Property Management or Working as an Agent: The Pros and Cons of Each

This episode will help you understand the pros and cons of working as a property manager or becoming an agent. Learn how to make your decision based on your personal goals!

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Property Management Or Working As An Agent: The Pros And Cons Of Each | Bryan Bowles & Zain Jaffer

If you're brand new to the industry, you walked in many shoes which makes this a very interesting interview, and say, “Where is the money to be made?” Is it in property management? Is it on the brokerage side? Is it somewhere else? Let's say the easy money.

There's still a lot of easy money in being an agent. Let's talk a little bit on a larger scale. It is in anything transactional in nature. Agents in the industry as a whole have been fed a lot of products and they're a little tired of it. Whether it's from a landlord from a property management aspect, or whether it's from an agent and a brokerage, people want actual help dealing with some of those things. That's where we're stepping in the middle of the transaction, helping people out with that. It's not easy money. The demand’s there for it but it is hard work to deal with.

It's different. Property management is hardly passive. It's extremely active. You've got cashflow coming in. You're taking a recurring fee. That’s a little bit of safety there, especially if you have a minimum fee. That's interesting, it's not necessarily a percentage. It might be a percentage but there's also sometimes a minimum per door that people charge.

On the other hand, there's being an agent and you're hunting. If you're going out there after these big transactions, often I tend to see property managers trying to also play the role of an agent because they get a lot bigger, bulky revenue or an agent who wants some steady cashflow and is happy to property managers something for a short time.

Are you seeing a blurring here? Do you feel that people are focusing more on their own skills and they're not crossing into the two? I've seen property managers also trying to take a commission and play the role of the agent. I've also seen agents who are offering to be property managers. Do you see that or is that more of a rare occurrence? Where are things going?

I see a lot of agents go into property management because they do see that as the easy reoccurring money. It helps them with that up and down cycle that they experience throughout each year. They then burn out fast. On the property management side, they do tend to sell more. A well-run property management firm will typically have a sales arm involved. They've got the insight to know when that property is selling first before anyone. There's often a challenge in some of those property management firms as well. That agent only sees them as a property management firm so it's very much a marketing challenge in letting them know that they can assist with anything.

I tend to find a different DNA. If you're a hunter and you're used to that, property management can become quite a depressing situation because you haven't actively focused on operations and process management. You're getting paid with what feels like peanuts. On the other hand, when you're a property manager and you've got a large portfolio, you don't even have to be a sales guy or a hunter.

A well-run property management firm will typically have a sales arm involved.

You've got the inventory there. You get a heads up on what's going to sell and what isn't going to sell. Sometimes you're brought in to look at a property on behalf of other funds. That gives you a good sense of what's going on. I tend to find sometimes property managers know the market a lot more than the agents who are just involved on one side of the transaction.

You're right on the hunting thing. A good agent loves that win, that closure of the deal. You don't have that in property management. It never happens. The lease is so small, the commission's maybe $1,000, $2000 at best. That's not the same as some of these larger commissions that you can receive for taking some effort to sell a property.

Also, on the property management side, you're very often blamed when things are not working out well. When things go well, you get a small pat on the back.

There's no winning in property management.

In fact, there's a lot of blame. There are also a lot of turnovers, I'm finding. Most of the turnover that happens within brokerages agencies are within the first 24 months. Is that something you've also experienced or are seeing?

It is more so now than in the past because it's so challenging to pick up clients or find properties for some of those clients. Listings are selling incredibly fast. Typically, agents will pick up business from expired listings, a home that didn't sell because maybe it was overpriced or they didn't get the right advice from the previous agent on how to stage It All that new business is gone from new realtors coming into the industry.

It seems to me like it's more of the economic cycle we’re in than it is the fundamental forces at work with technology.

I would agree with that. Talking in terms of institutional buyers in the industry, inventory shortage will be interesting to see what happens in the future. Who knows what will happen with all that inventory that's been bought up and continues to be bought up? I don't know. It could be a positive thing for agents in the future if that ever gets dumped.

What do you mean by that? How would it be positive?

Think about it. If the inventory is transactional in nature, you rely on the number of transactions that happen in a market. If the inventory is being bought up by a large institution that doesn't include an agent which is growing, there's less inventory. What happens when that inventory is freed up? We've got institutions that are holding inventory. We have courts that are holding inventory. We have senior living communities that people aren't going into so there are fewer senior citizens that aren't selling their homes. It could be a different challenge that we see over the next few years where it could be more inventory than we anticipated.

What's your prediction? Do you think that will impact house prices ultimately, and it will be a good thing for agents because there'll be more inventory and more transactions? Do you have a different view?

On the consolidation side, it will be better for those top agents and teams because they will be able to write it. For some of those smaller agents, the smaller commissions on the lower prices won't be so favorable.

What is the standard commission? What have you seen in terms of different models? There's the flat fee. Could you be specific maybe, and discuss what are the flat fees and the variable percentages? What type of deals have you seen? How much of a discount are agents offering? Who's taken that discount? Is it the buyer? Is it the seller? Does one have more power than the other?

You can't say there's a standard commission. In fact, there is a couple of class action lawsuits around that. They put out an average, I'm not sure what that is. Last I looked, and it's been a while, it's 5.1% total. Let's say it's 6%, which a lot of people have in their minds over time.

There's no winning in property management.

That's 3% buyer, 3% seller.

It varies. We see it vary market by market. Where I'm here in St. Louis, we see 2.7% regardless of what the total commission is. Let's say it's 6% that the seller decides to pay. The way that these deals work out is that they get paid to the listing broker. They are then authorized to share a chunk of that with a buyer agent who brings the buyer. The average is roughly 2.7% here in the St. Louis, Missouri market. We see it shift all over. In Chicago, it's 2.5%, another market I'm very familiar with.

It shifts around quite a bit but then you see it also scaled down the higher the property value. There are lots of different dynamics market by market. There are other fees baked into that. Maybe some flat fees that are charged by brokerages on top of the commission. Forty states allow for commission rebates and that happens. You see some of the more progressive brokerages offering those. The buyer agent is allowed to rebate that portion that's shared with them to their buyer to go towards closing costs or whatever.

There are a lot of different dynamics with it. It's not as clear-cut as you would imagine it to be. There's a lot more room for negotiation than most people realize as well because a lot of them come with the same thing that you did in the original comment. They think there's a standard commission but there is no standard commission.

There's also the fact that if you’re with a large brokerage, and in most cases, you have to have a brokerage behind you, at least when you're starting out, right?

From a licensing perspective, yes. This is one of the challenges that is going to disrupt the industry quickly. It is state by state. Every single state is different. Most states require you to be a licensed salesperson. That can be a broker salesperson in some states. You have to maintain that for a period of time, some 24 months or 30 months before you can become a broker and sponsor other salespeople under you.

To become a broker, it's not like, “I've hit my three-year mark.” You've got to go and get more credentials.” It's a process, too.

Not necessarily credentials, but licensing. Once you have the licensing, you can go do what you would like. Most people to do to join the Association of Realtors, which gives you access to MLSs, standard forms, and things that you need to conduct business.

Walk us through the dynamics here, especially as you've seen the brokerage side. If an agent is given a commission, they still have to pay the brokerage firm they’re with. How does that work? If they're giving a discount, is it pro-rata? Do the brokerages take a flat commission to say, “We will always take 1%, the rest is yours,” or 2%, whatever it is, or does it vary? If there is a discount, does everyone eat that, or is it the individual agent who has to eat that?

There are different types. Traditional brokerages do splits with the agent, whatever their keep is on that. If they sell a property and there's a 6% commission, they give 3% of the buyer agent and that leaves 3% for them. A traditional brokerage takes a split of that. Typically, it starts at 40% to 50% of that. At the end of the day, that agent that charged 6% only ends up with 1.5%.

The brokerage does that for a number of reasons. For traditional brokerage, that higher split is for a newer agent. It could be compensation for the training but also the error and omission insurance. That’s a number of other insurance policies they may carry, technology-provided, or other services within the office, and so forth. Those traditional brokerages will then set a scale. As you scale up and do more volume, then that split lowers, and it rarely goes below 10%.

You then have these flat fee models. I started with the brokerage in 2012. It's a flat fee. We, as a brokerage, have these costs normalized. They're not variable. We're not providing you with the business and we understand that you provide it yourself. It's a flat fee per transaction and you keep whatever. To answer your question on who ate it, it's typically the agent that eats any discounts and sometimes the brokerage, if it's that split model, too. Those brokerages that do that will typically have a minimum commission that they let the agent negotiate down to.

What about in the case where you've got a team of agents? Is there a typical structure with how you see commission being split when there's a team of 2 or 3 agents?

Teams are fascinating. They're getting more and more sophisticated, which is a cool concept. A few years ago, a team was maybe 2 or 3 people that just call themselves a team because they needed someone else to show properties while they were on vacation. Now you see teams running like a boutique brokerage would within a brokerage like at Keller Williams, or at eXp.

I'm talking about 50-plus-person teams where they have some call themselves the CEO of the team. I don't know how they get away with that. They will have people that work on the listing side and people that work on the buying side. They will have people that work the transactions, people that handle the management, and the general admin staff. Some of these are sophisticated and impressive.

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About Zain Jaffer:

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780m.

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as "Forbes 30 Under 30", "Inc. Magazine's 35 Under 35," and the "SF Business Times Tech & Innovation Award." He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.