December 19, 2014

Does it Pay to Cobroke?

Depending on who you ask, cobroking means working with a cooperative broker or a competing one.  In either case, it’s usually used when agents from two or more brokerages are involved in a deal.

Most agents will work with another broker especially a motivated, ethical one.  “No-cobrokers” will tell you there are too many lazy/unethical ones out there but a good agent knows how to deal with those issues.  It’s really all about the money.  A larger future commission is just more valuable to them than a smaller commission now.

There’s always a risk to wait.  Most clients want a timely resolution and will fire an agent who doesn’t perform.  Market conditions can change for the worse – and yes, for the better.  But upward cycles take a while to gain traction while downward ones seem to come out of nowhere.

I could go on and on about why working with other brokers serves the client better, but any agent who doesn’t cobroke has heard them all before – and isn’t convinced.  So let’s look at some data.

This data comes from a regional brokerage and spans an 8 year period.  Forty percent of their revenue comes from deals involving cobrokes.  Of the total commission available for the cobroked deals, the house captured 47%.

cobroke chart 1

According to a survey by a business brokerage, 90% of agents who responded said they worked with other brokers. The percentage of their total deal volume attributed to cobrokes amounted to 5-15%.   So from what data is available, this brokerage is quite cobroke friendly.

The brokerage who conducted the survey also put a system in place to encourage cobrokes.   Sales increased by 25%.  That’s where the 25% value comes in for the next chart.  It shows the change in revenue under the following conditions:

  • Lost revenue from refusing to cobroke 25% of the time, i.e., the brokerage refused to cobroke on 25% of the deals on which it had the opportunity to do so
  • Waiting out 25% of cobroked deals, i.e., waiting to get the full commission from a deal they cobroked on
  • Revenue gained from increasing cobroked deals by 25%, i.e., revenue the brokerage could have captured if they had cobroked an additional 25% of the time

cobroke chart 2

I have no figures as to how many deals were lost because an agent didn’t cobroke – or how many of the cobroked deals they could have captured the full commission on if they had waited.

But you can play with these numbers all you want.   The only sure thing is the amount of revenue lost if this brokerage had refused to cobroke on any percentage of the deals it did cobroke on.  Assuming they would have received full commission if they waited is just that – an assumption.  And you know what they say about assuming…

The point is, waiting isn’t much of an income strategy but actively seeking cobrokes is.

 

 

Comments

  1. Excellent article, well researched – as usual.

    What I love are “cooperating” brokers who come in at the last minute wanting a piece of the “pie”. You find the prospect, you work with them, then another broker hears about it on the golf course, or somewhere else, then swoops in wanting a half the commission for writing up an offer.

    Just one reason I stay out of the MLS circles.

    I look at co-broking this way. Do I want a smaller piece of a bigger pie, or a big piece of a small pie? If you don’t co-broke, you do your customers no favors. In the long run you will end up with a small piece of a small pie.

  2. We track and measure this differently than # of deals that involve co-brokers. From a revenue standpoint, we can count on about a range of 15-20% of our lease commission income going outbound to cobrokers on our listings. We’ve NEVER had misgivings about cobrokerage and encourage it from residential brokers, as well.

    • Those figures in the post are based on revenue – not number of deals. I guess my poll question is causing the confusion. But I figured most agents who have a general idea of the number of deals that involved cobrokes instead of the revenue.

      • You did say that, I just didn’t read it carefully enough. Truly our number would be higher when including sales, but since their side of the commission doesn’t flow through here, we don’t track it. Doubt we’d be as successful without a cooperating community. Our company and market run counter to the picture Kevin Maggiacomo paints.

        • Chris Clark says:

          Not familiar with the picture Kevin paints, but I assume it’s non-cooperative? But I guess it does depend on the agents’ general attitude in the market. As Gary commented, it’s how big you want the pie you get a slice from. Some agents just think too small…

          If you’re using an accounting system, yeah, you won’t see the whole picture. This brokerage has a pretty sophisticated deal tracking system that captures all sorts of data. It’s separate from accounting, though, so there is the extra step of keeping them in balance. Some day, maybe there will be a real, all in one system for CRE that lets you track it all!

  3. Hi Chris and Barbi and everyone –

    Just to clarify. Sperry Van Ness and Kevin Maggiacomo are all in with cooperating — big time. This has been the SVN hallmark for years, and ironically, we just released this animated short this week. Not sure we’ll be nominated for an Oscar but it was certainly fun making an animated video (this is one of the reasons, SVNIC got me to come back to the CRE industry). http://svn.com/2013/03/04/the-sperry-van-ness-difference-animated-video/.

    • Thanks, Diane – I saw Kevin painting a picture of an INDUSTRY that doesn’t cooperate. Our corner of the world doesn’t see that, and C&W | PICOR operates as you do, hence my comment.

      As for Oscars, you get my nod! VERY well done piece.

    • Interesting video…but where did the stats come from? 80-90% of agents don’t show their listings? That can’t be right when what has to be at least half of all brokers put their listings on their website or on LoopNet. And what about all that spam agents complain about that comes from agents pushing their properties?

      And agents “often” refuse to split commissions when another agent brings them a tenant/buyer? That’s rare from where I sit. If anyone won’t pay a commission to an agent who brings a user it’s the owner.

      I get that SVN wants to promote that it’s willing to cobroke – and there certainly are always bad apples in every bunch – but I think this video unfairly portrays the rest of the CRE community they supposedly want to work with.

      • I agree with Chris. I found the SVN video pretty insulting to the industry as a whole. Yeah, there are a few unscrupulous brokers out there, but they are in a small minority. Using inflated or incorrect numbers and casting all non-SVN brokers as unethical is not fair….

        Just my opinion….

    • Fantastic video.

      This is part of the reason I’m big on data openness and transparency.

      Imagine if everyone in CRE operated on the simple concept of:

      “Because it’s the right thing to do”

  4. When we were a small independent company, we cooperated. When I franchised with SVN and started going after bigger deals listed with larger national CRE firms, I started running into roadblocks. I’ve got a file of emails from brokers from the large national companies that told me that I either need to get my fee from my buyer or that they just weren’t going to give me any info. Or – I had to register my buyer with a CA.

    I find that regional companies and independents are much more likely to cooperate, but the nationals tend to do it when they are about to lose a listing. There are certainly exceptions, but cobroking means the brokerage company makes less on that deal. There are national companies that fire managers who allow their agents to cobroke too often. It is all about the buck for them versus being about getting the best deal for their clients. Simple as that.

    • Probably because the firm I work with is regional that I just don’t see that much lack of cooperation. But a CA is common for large investment deals usually because the owner wants one. I remember one listing where the owner not only wanted at CA but wanted to know who/when someone accessed a file. So it’s not necessarily the agent putting up roadblocks.

      Can see the problem with nationals that are public, though. They have shareholders/a board to answer to…

  5. Great post and thread here. As for the video, it wasn’t intended to serve as an indictment of the brokerage community, but rather to paint the picture of what we believe to be an antiquated, inefficient – and in some cases – broker fee centric business model where the clients’ interest are not placed first.

    80-90% of brokers (on investment sale RE) don’t include the brokerage community in their marketing programs – that is not to say that only 10-20% market their listings on Loopnet (the percentage there is probably closer to 95%), but rather they don’t “cooperate,” don’t offer a fee to an outside broker whose introduced buyer win’s the deal. We call it “Compensated Cooperation.” That’s a marketing program.

    Randomly select 100 investment sales listings on loopnet – inquire as to the co-op fee. 80-90% of the time, you’ll find that there is none. Or, there is assuming that there is, it’s wildly low, and in order to be eligible for a fee, the prospect can’t have previously existed in the listing brokers database (regardless of frequency of contact, age of record, and procuring cause).

    According to RCA, a mere 11% of all transactions sold from Jan-Nov ’12 reported a co-broker.

    Strip out the “None Identified” category below, and the number jumps to 19%.

    Also according to RCA, 65% of deals were purchased by out of state buyers – leveraging the brokerage community, providing them w/an incentive (fee) to work the listing is the only way to identify all potential buyers for a property. Yet, this doesn’t happen.

    We can challenge the data ad nauseum. But empirically, most would agree that there exists a huge cooperation problem in CRE. The industry standard is not to equally share fees with cooperating brokers, and in many cases, to not share fees at all.

    Again, this isn’t an indictment of the industry. It’s just the way it’s set-up. We are simply pointing out that in many cases, the listing broker is not acting in a current, client centric fashion…in a manner which leverages crowdsourcing and collaboration to affect a better outcome for their client.

    • Appreciate you taking the time to clarify the video and the stats used. It wasn’t clear to me that they applied to primarily investment sales/capital markets.

      That said, I have heard the argument that for large transactions, a listing agent will not share due to concern over a conflict of interest many times at the owners request. The owner has retained the listing agent as a consultant on behalf of their interests only. A buyer is expected to retain – and pay for – their own consultant.

      Smaller brokerages don’t get much of a shot at those types of deals and when they do, the owners are less sophisticated. Buyers also tend to be in the market rather than out of state since secondary/tertiary markets are not usually considered as good investment venues for the larger players.

      No doubt the CRE industry could be run more efficiently. But the point of my post was to show agents that a cobroke strategy could be lucrative from a financial perspective. Yes, it should always be about the client, but if the resistance to cobroking has been because of money, there really is no evidence to support that.