We parse both sides of the agent poaching debate and come up with what’s best for the industry.
Harvesting the flock
Despite the recent surge in California real estate prices, agent and broker licensing has remained relatively flat. There was a small uptick in agent licenses issued during Q3 of 2013. But the agent-to-broker ratio has held steady at its norm of about 2-to-1.
Historically, an agent licensing bubble runs tandem with a sales bubble. This can be seen vividly in the case of the Millennium Boom. As prices and home sales volume peaked, the agent-to-broker ratio ballooned 4-to-1.
But during California’s most recent pricing surge in 2013, the attendant agent licensing bubble never formed. This is likely due to several factors, one of which is certainly the tainted image that real estate agents have in the public view.
As a result, competitive real estate brokers have had to ramp up their efforts to expand their brokerages. Unlike during the golden days of the Millennium Boom, brokers have to scrap for new talent. They are turning to services like Elite Connect.
Cold callers commence
Elite Connect is a cold-calling service based in New York. Attuned to the relatively limited supply of real estate agents, they have begun offering poaching services to real estate brokers.
The fastest way to grow a real estate brokerage is by bringing on new agents. Many brokers complain they do not have time to both oversee their current cadre of agents and simultaneously court new ones. Momentum is dying as California’s real estate mini-bubble deflates — which means Elite Connect’s services are in demand with brokerages that need bodies to make deals while the getting is good.
Their service isn’t cheap. Elite Connect charges brokers two installments of $12,500 to cold call agents from competing brokerages. They guarantee, however, that their broker-clients will capture at least ten new agents within the first year. If this quota isn’t met, Elite Connect will continue fishing indefinitely until it is.
The ethics of poaching
First, lets dispense with the ethics question. Poaching, fishing or headhunting in the real estate profession is well within ethical bounds, even according to the trade associations.
What’s more interesting is to examine the cultural underpinnings of this issue. In a well-responded recent first tuesday poll, for example, the respondents were split, with nearly half arguing that agent poaching is unethical.
One’s gut reaction upon hearing about Elite Connect’s business model does turn the stomach. Why is it that despite the technically ethical behavior of agent poaching, so many agents and brokers don’t like the sound of it?
Perhaps it is because it reduces an agent’s efforts — their education, experience, hard-won clients and so on — to a mere numbers game. Organizations like Elite Connect take the spray and pray approach. Unlike traditional recruiting, where a candidate’s qualifications are paramount to the process, this brand of poaching depends only on the sheer quantity of agents solicited by cold callers.
On one hand, industry professionals complain of the growing threat of websites like Zillow and Redfin. They clamor that computers cannot replace the expertise of a well-seasoned agent. On the other, demand for cold-calling and poaching services reveals the extent to which agents are replaceable — foot soldiers on the broker’s front lines, only good for collecting signatures.
To those of you flattered by the phone call, remember, aside from a pulse all you need is a license number to be “recruited” by one of these services.
The virtue of competition
Agent poaching may be uncomfortable to some, but it plays an important role in shaping a competitive and thus fair real estate industry.
The real estate industry (thanks in no small part to the trade associations) has a long history of anti-trust and anti-competition behavior. Just off the top of our heads:
- the pervasive and almost dogmatic approach to commissions (6% seems to be law);
- price-fixing for multiple lisiting services; and
- recent debates over the so-called intellectual property of agents being used on sites like Zillow and Redfin.
Those who ultimately come down against agent poaching share in the spirit of the other unspoken, anti-trust “rules” of the real estate business. Thou shalt not touch my agents, says the old school.
However, aggressive agent recruiting can lead to a better standard of living for some agents and may ultimately create a professional environment that leads to better dealing with the public. As brokers compete with one another to grab the best talent they are forced to offer a better fee split, more training, more attractive offices, better resources and so on. These fundamentals of staffing and talent acquisition are working wonders in the tech industry, setting off a virtuous cycle that has made more money for shareholders, executives and employees alike.
The backwards thinking of indentured servitude under which many brokerages operate will only dampen the real estate labor force. Unfortunately, healthy sales volume and market turnover may go with it.