How to Transform Your Business to a More Sustainable Model While Holding On To Your Best Agents w/Matt Johnson

This is Real Estate Team Builders and I'm your host, Lars Hedinborg, the founder of Real Estate B School. The real estate team building world is driven by big egos who boast about how many homes they've sold or how much GCI they've earned. We don't hear much about their low profit margins, the long hours they put in each week, or the unbearable stress they endure. In fact, I discovered that most real estate teams are losing money when you consider the amount of personal production their owners must do to make ends meet. I believe that if you want to profitably scale your real estate team without working crazy hours, enduring unhealthy levels of stress, or coming up short at home, then thinking like a business owner, building sustainable systems and empowering your team are absolute musts. You won't find any smoke and mirrors or hype here on my podcast, just the real world tools, systems and strategies that work. So if you struggle to balance growing your real estate business with focusing on the areas of life that truly matter, then this show is for you.

All right, so welcome back to Real Estate Team Builders. Today we're going to flip the script and Matt Johnson, who has been in the industry for over 10 years or so, I think it's been a while. We met back in the viral days and Matt Johnson's actually the producer of Real Estate Team Builders. So we're going to flip the script and I'm going to hand it over and we're going to have a conversation about real estate teams and. Should be a good conversation today, Matt.

Yeah, it's going to be fun. We're talking about the future of real estate teams. This is something both you and I think about and obsess over nearly every day, basically. I mean, I produce a lot of shows in the space and a lot of my friends are team leaders of one sort or another. And then I am a 50% owner of a nationwide exp team as well. So, yeah, I mean, this is something that we obsess over essentially every day. So you talk a lot about what is sustainable versus unsustainable. Right. And a lot of real estate teams get themselves into areas that are not sustainable. There's a lot of things happening with traditional teams that just. It just does not work. And a lot of people are stuck either in production or they're so stuck in production that they almost can't leave right to the point where they're actually making more on their own production than their team makes them into. The point where they're losing money on the Actual team itself. So there's a whole bunch of weird dynamics going on in the team world right now. So I think from somebody that's somewhat on, on the outside looking in, going, well, should I start a team or I already have, like, I'm already a rainmaker agent and I'm starting to build a team. Am I making a mistake? Should I back off and just be that rainmaker person? Let's start there with just what you're seeing in terms of where traditional teams are at right now, what are they struggling with? And then we'll, we'll go on from, from there.

Yeah. So I think, you know, in terms of where traditional teams struggle and even to kind of touch on the answer, like, can you build a sustainable real estate team now or is it worth just to go the rainmaker route? I think there's always, in every business vertical, I think there's always going to be a position for a well run group of people with different skill sets, you know, and systems binding those people together. So I think fundamentally, you know, what I see with traditional real estate teams is that the team owner just got busy enough where they just kind of threw some agents into the mix, like here, work these extra leads. But there never was a concerted focus or effort or a vision around. Like, what if you started out your real estate team building journey with a very specific outcome, like this thing has to run at 30 plus percent profit without a single deal done by me. What would it have to look like? And that's like literally exactly the question I posed to myself when I started building my team. You know, I didn't want to be like the other teams of the day. And this is back in, you know, 2009, 10, 11, 12, when I was building my team, I saw team leaders where they were selling 300 homes, but the team owners themselves were selling 75, 80 homes a year. And you know, when you really started to scratch a little bit at the surface, you would see that it was not a profitable model if you stripped out the production from the, from the team, from the team owner. So the challenge becomes, is that team owners think they're competing with a brokerage option for their agents, right? So like, why would an agent come on my team, you know, and give me 60% of their commission check when they can, you know, keep 80% of their check by going with another brokerage? And, and so just being clear as a team owner, like what your true value proposition is and be able to articulate it and focus on, you know, the amount of hours your agents put in and the money they take home. Splits are kind of a stupid thing that we came up as an industry which I don't think they serve anything really well.

They've definitely been a source of much wailing and gnashing of teeth, let's put it that way. Let's, let's jump into. You want to jump into the types of compensation because I feel like we're going there a little bit anyway with the. We'll talk about maybe the future of teams in another episode. But there's this vicious cycle that you've talked about, right, where you start having team leaders start giving into splits that actually work. They, you know, they work for the agent because they feel like they're in competition with the brokers, like you said, but they don't actually work for the team leader and it doesn't end up being sustainable for the team. Right. So how do you avoid getting into that kind of vicious cycle where you start giving in to those sorts of expectations and you end up with a model that seems to work for your agents, but at the end of the day it's not even profitable for you?

Yeah. So, you know, we, we've, we've sort of break. We, we broke out the different types of compensation that, that you'll receive in a well run real estate team into eight different types of compensation. And the whole industry focuses on commission splits for the most part. And I think that's where the initial, I think it can go wrong just based on that being the only measure. The team that I ran before I exited real estate altogether last year, we had the lowest splits of any, any available option out there. You know, by, by like 15, 20%. You know, we were at about 73, 74% gross margin after we paid our, our brokerage and paid our inside sales and outside sales and showing agents, everyone was paid, you know, about 24, 25% or so. And so how could you possibly run a business, you know, with, with those splits? And our agents were still taking home more money than most agents, you know, running an individual business for sure, but even in other team environments and you know, I think a lot of it comes down to the administrative support. You know, some of these traditional teams, there's really not this level of administrative support. Where is there, you know, are there systems in place but, but actual administrators or even VAs that are responsible for taking off of the agent's place as much as possible that, you know, can be done for someone who's willing to make 20 to 25 bucks an hour. Most salespeople want to make, you know, anywhere from 60, 75 to 100 plus dollars per hour. You know, you work at 3000 or even 2500 hours in a year, you know, and you want to make multiple six figures. You better make sure that you're on a team that is providing those administrative services and then training and accountability is another big one. A poorly run team where the team owner is in production, super stressed for just being in all those deals. They don't have the wherewithal or the mental rack space to be able to train and coach up their agents. And so that's another big one. If you're in a team environment, you better make sure that you have access to that and then just leadership and vision. You know, there's something to be said for, you know, helping having a team owner that has the bandwidth to be able to sit down and know where their business is going and not just be caught in the rat race of deals. And then there's technology and systems, you know, and just making the business easier for the agents in the, in the, in the team lead gen occupancy, brand name are among the other types of compensation. But it's definitely, it's not what you make. That's, that's kind of the thing. It's not about the top line commission check. It's about what you keep in totality for the amount of time you're giving, you know, and that's like in anything really. I mean anyone that's trading time for money, because we're all doing it, you know, is the trade worth it? Are you happy with the amount of, you know, time you're putting into something and the money you're taking home and the stress you're enduring? You know, that's, that's the same for a team agent. And I think that falls right into retention. You know, if you're making life easier for your agents, you're going to have a great business that's sustainable and it's not about just paying, you know, these, these splits to compete with the other options out there.

Yeah, it's a really good way to, to put that because I do think team leaders feel like they're in competition with the brokerage and, and if the agents believe that, that it's a, a, an even competition, that's when you get into the splits conversation. I think that probably the average agent, if they came up in a team environment, doesn't understand what it's like to be a solo agent. Which is, which is A completely different animal. And some of them are going to have to find out the hard way, hey, this is what it's like to do four deals a month on your own. It's a nightmare. It rules your entire life. Right? If you're part of a team environment that has all the admin stuff taken care of, four deals a month is like, no sweat, right? So it's part of the problem is if you, if you hire people straight into a team environment that hasn't had that experience of knowing what it's like to be insanely out of your mind, busy and stressed with just a few deals a month, they come up in a team environment, they go, oh, I can make way more money just doing the same four or five deals I do here a month. Doing them on my own, it's like, well, that's great, except you don't know what it's like to do them on your own. So I think that's where team leaders potentially have to constantly reinforce the other types of compensation and hopefully get out of the mentality of having the agents compare them to other brokerages. Because it's, it's just. It's a completely different model. It's a completely different way of doing business. It's more of. I don't know if I call it an employee model, but it's definitely not a traditional broker model. And I think agents, it's. It's nice when you have agents come in that are willing to be part of a team and they've already had enough experience out in the world by themselves to know all the value that they get, because it's hard to take someone that doesn't know. That doesn't know the grass isn't greener on the other side and try to talk them into believing the grass isn't greener on the other side.

Yeah, and a lot of teams, you know, when they come into real estate B school, they're. They're not providing all the other value. So they're trying to get the. They're trying to get the team splits, but the team owner hasn't really done a good job of slowing down and building systems and making sure there's a culture and a cadence and it's something that's worth being around, you know, so that's the other side of it too, is that there are teams out there that really shouldn't get paid a split. So that's very true. It's just kind of interesting to see, you know, that some of these teams end up, you know, growing and scaling, but it's on this, you know, even if it's sustainable because you can maybe replace agents, it's not profitable, you know, and it's just, it's just not a, it's not a true business because you can't extract the owner from the, from the day to day activities.

Yeah. And for those that are interested and, and satisfied enough by the business that they still don't mind doing deals. Why is that such a, why is that such an issue? I mean, I understand from the perspective of agents that go, man, like I don't even like the day to day of the business anymore. I just want to get out. But there's a lot of agents out there that don't mind, especially if they're doing a sustainable number of deals in their mind that they don't mind the active business. Why should they care about building a model where they could exit even if they don't actively right now plan to stop doing deals forever and ever? Amen.

Yeah, I think it's irresponsible to not treat it like a true business. And that's just my personal opinion. So even if you see yourself in production forever, there may be a situation where, I mean, I just got knocked off my feet for you know, two weeks with, with COVID and you know, I mean, luckily my, my coaching company is fully sustainable. I had people for two weeks that could run that business, but I'm only two hours a week in that business anyway, you know, So I think every business needs to be built the right systems based on the right economic model, as if the owner were going to step out. And so, you know. Yeah, so I think it's an interesting question because it's not a requirement to get out of production. Right. You don't have to do that. But if you're going to be in production, you better make sure that your margins are 50, 60% take home, you know, and not I. There's a guy that I brought into real estate B school, he was at 5 million GCI and he took home, didn't take home seven figures. So less than, a lot less than 20% profit. But he did about 750K GCI himself personally and he was working 80 hours a week. Right. So. So we think that some of these team leaders are making the choice to do production where you know, it's like, well, why would you say that has to be out of production? Because you have to think about your business with you out of it before you can even start to build it in a way where it's sustainable. So if you took his production out, I mean, it was like low single digit profit with his production out and replacing him, so not taking his whole numbers out, so replacing him with an agent. And that's pretty typical that we see of some of these bigger real estate teams. So it's just not something that you couldn't pay me to take over a business like that. I just wouldn't, you know, because there's so many. Everyone, everyone's on the wrong splits. You know, there's all these lead sources, there's no tracking or accountability on any of it.

Yeah, exactly. That's hilarious. Like, not only would I not buy the business, you couldn't pay me. All right, one final question on this topic. Going back to the leadership and setting the vision. So let's say you find yourself in that type of situation where you do have just a mishmash of stuff. You know, nothing's been built on this kind of sustainable model. You do have agents that are all on the, on the wrong splits and stuff like that. How do you start to set the vision for where the team is going that will help the people that are already there not want to bail immediately? Right. Because people hate change and start to catch the vision of where the team is going to the point where they might want to stay and kind of hang on through that transition, even if it means adjusting their splits or trading some of their splits for different benefits in other areas and just kind of staying on through that transition. Because I think that's where a lot of team owners and leaders would start to go. Ooh, I don't know. I don't know if I can do all that because essentially I'm putting my entire existing team at risk in the hopes of maybe building this new thing that I'd have to essentially start from scratch. So I think to me that's a first aid problem of setting the vision that makes the people that you want to keep want to stay. So what would you say to those people that are in that situation?

Yeah, I mean, I think it's just an open conversation with those that are around you currently. You know, I guess first I would say get clear in terms of what the type of business you want. You know, if most team owners are, it's super chaotic, they're super stressed, they have a lot of overhead, they're not tracking properly, they don't have systems running their business. So I would get clear on where you wanted the business to be. And then you're just getting people to see that you know, if, if I can help you focus more on the things that make you money and, and less on the things that, you know, are more administrative in nature from a salesperson's perspective, you know, would, would you trust me over the Next, you know, 12, 24, 36 months, it's a one, two, three year process to build it out. And as I add, you know, different services that make your job easier and allow you to sell more homes and focus more on dollar productive activities. You know, our, our compensation structure is going to change and most agents, you know, under, understand that we take people through that iteration of, you know, if, if we determine that you need, you have a 20% issue, you know, on we have some teams that have like 20 plus percent mismatch between the level of service they're providing and the splits they're overpaying by 20%. And so we just have to guide them through what that looks like. And it's just open conversations, you know, about, you know, the reason, you know, so a team leader that's doing a bunch of production would sit down with their team and say, hey, the reason I'm doing all these deals is, you know, it's because I've kind of messed some things up in terms of, you know, how this thing is structured, you know, and just talk openly and say, guys, I don't want to work with buyers, you know, so that's something that I can commit to getting out of. You know, I did 30 buyer deals last year. I can commit to getting out of those deals, you know, and adding more value to you guys in these ways. But we're going to have to adjust splits along the way and you've got to trust me and you've got to ask for that trust and you've got to deliver on it.

Right? Yeah, that makes sense to me. All right, There's, I mean those would be interesting conversations, but it's good to know that you guide, you know, guide people through that there is a way through it. It's not something that's going to automatically blow up the team just because you start kind of moving in this direction about setting that vision, that it is a long term but incremental step by step process. And we're going to have a conversation and make sure that you're comfortable at every stage. And if we, if we determine together that the arrangement just isn't quite working, we're going to get it to the point where it works for everyone involved kind of at every step of the way. Makes a lot of sense to me. I mean, it depends on, it depends on your leadership qualities you've shown up to that point, how much trust you inspire in the people that, that are on your team. But that's another story. Yeah.

Yeah. If you're running around like a crazy person all the time, pissed off at all the deals you're doing and, you know, barking at your agents, then you may not be able to manage that swing. But yeah, if you're at the point in your journey where, you know, yeah, even you just want to see the different stages of growth laid out, go to realestatebusinessgrowth.com and realestate business growth.com I put together a report, Six Stages of Growth. The questions you need to ask yourself, the systems you need to be building at each stage of growth, what your team looks like, the amount of money you'll be making, the amount of hours you'll be working. So you can grab that report over there. And thanks Matt for our time today. Appreciate it.

Absolutely.

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