Imagine you’re a 23-year-old kid who has just moved to Manhattan from California. You don’t really know anybody here, but you are hungry and you see a future in real estate. Who do you know? Probably a bunch of other 23-year-olds looking for a three-bedroom, no fee share in Bushwick.
“That person is going to have a hard time in this business,” said Mark Chin, the head of Keller Williams in Tribeca.
Yet they come, as do scores of others with reasons as varied as their pasts. Few of them will have a career in real estate – and that fact of high turnover in the industry has a profound effect on how Manhattan’s top residential brokerages operate.
To look at broker churn — the number of agents who came or went at a brokerage from one quarter to the next — The Real Deal vetted data from the New York Department of State, looking at who came and went between the second and third quarters of this year. The TRD analysis found that the rates of attrition varied dramatically between Manhattan’s 16 biggest residential brokerages – firms with more than 200 agents. On the low end, only 3.6 percent of Compass brokers left the firm between the second and third quarters. On the high end, nearly 15 percent of brokers moved on from Citi Habitats and Nest Seekers International during the same period of time. (Both brokerages, like most that appeared on the ranking, declined to comment.)
First, the caveats. TRD gathered the data by comparing lists of agent license numbers from two different dates — the beginning of the second and third quarters of this year. It does not look at any other periods.
Also, don’t assume that all of the people who don’t show up on the third quarter list quit or were fired. Some stick with their firm but leave to work other boroughs like Brooklyn. Others simply fail to renew their license but do so at a later date. And, of course, some agents face serious medical problems and others die.
But mostly, agents simply flame out.
“Of the people I have lost, probably 80 percent of them are just leaving business,” said Chin, whose firm had the fourth highest turnover rate in Manhattan. “People move here from across the country and suddenly realize that the game is very sophisticated here, that the talent pool is incredibly deep and that the competition is fierce. So if they can’t cut it, they tend to go home and live on their mother’s couch.”
|FIRM||FINAL PERCENTAGE OF DEPARTURES||FINAL TOTAL AGENT COUNT Q3||FINAL TOTAL AGENT COUNT Q2||FINAL PERCENT CHANGE||FINAL NET CHANGE||FINAL DEPARTURES|
|KELLER WILLIAMS NYC||13.10%||832||815||2.10%||17||107|
|OXFORD PROPERTY GROUP||11.69%||415||402||3.20%||13||47|
|BOND NEW YORK PROPERTIES||10.70%||614||617||-0.50%||-3||66|
|BROWN HARRIS STEVENS||6.60%||611||625||-2.20%||-14||41|
|DOUGLAS ELLIMAN REAL ESTATE||5.00%||2271||2001||13.50%||271||100|
|STRIBLING & ASSOCIATES||4.90%||284||285||-0.40%||-1||14|
|SOTHEBYS INTERNATIONAL REALTY||4.20%||281||283||-0.70%||-2||13|
The numbers confirm that it’s a rough-and-tumble business. The total number of licensed agents in Manhattan at the end of the second quarter was 30,447, while there were 30,746 licensed agents on the island by the end of the third quarter, according to Department of State data. Meanwhile, the number of listings in the city shrunk from 13,321 in the second quarter to 13,229 in the third quarter, according to On-Line Residential data.
And as the market continues to cool, many believe churn is only going to get worse.
Firms have reacted to this reality in two distinct ways, and you can see the line in the sand in the data. Some brokerages believe that the best way to create real estate success stories is to carefully train and raise brokers up through the firm. It’s the flower garden approach. In these firms, the weeds are plucked and turnover tends to be higher. The other approach is more laissez faire. These firms let the garden grow and see which plant grows the tallest. Even if most of the agents do very little business, few are weeded out, resulting in relatively low turnover.
It should also be noted that firms that deal in high volumes of rentals like Citi Habitats, which are far less profitable for brokers, generally had higher churn than firms that deal mostly in sales. You just can’t make a name for yourself renting somewhat expensive Tribeca or West Village apartments, even if you do make a living. On the lower end, a broker is as good as anonymous, and they don’t tend to stick around for the long term.
So how do brokerages deal with the constant ebb and flow of agents? What are the costs? And what accounts for the turnover?
The warehouse effect
If you ask Town Residential CEO Andrew Heiberger and Brown Harris Stevens executive vice president Bess Freedman, the biggest reason for low rates of churn is some firms’ willingness to “warehouse licenses,” that is to say, retain non-producing agents.
The practice doesn’t fly at BHS or Town. “Real estate is a full time job,” said Freedman, who noted that BHS doesn’t have a desk cost or a set production minimum. “You can’t do it well part time. Brown Harris Stevens is not the right firm for anyone who wants to do that.”
“Some of the more established firms warehouse licenses. I know it for a fact,” Heiberger added. “They have over 500 people working as virtual agents who have zero earnings.”
Some firms view the practice as carrying dead weight while others see a savvy business strategy.
The biggest firms, Douglas Elliman and the Corcoran Group, allow brokers to stay on the books through virtual employment. A virtual employee is not obligated to come to an office, so there is no desk and therefore virtually no cost associated; the agent pays for his or her own license and the Real Estate Board of New York membership fees.
So if they make a sale a year — or even once every few years — the firms feel it’s usually worth keeping them on the books. If there are really no costs associated with hiring a virtual broker, why not have a lot of them?
The free market takes care of itself
In fact, Elliman executives said they’ll hire any qualified would-be agent who wants a job. The firm then allows the realities of the marketplace to determine who stays and who goes, according to Steven James, the brokerage’s New York CEO.
“We set a desk cost between $150,000 and $165,000. Not everyone makes that desk in a year, because the business is a business of peaks and valleys. If we believe someone is having an off time, and we still believe in their abilities, we are going to keep them,” he said. “If someone has been here for three years and made no money whatsoever, and if they are getting in the way of people who are actually making the money, desk or no desk, we will probably let them go. But we are not super well known [for] letting people go.”
By the end of the third quarter, Elliman had 2,262 agents in Manhattan and Corcoran had 1,456, though it wasn’t immediately clear how many of them are “virtual” agents. (Corcoran declined to comment for this story.)
The argument against so-called “warehousing” is that allowing inactive agents to carry your business card harms the brand. At Town, for instance, Heiberger said that their agents need to be actively engaged to stick around.
“Why should a non-producer carry the same card as somebody who is here 60 hours a week?” he said.
“A lot firms will throw out this big net and take everybody,” added Freedman. “To me it seems desperate. There is no quality control.”
James contends that a hands-off approach is actually more productive, more entrepreneurial and, frankly, more attractive to brokers.
“We don’t have a set number for how many we retain or recruit… If we feel that some has a great opportunity and a great chance to succeed, we are going to hire them,” he said. “It gets crowded at times. But we work around that. Not everyone has a desk.”
A few make a lot
In residential brokerage, firms used to live by the 80/20 rule — the idea that 20 percent of the agents made 80 percent of the money. “That ratio has changed,” said James. “It’s more like 85-15; 15 percent of the agents make 85 percent of the money.”
In 2015, a TRD analysis found that star brokers at some of Manhattan’s biggest firms on a single day claimed anywhere between 20 and 57 percent of their firm’s exclusives, worth hundreds of millions of dollars.
In some cases, a single broker team will produce more revenue than well over 100 agents at the firm combined. Breakaway stars with names and reputations make the brokerage world turn, and the firms usually dedicate big resources to making sure they’re happy.
Though their philosophies differ, all brokerages struggle with how much time and what resources to put into hiring and training.
“It’s a major, major issue. I have staff whose primary function is just paperwork and onboarding,” said Chin. “As head of the brokerage I spend 10 hours a week training brokers, because that is an incredibly important part of retention. If they see senior management caring to that level, they are like, ‘Okay, this is the kind of place I want to be.’”
All of the brokerages said that better retention saves everybody time, paperwork and money on administrative costs. And perks and in-house training programs are the primary way brokerages work to keep agents.
Freedman said she increasingly sees firms offering over-the-top perks to attract new agents, like 100 percent commission for two years and a signing bonus.
And Keller Williams offers a profit sharing model that brings agents a steady stream of income the longer they stay at the firm.
Perhaps the most important and least tangible consequence of high turnover, is its impact on office morale.
“When someone leaves, I take it personally,” Heiberger said. “I feel like it is our failure. This isn’t all about dollars and cents. Even if someone doesn’t produce any money, they might be important to the office. They might have friendships here. That is the biggest challenge sometimes. It changes the dynamic and culture of the office when someone goes.”
Lucas McGill contributed to this story.