A Star Is Born

During my earliest years in real estate, the financial structure of our business was clear. We were paid at a 50% split until we earned $100,000; after that the percentage rose to 60%. It never went higher. At the end of each year, we reverted to 50%; after a few years in the business, I ascended to an earnings level at which I successfully petitioned my bosses for a permanent 60% split, and a Vice President title. We placed ads every week in The New York Times Classified section. Depending on how well you were doing, you got one ad, two ads, or three ads. Period. No marketing budget, no special arrangements, no assistant, no teams. And mostly, unless there was a crisis, we stayed put in the company where we were.

Of course at that time, the vast majority of deals cost under $1 million, for which we literally always received a 6% commission which we did not share with a co-broker since there was no co-broking.  I recall vividly my enormous excitement when I made my first REALLY big deal: a full-floor facing Central Park at 2 East 88th Street for $2 million. That $120,000 commission excited me more than almost any deal before or since. I felt I had arrived.

As prices rose throughout the later 1980s, deal making evolved. Increasingly, different agents represented the buyer and the seller, so every commission was split. Prices escalated quickly so multi-million dollar deals became more commonplace. Gradually the self-perception of agents also changed. Rather than being facilitators, skilled but in no way glamorous, the star broker emerged as the late 1990s flowed into the 21st century, with prices once again on the rise as tech fever gripped the city. Certain agents became identified with the new technology entrepreneurs, and as they became more successful they became more demanding. They wanted bigger splits, assistants, dedicated marketing money. And as more and more of them became million dollar producers, the firms acquiesced. Prices rose so quickly that even with a 5% commission split between seller’s agent and buyer’s agent replacing the 6% single agent transaction, the brokerages made good money. The paradigm still worked.

The advent of online searching, which grew exponentially in popularity starting in the late 1990s, changed the business again, although not in exactly the way we expected. Except for at the lower levels of both the sales and rental businesses, technology has not disintermediated the agent. Instead, it redefined our work.  As consumers could increasingly do their own listings research, our job as providers of basic information about properties for sale lost its relevance. We needed to redefine ourselves as providers of expertise. This shift, especially in urban centers, enabled the glamorization of the star broker; it would have been inconceivable in the 1980s to have TV shows featuring real estate agents. But in the past decade and a half the multi-million dollar agent has become a star: super-competitive, very expensively dressed, a huge earner because rather than just having access to the listings, he KNEW THE SCORE.

Of course this super-agent expected even more from the company, and a new sort of company, that functions more as a tech start-up than a traditional brokerage, rose to meet him. This start-up brokerage model, flush with raised capital, probably doesn’t expect to actually make money on its agents, at least not at first. It pays 75% and 80% splits plus generous marketing budgets and assistant stipends. Even with an agent earning $1 million a year in gross commissions, there is little money-making opportunity for the company in such a relationship. So these companies have changed the marketplace and turned an enormous package into the new normal.

Over the years the top splits crept from 60% to 65%, from 65% to 70% and finally to 75%. Everyone is on the phone every day recruiting everyone else’s agents, offering better this and more of that. But there remains more to life than money. Warburg does not have a $100 million war chest of VC money, although we have never had an unsuccessful year. What we DO have is a culture of integrity and respect for everyone who works here. A work force of terrific agents, many of whom have been with us 15, 20, even 30 years. An extraordinarily knowledgeable senior staff. And an atmosphere which makes you want to come to work every day. These are the things which money cannot buy.