To office or not to office? How virtual and brick-and-mortar brokerages make it work

Brand-new brokerage Clockhouse Realty started business on January 1, servicing all of Massachusetts and Rhode Island.

Co-owned by James Velozo, a seasoned broker-owner, and his son, Jared Phillips, as managing partner, Clockhouse aims to be a full-service satellite real estate brokerage firm offering 90/10 splits and no offices.

Why the decision to be virtual?

“We quickly realized that by not opening a traditional office, we would be able to offer a much higher commission split to our agents and would also be in a position to offer reduced listing fees to our sellers,” Phillips explained.

But it’s not just a financial decision for them.

“Due to technological advancements over the last decade, we also believe the physical real estate office will soon be an antiquated notion. The technology we currently use makes it unnecessary to carry the costs of a physical real estate office,” he added.

The business model has not affected their ability to engage any age demographic so far, the millennial said.

There’s no doubt that we’ll see more new startups of the same ilk as Clockhouse springing up in the next few years, excited to try the virtual model in a bid to give themselves a competitive edge.

And they can look at big models expanding from state to state, such as eXp Realty, Real and Fathom Realty for inspiration.

Others, as a midway step, are trying the shared workspace idea — popular with startups — or are reducing their office space substantially.

There is still resistance against no office at all from the industry majority, though; people worry about a lack of a “home base” leading to higher agent turnover; the thought of signing documents in a Starbucks makes many shudder. It threatens the already precarious professionalism of the agent, they argue.

As Anthony Clark put it in a Facebook post on Inman’s Coast to Coast group: “If you’re not meeting clients at the office then you’re not meeting them in a professional way. Popping into Starbucks to sign a half million dollar contract isn’t ‘fun’ or ‘the way it’s now done’ — it’s another way to demonstrate to the consumer how our service is becoming more devalued.”

Big Block Realty tried being virtual, but agents protested

It’s interesting to hear Big Block Realty’s story — a 100-percent commission brokerage based in San Diego which grew by over 7,500 percent from 2012 to 2015, taking it to no. 26 on the 2016 Inc. 500.

At its launch in 2012, the company, known for its agent concierge model, initially thought it would try no offices.

Three years later it has three, and more are likely to follow as it expands north.

President Oliver Graf, one of three founding partners, said: “At the beginning we felt maybe the virtual model was the way to go, but as we got bigger we started getting more requests for an office from our agents. They wanted more interaction with the team.

“After about 150 agents, we were getting consistent feedback from our agents saying things like: ‘We love Big Block and we want to meet the other agents.’”

They listened, opening moderate-sized offices in three Silicon Valley startup-style spaces in San Diego locations, based on agent feedback.

When they are new to a market and testing it out, now they will set up flexible office space at a spot like WeWork or Regus before deciding to commit to an office, Graf said.

He thinks virtual brokerages are missing something.

“Yes, people love independence and working from home — I appreciate that — but going completely virtual is a risk because you are not taking the human element into account,” he argued.

“When agents don’t get to meet the other agents or team members in virtual brokerages, after a while they start to feel isolated, like an island floating out at sea all alone.

“We wanted to bridge the gap between the virtual model and the traditional brick-and-mortar one, by having office and conference rooms available throughout the county.”

At its offices, agents are networking, coming to events, attending training and having meetings; there are also areas where agents can rent private offices.

“Having these spaces allows us to connect with our agents on a deeper level, to press palms and have real meaningful interactions,” he said.

Graf also said the company’s offices help Big Block Realty attract and recruit the top players, who often come with a team.

“Most of the big producers and high-volume teams want a place where they can have an office, meet with clients, prospect together and have team meetings. If you don’t offer that, it can be tough to get top talent,” he noted.

While a number of agents don’t care or even come by the office, the ones who like it really like it, said the company president.

And having offices doesn’t seem to be affecting its growth. Big Block is enjoying the same substantial growth as last year, said Graf.

No regrets, says eXp Realty

At the same time, large virtual companies operating without offices — including eXp Realty, Real and Fathom Realty — have no regrets, and their growth figures are enviable.

EXp, for example, ended 2016 with 2,401 agents, representing an increase of 1,537 — or 178 percent year-over-year. It grew into eight new states in 2016 and is now in 42 states, plus Washington, D.C., and the Canadian province of Alberta.

On Inman Coast to Coast, Terry Trexler, an associate broker with eXp Realty, said that offices are a distraction from actually selling homes, a place for gossip and complaints. 

“As agents, I believe we should be where other agents aren’t. That’s where business and leads come from. So I appreciate not having an office because my brokerage takes the money they save from that and applies it to things like awesome free websites and tools, free apps, unmatched revenue share and stock rewards. The trade off is unmatched.”

Russ Cofano, president at eXp Realty World Holdings, says the industry can and will have all kinds of models to suit the community.

His answer to those who say their market wouldn’t stand for an office-less brokerage is: “Those that say ‘the consumer wants this: (insert model here),’ I think, miss that there are many consumer preferences and they, like agents, don’t fall into a ‘one size fits all’ category.

“When talking about models — like ours at eXp that do not put any value on a physical location — the question really has to include what value to the agent is enhanced with the elimination of the physical space.”

With its exclusive cloud campus, eXp World, agents have an office experience with a difference.

“Our eXp World is an office, it’s just an office that is not brick and mortar — it is a place agents can go and interact and socialize. The social interaction and business operation is more profound than other offices; people interacting are not competitors,” he said.

Some eXp teams have physical environments — and they can feel free, but the company will not provide it.

“Our perspective is we can operate a national brokerage company without the necessity of physical spaces. We certainly want our agents to gather in local environments and they do that on their own, but because the company is not mandating it, then it is a more agent-centric feel about the agents doing what they want,” said Cofano.

Real and Fathom looking to the (office-less) future

A younger player in the cloud brokerage model at two years, Real is nonetheless growing at a great pace, with 1,000 agents after two years and 400 percent growth in agents and revenue in 2016.

CEO Tamir Poleg expects agent numbers to be 2,700 by the end of the year. The firm is in most large states and is about to open in Arizona with a model centered on a mobile app, he said.

The initial reason he chose to go without offices was that the virtual workplace was in line with where the market was going, he said.

“With technology, people can work from anywhere and the value of the office has diminished dramatically.”

Rather than saving costs, it’s just the way the market should operate, he said.

When his agents, average age 41, are asked why they chose Real, the two things they cite most frequently are freedom and flexibility.

There are opportunities for Real agents to socialize, said the CEO.

“Our agents feel that they are a part of something. A lot of agents can talk or meet; they don’t feel a lack of human interaction. They exchange leads, there are physical events in every city, happy hours where agents can socialize.

Poleg thinks the situation may be forced on brick-and-mortar brokerages in time, especially small ones struggling with the expenses of keeping up an office.

“If you look at 50 percent of homebuyers being under age of 36, and they are sensitive to commission, as the younger generation becomes the majority, they will drive prices down,” he said.

They will fight the commission; agents will be paid less and the broker won’t be able to sustain the office expenses, he argues.

While Poleg is looking at the future, Fathom Realty’s Joshua Harley has learned from the past about what he doesn’t want to do in his 6-year-old virtual business across 18 states.

“If you walk into almost any real estate office in any town across the United States, you will find relatively empty halls. I’m sure there are exceptions to this, but not many.

“The Keller Williams McKinney office where I was an agent was, and is, the most beautiful office I have ever seen — and yet, even with their 200 agents, I never saw more than 10 agents at any given time.

“The truth is, technology has advanced so much that agents do not need the office space, and if they could choose between a big office or better commission splits, they would almost always opt for better splits,” opined Harley.

When he is speaking with agents who are considering joining Fathom, a few may be concerned about the lack of physical offices.

Harley will always ask them about how often they actually visit their current brokerage’s office, and most will say “once a month or less, just to pick up commission checks.”

This is not an issue for Fathom because its agents receive their checks at closing — and in states where that is not allowed, the commission is direct-deposited upon clearing.

Said Harley: When you ask an agent what their top four priorities are, that list usually boils down to support, commission splits, training and technology — and sometimes one of those can be traded out for leads.

Office space is rarely on the list, he noted.

One independent brokerage spending large on retail offices

Perhaps if business wasn’t so good at the moment, more brokerages would be testing out the virtual brokerage model — but for some brick-and-mortar brokerages, it goes against everything they stand for.

With over $1.15 billion in sales in 2016, more than 43 percent growth in sales volume last year, Realogics Sotheby’s International Realty (RSIR), named one of the fastest-growing companies in Seattle by the Puget Sound Business Journal for the past five years, has gone fancy with its offices, putting them in retail locations.

Jennifer Johnsen-Cameron, vice president of brand development, says it is worth it.

“We don’t believe in cloud real estate companies. Every broker [Seattle agents are called brokers] needs an office. If you don’t have offices, what do you do — do you hide out at home? Where do you get inspired?” said Johnsen-Cameron.

RSIR’s average office is about 3,000 square feet, and it’s at the hub of where things are happening.

The Kirkland office is probably the largest and is where events are held regularly.

“From a company perspective we have used our offices to better our relationships with other brands, running intelligent conversation seminars, real estate people come in from other brands, so we build relationships with the brokerage network.

“The Bainbridge office hosts the Friday Art Walk, people go from business to business to look at art; we start a conversation with people in the community,” explained Johnsen-Cameron.

The brokerage has found the retail location adds another dimension to a brokerage business that it couldn’t get otherwise.

“That becomes part of the business model. I have managed big offices in business parks; it’s quiet. You come into our offices, there’s energy, an exchange of information — we’ve had so much success from it,” said the VP.

“Our competitors were looking at us, as if to say: ‘What are you doing?’ Now we can see other companies trying to get in line.”

Johnsen-Cameron says the interest in having an office varies by generation.

Of their agents over 50, they tend to have a private office at home and also want an office to visit during the day. “We would have a hard time producing top agents. And the 50-and-above crowd tend to be the top agents,” she noted.

The younger generation is ambivalent about offices — but they want to be near the top producers for mentoring and building relationships, she said.

“The younger generation don’t care about a private office. For them the world is paperless, mobile, digital and online, but they like a collaborative workspace.”

A brave man who closed his offices (and substituted with Regus)

A number of brokerage owners are currently testing the shared work space and are finding it works well.

Cory Kammerdiener, broker-owner of newhomeprograms.com, a Houston-based brokerage that has expanded to Florida, took the brave step of closing his offices after five years in business and booking Regus suites in retail locations instead.

He explains: “We had two operating offices and two under construction. Our agents agreed that the offices were not needed. Office rents were $16,500 per month, not including utilities and insurances. I sold them on the idea that I could increase the marketing budget and double their business.

“They love it because we chose very prominent locations which are in high-end shopping outlet malls,” he added.

They also like the idea that Regus has staff at the front desk, who will greet their clients.

He makes it financially worth their while. “They get more leads, thus closing more deals,” he said.

“Plus we can keep our agent monthly fees and splits lower than other brokerages — especially lower than franchise brokerages, since most franchises demand that you have an office and they set the standard size.”

Having a large office creates an office culture where agents hang out and become less productive, said Kammerdiener. Having flexible space when he needs it frees him up to try new markets.

“It allows us to roll out our operations even faster. I can literally roll out an entire region in 30 days, including a regional website, and have leads coming in enough to support new agents.”

Email Gill South.