Traditional brokerage opens 100 percent commission firm

May.May 05, 2011 12:45 PM

Clockwise: Amnon Hecht, 2336 Second Avenue and Brad Brigati (building source: PropertyShark)

In joining the legion of residential brokerage firms beginning to offer a 100 percent commission model, Titan Real Estate of New York is banking on volume for profit.

Titan’s model requires agents to pay Titan $375 for each deal in which they collect a commission of at least $2,000, and $250 for deals that yield less than $2,000. In addition, there’s a $475 monthly fee that covers office space and an advertising package (note: clarification appended).

“We don’t have much use for those $50,000-a-year agents,” said Amnon Hecht, CEO of Titan. “We want people who are fed up with giving away their earnings, are driven, and ready to work to pull in a quarter million dollars a year. That’s, literally, why we called it ‘Titan.'”

Hecht said he’s nearly doubled his agent stable at Titan, which operates under Hecht’s Hecht Group brokerage, from 36 to more than 70 since February, shortly after Titan launched and began offering the model. Hecht intends to expand to 350 agents, hoping at that point close enough transactions to line his firm’s pockets with as much profit as brokerages operating under the traditional 50-50 split.

Titan is a separately licensed firm from the Hecht Group but they share listings, and Hecht said he’s been more particular with who is hired to the newer of the two firms. While Titan offers the 100 percent commission model, Hecht is a more traditional firm.

The Hecht Group was founded in 1996, while Titan started up in mid-January, to take advantage of what Hecht believed was an opportunity to lure more quality agents.

High-commission models, especially those that claim to be “100 percent commission” brokerages, have popped up with increasing regularity in recent years. David Schlamm, founder of City Connections, said his firm was the first to offer a version of the model in May 2004, and Rutenberg Realty followed two years later. Lately, a group of Nest Seekers agents formed Blu Realty Group with a commission split that favors brokers and Kevin Kurland founded the Spire Group to offer agents higher splits.

“What we’re seeing now, especially in the last year, is 20-odd firms adopting some twist on an innovative commission split,” Schlamm said.

Titan and Hecht, which up to this point have worked mostly in the rental market, have exclusive marketing rights to more than 100 rental buildings in New York City, according to Hecht. But, he said that in the last two weeks he’s decided to expand the sales efforts, and on April 28, Brad Brigati closed the firm’s first sale, a four-unit residential building at 2336 Second Avenue for $1.08 million. As with rentals, Hecht has designed a unique model for his sales agents.

Titan takes just $999 from a broker’s commission for completed sales, freeing, Hecht said, the broker to earn more profit per transaction. Meanwhile, his brokers will take just 2 percent commission from property sellers, further encouraging volume.

“When a brokerage charges agents 50 percent of their fee, and says, ‘Look I’ll pay for your advertising,’ that’s not a good deal,” Hecht said. “We’re saying, ‘Pay for you own advertising and Web fees, if you think it’s necessary.”

Kathy Braddock, co-founder of Rutenberg Realty, which takes $1,000 from sales worth less than $1.5 million, and $2,000 for pricier deals while charging a $99 office fee each month, said it’s crucial that young brokerages offer an unconventional commission split if they expect to attract agents and compete with the established firms, provided they offer proper training and support.

“It would be crazy for anyone to start a firm with the traditional model,” she said. “You don’t need bricks and mortar — we video our training programs so they can be seen anywhere around the world — and with the iPad and all the online resources, we’re in a different era. It will be interesting to see who survives.”

Hecht, for one, isn’t going virtual. He currently has two offices, one at 136 East 57th Street near Lexington Avenue and another at 1131 Lexington Avenue near East 79th Street, and said he’s in talks for another office space.

No matter how large the firm gets, Braddock said operating under the larger commission model inherently makes the firm’s agents easier to manage. Whereas she was constantly in crisis meetings figuring out how to keep top agents happy while guarding the profit margin at her previous job as managing director at Prudential Douglas Elliman, with Rutenberg she gets a lot more time to develop young agents into successful veterans. “We can’t give them anymore,” she said, “so there are no crises.”

But Schlamm of City Connections said that the “numbers game” that an ever- increasing number of high-commission firms must play, will ultimately lead to their demise.

He said that while his firm is very particular in its hires, he believes many of the newer firms need to snap up hundreds of agents to earn a profit, and eventually quantity overtakes quality in hiring. They’re too focused on the short-term gain, and not paying enough attention to building a brand, he said.

“My guess — and I don’t mean to wish bad upon anyone — is that one day, the focus on quantity will cause many of these firms to implode.”

Hecht himself said his profits are dependent on the volume of transactions, but he believes that his model is too attractive for smart agents to overlook.

He said he’s heard “horror stories” from agents in bigger firms that were told they’d never succeed in New York if they left those firms.

“But I think a smart broker will see our model and want to join and grow on his or her own,” Hecht said.

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