to drop and drop sharply to get back to any remote form of equilibrium.

The Agent / Transaction Ratio Over Time

Don’t believe me? Perhaps a little bit of historical context will help.

If you divide the number of sales by the number of agents, you get a sense of how much business is available to each agent.

When the ratio is 4.5 or better, life is good
When the ratio is 4.0, life is fine
When it falls below 3.5, things start to get a little bit tight
Below 3.5 is no beuno

Just so you realize, WE WILL CLOSE OUT 2023 BELOW 3.

Whoa.

Somethings Gotta Give

So how does this play out? Fewer agents, that’s how.

If you take Goldman Sachs’ estimate of 3.8M sales in 2024, and only a mid 4.0 transactions per agent, then we are talking about 40% Realtor attrition to get back into balance.

I repeat, that is 4/10 agents leaving the business just to get back to neutral.

To get back to 4.5 transactions per agent, then we are talking close to 50% attrition.

Thanos, anyone? (if you don’t get the reference, ask your kids.)

And I hate to say it, this analysis does not account for any commission compression that is likely coming our way. In other words, it could be even worse –– but I’ll save that discussion for another day.

Amateurs hope. Pros adjust.

Rock Meets the Hard Place

For those brokers who are being intellectually honest with themselves, they are currently trying to figure out if they can get through 2024 –– or even if they want to try.

The monies available to run a brokerage are shrinking rapidly and survival means either severe cuts to services, increases in splits, or plowing into reserves to keep the doors open (or all of the above.) Digging into the hard-earned savings from prior years just to keep the doors open for a little longer feels foolish, especially if a good outcome in 2024 would be to simply break even.

Here are the questions brokers are asking themselves right now (and the painful answers):

Which services can I cut without pissing off my agents? The answer is ‘any cuts to services anger agents.’
Which employees are not essential to operations and I can let them go? Layoffs wreck culture and lingering resentment is generally the result.
Can I increase the splits or add a few more fees on top without pushing agents out the door? The answer is, ‘Nope.’ This is especially true if you are also cutting services.
Can I make them pay for copies? Or technology? Or E and O? Or coffee? The answer is, ‘It won’t make much of a difference’ as those line items are a small percentage of the overall budget, and also a pain to track.
Maybe I can cancel my contract with the overly expensive tech platform that everyone wanted but never adopted? Not without a huge penalty or legal bill.
Maybe I can get out of my franchise agreement? Yeah, no. Franchise agreements are at least 500 pages of nothing but ‘no.’
Well, maybe I can get out of my office lease, or renegotiate it? Again, not without penalty and / or some large legal bills.
Maybe I can get my lender partner to help??? Good luck, they are in worse shape than brokerages are, and are probably about to call you to cancel the MSA and desk rental (not kidding).

And given how hard it is to make even the smallest of cuts, inflation makes everything else you keep more expensive, which simply negates the cuts. Utilities, paper, healthcare, leads, salaries, events … incomes are diving, but the expenses keep creeping up and up and up.

No broker can afford to keep their services the same, but no broker can afford to lose agents, either.

Rock, meet the hard place.

What Will Brokers Do?

Brokers now have a defined set of choices:

cut services
raise splits
close the doors
keep the leads and go back to selling

If you don’t believe me, poke your head in their office and casually ask them how they are doing? They will grin a forced grin, offer a few cliches about hard work, and try to paint an almost believable rosy picture of the coming market.

But then ask them if they are still going to supply the same number of leads, keep all of the services in place, keep all of the employees, and (of course) maintain their same availability to answer your questions? All while keeping your splits the same? Right?!?

I would expect a very vague answer and notable lack of eye contact.

Yesterday’s Model in Today’s Market is a Bad Idea

Yeah, I get it –– you can nitpick the math a bit, and / or argue that the RVA market is not the US. Besides, predictions that involve home sales, human behavior, and unsettled legal issues are suspect at best.

But whatever the inputs or analysis, I can’t see a pathway to a better year in 2024 (and probably 2025) in terms of sales volume –– so we are not going to try to run yesterday’s model in today’s market.

We’ll let others exhaust themselves fighting uphill.

The bottom line is that we have done what is best for our agents and staff, and have given everyone here the best chance to get to the other side of the shift –– the side where the number of transactions and the number of agents moves back into balance.

Markets move in cycles, and running an ‘up-market model’ in a down market cycle won’t work. Period.

Go ask your broker what their plan is –– if you don’t like (or believe) their answer, then we should talk.