Letters to the Editor

Re: Who had the biggest impact on the real estate industry during the last 25 years?

From my university business-educated and corporately trained point of view, the biggest failure in the history of organized real estate is the total disregard of the single most important goal of any real business, and that is to earn profits.

Why does such a massive industry with enormous sales dollar volumes struggle to make profits, particularly at the sales representative level? Why does our industry have the unspeakable failure rate that no other major industry has? The truth is real estate has become a non-business-like industry. Take for example any Fortune 100 corporation – General Electric, Ford, Apple, Pepsi – in order to profit, they must function. That’s why they have entire departments devoted to critical functions: finance, accounting, compliance, sales, marketing, public relations, legal, human resources, technology, product development, customer service – and every employee brings a specific expertise to the team. Together, everyone benefits from the momentum and synergy of the collective force.

There was a time when real estate salespeople performed no other task than just “selling” and the brokerage took care of all the other critical functions required to run a real “business”. Then in the 1980s along came Re/Max and introduced the independent contractor concept to the real estate industry, and destroyed the industry as we knew it. Independent contractor also means the salesperson now has to be their own functional expert and do all the functional tasks themselves, oh yes, and find time to actually sell real estate too.



Let’s be clear, “if” an individual came into real estate, already experienced with deep knowledge of critical business functions, they could become a real estate superstar. But let’s be honest, less than one per cent of real estate salespeople become a superstar. Statistically, just about every newcomer thoroughly lacks any real skills required to become profitable. Back to independent contracting – a model that offers the salesperson the allure of keeping a higher percentage of elusive commissions and in return, for a smaller share of commissions, the brokerage no longer provides (meaningful) support in all the critical functions necessary to run a profitable business (key word, profitable).

Even more important than the gutting of business functions from our industry is the complete and utter elimination of accountability. Our industry has salespeople running around ill-equipped to do their job properly and profitably, and then lets them do whatever they want, whenever they want. It’s absurd and asinine. In the real business world (where they actually make profits) any employee who fails to show up for work, every day, on time and act like a professional, perform competently and achieve results like a professional, would simply get fired. But in real estate such existence is the norm. It’s so absurd that most brands measure their success by the size of their tribe of such “salespeople”, where by contrast in the real business world the only true measure of success is profits.

Re/Max pats itself on the back as a trailblazer for bringing innovations to our industry, but in my opinion, bringing independent contracting to real estate has proven to be the cause of the single biggest failure of our industry in the past 25 years. How ironic that Re/Max recently announced the termination of one of its franchisees, operating in a major lucrative GTA market, touted for having 350 “salespeople”, yet incapable of paying its franchise fees.

Ross Gligic

Broker of record, president

Best Real Estate Inc.

Burlington, Ont.

16 COMMENTS

  1. The biggest failure of the real estate industry in the 34 years as a Representative and Managing Broker I have been licensed, is the failure to eliminate the industry practise of, double ending, dual agency or whatever it called in the local area. When and industry this huge can’t understand conflict of interest it’s a tragic failure.

  2. In the late 1960s I did real estate business with a woman, Pauline Daukowsky (spelling?), when I lived in Agincourt and later at area south of Military Trail in the Costain development.

    In the early 70s, she and a colleague, Marie (don’t recall her surname) opened a C21 franchise called Paulma Real Estate (an i.d. mix of their two names). in Scarborough’s southeast end. They were very successful.

    I continued to do business with Pauline several times and referred to her, long before I was an agent. She must have been an anomaly at the time.

    Pauline was married to a doctor and they lived in the Rouge. (People who may remember her, now deceased, will know her daughter was in the Winnipeg ballet.)
    By engaging in business with Pauline, I always remembered her professionalism. Since that was more than 40 years ago plus or minus, when I entered the field, 34 years ago, I took her expertise into consideration.
    She always looked like, and behaved as, a pro. So, certainly Pauline and her partner were well ahead of their time.

    When I was taking the initial real estate courses at OREA in Don Mills, one day an instructor asked the students (all ages), who in the room would they choose to list their homes. Several people identified me. I didn’t know any of them, and I was deeply flattered.

    A few years later the same scenario repeated in a broker course I was taking at OREA. Ozzie Logozzo was teaching then.

    Just last year when I was taking a credit course at MREB, the (agent/broker) instructor said – out of all the agents in the course that day, I was the one he himself would elect to do business with.

    Once again, never having met the man, I was more than a little flattered. What is one to say, except thank you? There’s no greater honour than being acknowledged by a colleague.

    Later that evening I got calls from Toronto colleagues who had not been in the course but had apparently received calls from their friends who had been on the course, telling how he had flirted with me.
    WOW! Definitely not! His wife was in the room, and he didn’t seem out of line, but rather sincere. So I processed the call information thoughtfully in retrospect and had a nice private laugh.
    Sometimes people who don’t know the whole story get creative when evaluating intentions and the repeating of. Sort of like that old party game that grows as it is passed from person to person.

    As far as I knew, none of these people knew me, my background or business history. So this begs the question: on what do you base “your” decision as to whom you will engage, and hire to represent you, when doing real estate business? and why?

    I am certainly no one special. And certainly not smarter or better trained than many others. So what did they see or hear that led them to say such?

    About 7-8 yrs ago, an agent was showing my own home. I asked for feedback. The house wasn’t for her people. That’s ok. But what she said next was nice. “You don’t remember me, do you.” “No.”
    But what she said next, I certainly did remember. She had brought an offer on a high end listing and was bound and determined she would sell that house. She had not been long in the business and I actually appreciated her effort. But not her extremely aggressive manner. An unusual stance for someone new to the business working with someone about 20 years in at that time. I saw her as a bully. I couldn’t believe my ears or my eyes.

    She worked for a man who was an aggressive trainer and he was in the business for EVER!!! And when I opened my own business other brokers on our board had to approve a new brokerage at the time. Word came back to me that he and another person tried to block my new business from getting board approval but another board colleague had my back. When I asked what reason he gave, this shocking answer: “there are too many companies already in town. We don’t need another one.” A buddy of his in the “old boys club” agreed with him.

    Back to the agent. Her paperwork was a total disaster. The worst I had ever seen. That combined with her aggressive stance with my seller caused the offer not to fly. She conversed directly with him in a rude fashion, and like I wasn’t even there. There was no taking control away from her. Finally I asked the seller’s permission after a couple of hours going no place if I could have his permission to ask her to leave. I remember it well. Never happened before and has never happened since.

    I was beyond shocked that her broker would let her leave the office with that mess. I did my best to correct the situation but felt she was so enamoured with her boss’s training there was just no turning it around. Someone else bought the house.

    I never heard from her ever again. Didn’t recall her name. Later I learned she was no longer in town. BUT, BUT, BUT!!! Here she was. She had changed companies and all those years later, likely 15-18, was still in the business. But I digress.

    She said something to this effect: “you likely don’t remember me (but I remembered her presentation) – I learned more from “you” the night of that offer than I ever learned from my broker while I was there.
    So I changed companies and towns and am still in the business.”

    WOW! And I didn’t know. I often think about that and how it played out. We just never know how we are perceived by others. We all learn from each other, valuable tips to employ.

    I have vivid memories in the 60s, of industry names such as Mann and Martel, H. Keith, and Young and Biggin, and Harvey Kalles in Don Mills, all east of Yonge St., and Bowes and Cocks recreational properties had a local office at Brimley and Eglinton, marketing properties in the Peterborough area. Some were Viceroy homes.
    Yes, those were names of “men” running real estate businesses. And for all the women agents out there, the mix of business is still heavily loaded – run by men. Not a negative, just an “is.”

    BTW – when some brokers run their own businesses, they refer to themselves as owners, when in reality, perhaps they are not sole owners, but rather sole shareholders in corporations.

    Typically companies that carry as part of their name: Inc., Corp., Ltd., do not have “an owner,” per se, although possibly there would be an exception, if any expert cares to address this.
    I mention this because often on real estate web sites, the Broker or Broker of Record refers to him/herself as the company “owner,” including the man who penned the article about independent contractors, having stated in the post, his business background.

    If you are considering going into the real estate business there is so much more to it than you might ever have thought. And especially more so if you are thinking of venturing out on your own.

    The industry is designed and purposely built around offices made up of more than a sole agent.
    I noted in my COGS post about how the schematics and algorithms are mathematically calculated as to productivity vis a vis setting up an office with regard to profitability.

    There’s a big hole in the serve-the-REALTOR(r) mechanism. An opportunity for some corp people to fill that hole. Prognosis is that the future belongs to only the very very large real estate empires or to the sole operator, completely vapourizing anything in-between.

    I look forward to hearing comments.

    Also I have a link from my site, prompted to share by the recent article where the two men left a large corp and went off on their own.

    http://www.carolyne.com/bigorsmall.html

    Submitted respectfully with editor’s suggestion to post at more than one article, even so my post is long. Thanks, Jim.

    Carolyne L

  3. Please, before we debate the nature and effect of Independent Contractor status as a fault of industry failure, provide some research that confirms this opinion. Every registrant in Ontario, or for that matter in every other part of the country, has the ability to charge whatever fee they believe appropriate for the service provided AND they can employ whatever services of others are necessary to properly run the business. That includes more than photographers and stagers, it would include lawyers, accountants, bookkeepers, marketing specialists, etc.

    Other opinion offers that Independent Contractor status has lifted members of this service industry and that is absolutey true. The consumer is not tied to only one or a few methods of service, they have a varied group to seek out the service provider best suited to their needs and wants.

    And what is profit….as an Independent Contractor, the earnings of my business are income…is that distinguishable from profit? Is a portion profit? If so, how much? In a shareholder or owner operated business, profit is the income of the owner/shareholder as a return on investment and earnings after paying someone else, indeed perhaps many others, a salary or wage to perform certain tasks in the provision of the service (product).

    So, I could look at my business as one that generates income to me and then profit above what is reasonable income in the market place of human resources for the service provided.

    It is a reality that from the income arising from the service provided there is money that goes to the individuals who work for the entity providing the service (product) and includes management of the company, money that goes to other inputs and services (raw materials, delivery, capital needs, lawyers, accountants and other consultants and service providers), and the balance is profit. One has to wonder if the Brokerages are unhappy with the relative sharing of the wealth generated in the servicing of real estate needs. Seems to be the real plaint that is offered.

  4. This is the best article here in a long time. Has nothing to do with being a man or a woman. Its about the model. IC doesnt work, because there is not enough oversight of those IC’s and not enough support and training. I cant say much the article didnt already say, but this business model for the industry will change, just as it did in the past when remax opened the door to the current model.

  5. Posted with REM permission:

    Speaking to the IC topic:

    No business runs by itself.

    Have you ever noticed the number of agents who are not even productive but have an assistant? Some agents have several. Is there anything left to pay the master agent at the end of the day?

    How much of the agent’s earnings are required to be delegated to “payroll?” Just dollars to pay their “staff.” But wait – those assistants are likely sub-set IC people – licenced/ registered (if they are dealing with the public).

    But someone has to be in place (at the branch) to “control” all mechanics of the branch operations. Who pays for that? (Aside from franchise fees.)

    The branch support team, too, have to be paid. It “costs” a branch to retain a high producer and a large team. They use “more” of everything; including such simplistic services as someone answering phones and manning the front desk. (Often highly underrated and sometimes underpaid positions, given little respect, yet one of the most important positions of control in the industry; the first face, voice, and point of contact with the public – and co-op agents.)

    The writer of the current article speaks to the current in the news issue of the particular office not being able to pay franchise fees.

    There’s a good bet that office is not the only one in that position. And each franchise ‘owner’ had best reread their corp contract if they think otherwise.

    It has nothing to do with IC per se but rather to do with “managing” skills. The initial setup, not just day to day management.

    I learned early on that no one in the industry seemingly thinks in terms that other businesses employ. Take for example the manufacturing world, and using the COGS approach.

    The widgets have to come from someplace, and there is an associated cost to make the widgets in the first place; costs to buy the widgets for resale, costs to resell the widgets, costs to account for the widgets and run the offices that are involved. Time studies and cost analysis investigations are required to see if there are any holes in the operation that need plugging.

    Safe bet that detailed analyzing almost never happens in the real estate industry. No one ever criticizes the manufacturing company for making a profit. And certainly if shareholders are involved, profit making is a requirement and indeed an expectation. Why is it seemingly inappropriate for a real estate company of any size to show a profit?

    I came to the real estate venue from another industry and was shocked to learn that agents, in no way whatsoever thought of themselves as “being in business.”

    I could never understand why our industry didn’t seem to relate to the widget world. How much do the widgets (buyers and sellers) cost to acquire?
    How many widgets are left in the warehouse at the end of the year (how many listings expired)? It cost money to keep those widgets on the allotted shelf space in the warehouse. (That’s one reason “just in time shipping” came to be in the manufacturing sector.) Read Tom Peters.

    How much do you sell your branch widgets for? Take the cost to acquire the goods (without co-op agents selling your MLS listings, perhaps they would never sell and this is in fact “a cost”) away from the gross dollars coming in, before you do any other calculations, (of course after co-op fees are paid) they are part of trust funds and cannot be allotted to any other category, even so they appear on the Balance Sheet as a payable) because those costs are in fact fixed expenses, and must be deducted from gross BRANCH income before anything else, making the co-op dollars, in fact, part of the cost of doing business. See sample COGS hypothetical formula.

    COGS, in reality, are always there in our industry same as in the manufacturing world. Along with the cost of widgets, there are the other fixed costs.
    Amounts that don’t vary month to month. So after the fixed costs are accounted for, it is from the remainder that variable (all other) “expenses” are paid.

    Not having been involved in franchising I don’t know in which category franchise fees are put. It would seem that they are in fact a category of fixed costs (are they invoiced?) in that they are always a “MUST be paid.”

    But there is no real way to calculate them except by prognosticating, by quantifying and qualifying them based on prior years’ production.

    But that method doesn’t work because of the instability of our industry. Last year’s production, used as prognostication can lead a branch down a garden path in a heartbeat, thus contributing to the constant need to be recruiting – due to the huge dropout rate. And what happens when agents cannot contribute their share of franchise fees, to the branch? Head Office will look to the branch to pay, period.

    And from THAT remaining number (gross income minus co-op fees) subtract the list of other fixed costs next, then variable expenses, itemized of course, to determine NIBT.

    Is there enough wiggle room in the numbers to even have anything left for the leader agent IC person? Or the branch?

    It’s not all about the advantages of being an IC (even so it was wonderful that Ross K and his family found themselves protected) and the resultant freedom for others to run a business within a business.

    From the branch perspective it’s about “engineering preparation.”

    There’s a reason that the old formula worked. Someone figured out the logistics that said the costs incurred for a branch of a certain square footage of office space, a certain number of support staff required, and other fixed costs worked in increments of having 25 agents.

    If that branch took in 28 agents, suddenly the numbers did not work. The branch would lose money by not following the “formula.”
    In that example less is more. Equals profit.

    Other similar formula showed examples such that an office of 10 agents could be profitable, but hire 12 and the system didn’t work. Likewise 18 agents could be a successful operation but 20 could not.

    Now extrapolate the theory to running an office of 350 agents who are not employees, but rather as IC’s, a sort of sub-contractor in real terms, functioning on a system of ‘invoices.”

    It’s not hard to figure out the exponential curve and why it often doesn’t work, and relies heavily on the bell curves and unreliability of the marketplace. It’s always a gamble. Some roll the dice and win. Others lose.

    First and foremost we are in the people business. That is the only stable, unchanging, quantifiable for sure thing about our industry. Everything else is a variable.

    But if you are a branch manager and/or franchise ‘owner,’ what will happen to your widgets?
    Did you ever figure out your COGS?

    Is this a misuse of the term: franchise ‘owner?’ Does ANYONE ever really OWN a franchise? Any franchise? Is franchising really better equated to a landlord/tenant relationship?

    The current debacle that was vetted and vented in REM should perhaps serve to enlighten others: both agents working for (relative term suggests employee relationship) a branch “owner,” or there acting in an IC capacity.

    As to the disbursement of listings, when an agent leaves, one has to look to the contract. The standard MLS contract would appear to have had the public contracting with the corporation. Does REBBA address a mass exodus transference of “product?”

    Other arrangements could possibly envelop general contract law and what, if anything, is superseded by the agent employee/IC contract in place at the time of disengagement.

    There are many agents who give thanks for the IC outcome Ross succeeded in achieving for the industry, by protecting agent commissions and the legal taking seriously position of the IC, and neutralizing gender application.

    He is a true leader who deserves industry respect at the highest order. Learn from him. Many of his colleagues did. His brain is way out in front in the order of things. In fact, his name should be added to the most important changes list, regarding protecting agent commissions via Commission Trust accounts that are now taken seriously.

    Sample COGS formula just a guideline:

    Here is a workable sample for IC people trying to run a business within a business. I wrote this material ages ago. This is not standard terms of engagement accounting principles methods, but because neither the government nor accountants at large understand the workings behind the scenes in the real estate industry, this information will be useful to agents and even start up offices, as a point of understanding why there is no money left at the end of it all, even when an agent or branch manager/owner has worked hard to earn a living.

    Copyright CAROLYNE REALTY CORP. 2004. This material may not be reprinted or reproduced in any manner without the written permission of the copyright holder.

    “MINDING YOUR OWN BUSINESS – how to set up your REAL ESTATE BOOKS for your accounting system (help for the Independent REALTOR(r))”

    All business items need to be able to be expressed in percentages for purposes of comparison, either period by period, year by year (corporate year or calendar year), month by month, or custom timeframes. You are merely setting up the basis from which to build a Profit and Loss Statement, or Income Statement.

    (1)​Total Income – Commissions Received on all “Closed Transactions” where the money has actually been deposited in the bank.

    (2)​Less Cost of Goods Sold (COGS) =
    ​All Funds Paid to Other Brokers, Co-op Fees ONLY (absolutely no other payments fall in this category). This works for branch detail or for agents to help them keep track in an always ready overview, who have assistants.

    (3)​= Gross Income before ALL Expenses, or Gross Profit

    (4)​List all Fixed Expenses by Category and/or sub-category and subtract the total of this list from the Gross Income before Expenses or Gross Profit. There is no provision for taxes of any kind, on this part of the model.

    Next, make a list of Variable Expenses by Category and/or sub-category. Subtract.

    If, as an agent with IC assistant(s), who invoice you, you will want to create a category for this item, if your accounting is not treating this subject matter as employee payroll.
    This new total is referred to as Net Income before Taxes, or NIBT. What you have left is the “company” or master agent portion of commissions actually closed, not including outstanding receivables in a holding/waiting pattern, written and provable, but not yet closed/banked.

    Discuss with your accountant how to set up how you yourself will be paid; either some sort of shareholder draw if you are a limited company, or a fixed amount as a salary, perhaps to be adjusted at year-end or at organized period ends. Discuss bonuses.

    Outstanding receivables are attributed to, and accounted for on, the Balance Sheet for the company. Leave that portion of managing your business to your accountant.

    There is no provision in this part of the model set up, for funds attributed to and paid out to the owner/broker. Those funds appear on the Balance Sheet along with any payments for loans, payments made to the owner/broker along with shareholder adjustments if the company is a limited corporation, car payments if the car is purchased, credit card balances and any other non-expense items such as outstanding taxes.

    The use of this concept is commonly referred to simplistically as a “manufacturing model,” but translated, works well for the Independent REALTOR(r), in an effort to visualize reality, and enables the REALTOR(r) to plan quarterly, based on current results that show patterns, using this format. (This model is excellent for use in building charts and graphs, enabling agents to have information at their fingertips.)

    This model will provide statistics at any point in time, that are readily understandable, to see if the company/master agent is running a shortfall or producing a profit, at which time decisions can be taken to adjust for any anomalies, in preparation for year-end filings.

    This model is easy to set up. Your accountant will understand exactly what you are trying to achieve if you show him this format. You are just using this as a base guideline, developed for those who are not expert at organizing such.

    There are of course, professional methods of setting up your books, when you are first starting out, but this sample “thinking it through” model is merely for the purpose of highlighting the concept, one that is the most user-friendly model for non-accountant types of personality such as is common in the real estate business, often where agents don’t see themselves as officially “being in business” (they just help people buy and sell houses); and this will enable the REALTOR® to plan, based on being able to view past performances in any category.

    Carolyne L
    [email protected]

  6. Posted with REM permission:

    Speaking to the IC topic:

    No business runs by itself.

    Have you ever noticed the number of agents who are not even productive but have an assistant? Some agents have several. Is there anything left to pay the master agent at the end of the day?

    How much of the agent’s earnings are required to be delegated to “payroll?” Just dollars to pay their “staff.” But wait – those assistants are likely sub-set IC people – licenced/ registered (if they are dealing with the public).

    But someone has to be in place (at the branch) to “control” all mechanics of the branch operations. Who pays for that? (Aside from franchise fees.)

    The branch support team, too, have to be paid. It “costs” a branch to retain a high producer and a large team. They use “more” of everything; including such simplistic services as someone answering phones and manning the front desk. (Often highly underrated and sometimes underpaid positions, given little respect, yet one of the most important positions of control in the industry; the first face, voice, and point of contact with the public – and co-op agents.)

    The writer of the current article speaks to the current in the news issue of the particular office not being able to pay franchise fees.

    There’s a good bet that office is not the only one in that position. And each franchise ‘owner’ had best reread their corp contract if they think otherwise.

    It has nothing to do with IC per se but rather to do with “managing” skills. The initial setup, not just day to day management.

    I learned early on that no one in the industry seemingly thinks in terms that other businesses employ. Take for example the manufacturing world, and using the COGS approach.

    The widgets have to come from someplace, and there is an associated cost to make the widgets in the first place; costs to buy the widgets for resale, costs to resell the widgets, costs to account for the widgets and run the offices that are involved. Time studies and cost analysis investigations are required to see if there are any holes in the operation that need plugging.

    Safe bet that detailed analyzing almost never happens in the real estate industry. No one ever criticizes the manufacturing company for making a profit. And certainly if shareholders are involved, profit making is a requirement and indeed an expectation. Why is it seemingly inappropriate for a real estate company of any size to show a profit?

    I came to the real estate venue from another industry and was shocked to learn that agents, in no way whatsoever thought of themselves as “being in business.”

    I could never understand why our industry didn’t seem to relate to the widget world. How much do the widgets (buyers and sellers) cost to acquire?
    How many widgets are left in the warehouse at the end of the year (how many listings expired)? It cost money to keep those widgets on the allotted shelf space in the warehouse. (That’s one reason “just in time shipping” came to be in the manufacturing sector.) Read Tom Peters.

    How much do you sell your branch widgets for? Take the cost to acquire the goods (without co-op agents selling your MLS listings, perhaps they would never sell and this is in fact “a cost”) away from the gross dollars coming in, before you do any other calculations, (of course after co-op fees are paid) they are part of trust funds and cannot be allotted to any other category, even so they appear on the Balance Sheet as a payable) because those costs are in fact fixed expenses, and must be deducted from gross BRANCH income before anything else, making the co-op dollars, in fact, part of the cost of doing business. See sample COGS hypothetical formula.

    COGS, in reality, are always there in our industry same as in the manufacturing world. Along with the cost of widgets, there are the other fixed costs.
    Amounts that don’t vary month to month. So after the fixed costs are accounted for, it is from the remainder that variable (all other) “expenses” are paid.

    Not having been involved in franchising I don’t know in which category franchise fees are put. It would seem that they are in fact a category of fixed costs (are they invoiced?) in that they are always a “MUST be paid.”

    But there is no real way to calculate them except by prognosticating, by quantifying and qualifying them based on prior years’ production.

    But that method doesn’t work because of the instability of our industry. Last year’s production, used as prognostication can lead a branch down a garden path in a heartbeat, thus contributing to the constant need to be recruiting – due to the huge dropout rate. And what happens when agents cannot contribute their share of franchise fees, to the branch? Head Office will look to the branch to pay, period.

    And from THAT remaining number (gross income minus co-op fees) subtract the list of other fixed costs next, then variable expenses, itemized of course, to determine NIBT.

    Is there enough wiggle room in the numbers to even have anything left for the leader agent IC person? Or the branch?

    It’s not all about the advantages of being an IC (even so it was wonderful that Ross K and his family found themselves protected) and the resultant freedom for others to run a business within a business.

    From the branch perspective it’s about “engineering preparation.”

    There’s a reason that the old formula worked. Someone figured out the logistics that said the costs incurred for a branch of a certain square footage of office space, a certain number of support staff required, and other fixed costs worked in increments of having 25 agents.

    If that branch took in 28 agents, suddenly the numbers did not work. The branch would lose money by not following the “formula.”
    In that example less is more. Equals profit.

    Other similar formula showed examples such that an office of 10 agents could be profitable, but hire 12 and the system didn’t work. Likewise 18 agents could be a successful operation but 20 could not.

    Now extrapolate the theory to running an office of 350 agents who are not employees, but rather as IC’s, a sort of sub-contractor in real terms, functioning on a system of ‘invoices.”

    It’s not hard to figure out the exponential curve and why it often doesn’t work, and relies heavily on the bell curves and unreliability of the marketplace. It’s always a gamble. Some roll the dice and win. Others lose.

    First and foremost we are in the people business. That is the only stable, unchanging, quantifiable for sure thing about our industry. Everything else is a variable.

    But if you are a branch manager and/or franchise ‘owner,’ what will happen to your widgets?
    Did you ever figure out your COGS?

    Is this a misuse of the term: franchise ‘owner?’ Does ANYONE ever really OWN a franchise? Any franchise? Is franchising really better equated to a landlord/tenant relationship?

    The current debacle that was vetted and vented in REM should perhaps serve to enlighten others: both agents working for (relative term suggests employee relationship) a branch “owner,” or there acting in an IC capacity.

    As to the disbursement of listings, when an agent leaves, one has to look to the contract. The standard MLS contract would appear to have had the public contracting with the corporation. Does REBBA address a mass exodus transference of “product?”

    Other arrangements could possibly envelop general contract law and what, if anything, is superseded by the agent employee/IC contract in place at the time of disengagement.

    There are many agents who give thanks for the IC outcome Ross succeeded in achieving for the industry, by protecting agent commissions and the legal taking seriously position of the IC, and neutralizing gender application.

    He is a true leader who deserves industry respect at the highest order. Learn from him. Many of his colleagues did. His brain is way out in front in the order of things. In fact, his name should be added to the most important changes list, regarding protecting agent commissions via Commission Trust accounts that are now taken seriously.

    Sample COGS formula just a guideline:

    Here is a workable sample for IC people trying to run a business within a business. I wrote this material ages ago. This is not standard terms of engagement accounting principles methods, but because neither the government nor accountants at large understand the workings behind the scenes in the real estate industry, this information will be useful to agents and even start up offices, as a point of understanding why there is no money left at the end of it all, even when an agent or branch manager/owner has worked hard to earn a living.

    Copyright CAROLYNE REALTY CORP. 2004. This material may not be reprinted or reproduced in any manner without the written permission of the copyright holder.

    “MINDING YOUR OWN BUSINESS – how to set up your REAL ESTATE BOOKS for your accounting system (help for the Independent REALTOR(r))”

    All business items need to be able to be expressed in percentages for purposes of comparison, either period by period, year by year (corporate year or calendar year), month by month, or custom timeframes. You are merely setting up the basis from which to build a Profit and Loss Statement, or Income Statement.

    (1)​Total Income – Commissions Received on all “Closed Transactions” where the money has actually been deposited in the bank.

    (2)​Less Cost of Goods Sold (COGS) =
    ​All Funds Paid to Other Brokers, Co-op Fees ONLY (absolutely no other payments fall in this category). This works for branch detail or for agents to help them keep track in an always ready overview, who have assistants.

    (3)​= Gross Income before ALL Expenses, or Gross Profit

    (4)​List all Fixed Expenses by Category and/or sub-category and subtract the total of this list from the Gross Income before Expenses or Gross Profit. There is no provision for taxes of any kind, on this part of the model.

    Next, make a list of Variable Expenses by Category and/or sub-category. Subtract.

    If, as an agent with IC assistant(s), who invoice you, you will want to create a category for this item, if your accounting is not treating this subject matter as employee payroll.
    This new total is referred to as Net Income before Taxes, or NIBT. What you have left is the “company” or master agent portion of commissions actually closed, not including outstanding receivables in a holding/waiting pattern, written and provable, but not yet closed/banked.

    Discuss with your accountant how to set up how you yourself will be paid; either some sort of shareholder draw if you are a limited company, or a fixed amount as a salary, perhaps to be adjusted at year-end or at organized period ends. Discuss bonuses.

    Outstanding receivables are attributed to, and accounted for on, the Balance Sheet for the company. Leave that portion of managing your business to your accountant.

    There is no provision in this part of the model set up, for funds attributed to and paid out to the owner/broker. Those funds appear on the Balance Sheet along with any payments for loans, payments made to the owner/broker along with shareholder adjustments if the company is a limited corporation, car payments if the car is purchased, credit card balances and any other non-expense items such as outstanding taxes.

    The use of this concept is commonly referred to simplistically as a “manufacturing model,” but translated, works well for the Independent REALTOR(r), in an effort to visualize reality, and enables the REALTOR(r) to plan quarterly, based on current results that show patterns, using this format. (This model is excellent for use in building charts and graphs, enabling agents to have information at their fingertips.)

    This model will provide statistics at any point in time, that are readily understandable, to see if the company/master agent is running a shortfall or producing a profit, at which time decisions can be taken to adjust for any anomalies, in preparation for year-end filings.

    This model is easy to set up. Your accountant will understand exactly what you are trying to achieve if you show him this format. You are just using this as a base guideline, developed for those who are not expert at organizing such.

    There are of course, professional methods of setting up your books, when you are first starting out, but this sample “thinking it through” model is merely for the purpose of highlighting the concept, one that is the most user-friendly model for non-accountant types of personality such as is common in the real estate business, often where agents don’t see themselves as officially “being in business” (they just help people buy and sell houses); and this will enable the REALTOR® to plan, based on being able to view past performances in any category.

    Carolyne L
    [email protected]

  7. Whoa, hey Ross, Are you a Realtor? I can’t find where you are licenced! And get your facts straight, 1. it was accually a Real Estate company called NRS Realty who spearheaded the push for independant contractor status back in the 80’s, 2. if you research the independant contractor status it only pertains to Rev Canada and taxation NOT to REBBA where every licenced person is an employee! And you have totally missed the point of the article and gone off on a tangent on womens issues. By the way, I totally agree with everything said in the article and way to go Ross Gligic for saying what has to be said!

  8. The business is changing. Why should I pay high fees when I broker load my listings and type my own offers and don’t want an office but prefer to work at home? We still have to following all the rules, do the same paperwork. When I was at a large franchise it took twice as long to get a listing loaded (with mistakes that I had to point out) and 3 times as long to get an offer typed (with mistakes). Now I do it all on my own and it is much quicker. Don’t have someone looking over my shoulder all the time. Love this new type of Brokerage.

    • I broker load all my listings. While not many, since I am one those disliked part timers, I know it is done right the first time. No chasing others and begging for a *fix*. I have a dedicated home office, fax, scanner, copier dedicated phone line and it is much more efficient. I can also time it strategically to when EXACTLY I want the listing hit the market. And I do show up for every office meeting, while many of my full time colleagues cannot bother to show up when they actually could learn something new !

  9. Now, I have no idea, why everyone is missing the big picture… This slander article about RE/MAX is bogus…. The industry isn´t missing capable business people. The industry has capable business people who run fantastic businesses. Because of them all of a sudden thousands thought they can too and as a result tried to duplicate that business without skills. That is the problem… Look at RE/MAX agents, most of them running successful businesses and making a living not only for them, but also for family members and generations past and in the future…
    The problem is, that over the past fourty plus years the regulatory body became weaker and weaker and with some rulings (part time agents etc.) it is obvious, that the quality of sales people had to decline…
    In terms of education and support the only thing that I have to say is, that RE/MAX provides excellent opportunities for sales people to learn and grow their business as well as in office support at many offices for things like tax questions, in house marketing solutions and even assistance when needed…
    I don´t think that this was an article meant to actually do anything else but slander on business models, that are well in competition with the (and maybe outperform) the business model of the author…

  10. The ultra low fee brokerage model with ultra high body counts poses risks to the consumer and to the legitimacy if the industry. Brokerages no longer have the margins to maintain appropriate management ratios and training budgets. The splits have become unreasonable and the brokerages are becoming glorified answering services with little or no oversight over the sales team. Eventually, the regulator is going to have to step in and address this if the leadership doesn’t.

  11. Ross K. please stay on topic. No need to muddy Gligic’s comments by trying to start a gender war. Women in all lines of employment have climbed the ladder of success, as our society has evolved over the last 30-40 years & women will continue to to succeed in real estate & every other walk of life.

    IC status has allowed tens of thousands of under qualified people to pretend they are real estate sales people. Brokers have abdicated their responsibilities to provide & demand attendance at ongoing training programs & assist in the career development of their salesforce, all the while collecting fees from people who have a limited chance at sucess.

    Supervision of salespeople is at an all time low.The growth of the regulator in Ontario( 12 lawyers on the payroll !!) is exponential because brokerages are not policing themselves. I would concur with Mr. Glicic that the IC status has been a significant negative influence on the industry.

  12. Really, this is one of the most misogynous articles ever to appear in REM, which I am sure Mr. Giglic did not intend when he was penning it.

    Independent Contractor Status lifted the lives of 100,000’s of WOMEN in Ontario during the last 24 years and gave their businesses a legitimacy similar to MALE dominated businesses. Whether it was the opportunity for equality of taxation as a business owner versus an employee or the opportunity to insure their incomes via income replacement policies that were only available through independent contractor status, everywhere a WOMAN operates an LTTP business under an IC agreement they saw these real benefits of being a legitimate business owner.

    As Claire Eslick showed for over a decade, RE/MAX and it’s initiation of IC status into the real estate sales profession, was the single most powerful tool available to any women looking to sell real estate. Elle Davis, Eve Chapman, Corrie Sue Marshall, Barbara Beers and others who chose to operate under a franchise brand of their choice all were allowed to grow and florish as business women without owning their own brokerage. Before RE/MAX the female brokerage owner was almost non-existent ( we won’t forget Carolyne’s exception of course) and it was an almost 100% Male dominated business opportunity.

    The proudest day of my business career came the day we won our court challenge that validated the IC contract in Ontario. It was a suit won by 2 men and 2 women equally. IC from that day forward protected single mothers, grand mothers, single women and all women in between, from having their hard earned commissions stolen from them by Male Broker Owners. I can assure you both my Mom and my Wife where happy to see a Male Broker prevent from stealing their hard earned commissions.

    RE/MAX should be lauded for it’s role in the IC implementation while Walter and Frank should be acknowledged for the equality of gender their actions assisted in building in the REALTOR profession not only in Ontario but across Canada!

    Finally without IC status, the plethora of changes towards marketing your real estate sales business would never have occurred. Forget direct phone numbers, personal websites, personally branded email or even the use of “Team” or “Group” as those would have remained the exclusive right of the broker owner, again a male dominated field.
    http://www.RossKay.com

    • Let’s keep the gender issue out of this. Many of the top producers in all national firms are women.
      The issue is reflected in this letter and the article by Marty Douglas.
      This is NOT a professional group of people. Where do you go to spend hundreds of thousands of dollars and be greeted by a “salesperson” in shorts or a summer beach outfit? Only in real estate.
      How come there is no accountability for the brokerage to ensure the staff are trained? The good franchises do training. May don’t.
      Most of the agents I know would not make it in industry. This is my post-retirement career and I have been an award winner from the beginning. Not because of what I learned to become a Realtor but because of the training and discipline I received in industry.
      How come there is tolerance for the non-producers and those who cannot even write up an offer after 10+ years in the business.
      Put these two articles in front of the leadership and have them explain why the current re-certification process in Ontario has become a mickey mouse process where you need not have any right answers and you have no one to talk to to get clarification. Ontario is moving back 25 years in ensuring their Realtors are qualified. It is a self defacing direction.

    • JVM
      In Ontario, The Regulator is also a significant portion of the problem. The reason you have Mickey Mouse (with all apologies to the rodent) mandatory continuing education in Ontario ( just keep clicking the answers on the online course until you get the right answers AND there is no proof that you actually did the course. Was it your kid, your assistant or the brokerage secretary?).
      The regulator is complicit in making vast sums of money & yet doing little to protect consumers and nothing to educate the industry. 60,000+ registrants in Ontario all of whom pay $44 every two years, that is $2.64 million, to develop and deliver a third rate course that should not have cost more that $250,000 to develop( ok it is government, we can triple the cost). Where is the missing almost $2 million?

      Is it a hidden fee? Is it being used to build a public service empire? Look at the growth of employees at RECO in the last three years

    • In response to Ross’ last paragraph, specifically the notation re website ownership and rights, and relevance to the recent REM article referred to by the writer of the current article above, in regard to the franchise owner change of relationship – who owns the agent websites at the branch office discussed? Corporate? the agent(s) per se, the branch?) As general interest, I refer you to an old article I wrote addressing the website topic:

      “Webmaster and agent alert! – Who Owns the Material on Your Web Site? (Copyright management – is there intellectual material theft on your web site?)”
      http://www.carolyne.com/websitetheft.html

      Respectfully,
      Carolyne L

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