What is an Alternative Brokerage? Who is an Alternative Real Estate Agent?

One of the great challenges of being on the “bleeding edge” of change in any industry is identifying the words to be used in discussing the new model. The real estate industry is, at more than a century old, steeped in history and culture. So it’s even more of a challenge to create a dialog that accurately captures the essence of a particular innovation and the characteristics that distinguish it from the old way of doing business. It’s hard to create new meanings for words that have long-standing and well-understood definitions.

One term used to describe real estate firms that are working to change the industry is “alternative.” But absent some definition, the term is meaningless. So what is, exactly, an “alternative brokerage”? And who would be an “alternative agent”?

Does use of the internet define Alternative Brokerage?

One possibility: A firm that leverages the internet to more efficiently provide client services, and passes at least some of the savings back to the consumer. The second clause is important. Every real estate broker by now has leveraged the internet, in particular by sharing their listings not just with other brokers but with the public via the internet (a change driven by anti-trust efforts of the Department of Justice). So simply using the internet cannot be considered alternative.

But passing the savings created by this efficiency back to the consumer? Now that’s new. On the other hand, though, there are lots of brokers out there now who will negotiate unique fees with their buyer clients and who will then rebate the balance of the seller-paid commission to the client at closing. These brokers recognize the fact that most buyers now do at least some of the home search themselves. Does that make their real estate firm an alternative brokerage?

No. If that’s the case, then the term “alternative” doesn’t begin to describe the many distinctions between the new business models that are emerging in the real estate industry and the traditional way of doing business. Agents (legally now called brokers, previously licensees) have been independent contractors, each largely responsible for their own real estate practice (independence is the hallmark of being an “independent contractor”). Every agent must be licensed through a managing broker, who remains responsible for the agent’s conduct. That agent then either pays a flat fee to the managing broker (i.e. a desk fee), or splits in some percentage with the managing broker (and firm) the commissions earned. One managing broker can be responsible for two hundred or more agents in the office. Each and every one of those 200+ agents is responsible for finding their own clients and generating their own income.

So the traditional model is defined in part by independence for the agents and limited oversight. If one agent in the office decides to charge a lower fee, does that make the whole office “alternative”? Clearly not.

It’s more than the internet. Modern business principles define an Alternative Brokerage

Therefore, the definition needs to be expanded. Here’s another possibility: A real estate firm that operates as a modern business and passes some of the savings realized by those modern efficiencies back to the consumer. This definition still captures “leveraging the internet,” clearly a hallmark of operating as a modern business. But what about the notion of branding and efficient marketing? In the 21st Century, there are more efficient means of advertising the firm’s services and acquiring new clients than making each agent responsible for their own business.

Finally, a modern business is more likely to value the brand and the resulting need to provide high quality service every time to every consumer. Many of the new real estate models employ their agents. This gives them a far greater degree of control over their agents’ conduct and the services they provide. While generalizations cannot be drawn about any particular agent, there is no dispute that the bar to entry into the profession is quite low. A modern business structure reduces the risk generally that a consumer will be poorly served by a real estate agent.

So operating as a modern business, and passing the savings realized by the resulting efficiencies back to the consumer, seems to define an alternative brokerage. Which begs the question: Can an alternative agent only work for an alternative brokerage? I think so. Otherwise, we once again define “alternative” way down, such that it’s only a shade off traditional. In today’s real estate industry, where there lots of alternative brokerages – as defined here – that definition just doesn’t convey reality.

What say you, RCG community? What is an “alternative brokerage“? Who is an “alternative broker”?

6 thoughts on “What is an Alternative Brokerage? Who is an Alternative Real Estate Agent?

  1. So “alternative” simply means “discount”? And only crappy agents are alternative? That’s a terrible definition that clearly doesn’t capture new models.

    For example, how would you describe Redfin? Yes, it’s discount. But it’s also an entirely different business structure that operates on very different principles. The term “discount” may apply to it as much as to an otherwise traditional broker who merely cuts their fees. But clearly there are other differences. What is the word that captures those differences?

    It’s ironic that you chose to include a link – obviously for the SEO benefit – when the topic is pretty much exactly the opposite of your business model.

  2. You are getting close the main issue but you need more clarity.. I would think an attorney would be the first to understand.
    The mains issue is not discount nor alternative. The focus should be contingency versus non-contingency. Moving risk from broker to client, or vice versa. Any profession which risks time money and assets with a hope of getting paid, will get a bigger pay check at the end …. to pay for the time and money wasted on contingency clients that did not result in a pay day.
    Service contingency on success gets a bigger pay day if successful.
    Some professionals may not wish to risk working with a pay day contingency upon success. Some clients exhibit characteristics which entail and suggest more risk and less chance of success. We have met prospective clients make us skeptical.

    Maybe we should have a menu of compensation options. I know a real estate broker who has worked for 16 years, only by an hourly fee.
    Maybe real estate brokers should either higher contingency fees or lower fees for payment not contingent upon success. Some research services do not require success.

  3. Lester, thanks for the comment. I agree with you that a contingent vs. non-contingent fee is an interesting issue. And an issue with which I am extremely familiar. Did you know I co-founded WaLaw Realty, which for the first 4 years of its existence (until after I left) charged a non-contingent fee? $5k due at closing or six months, whichever came first. We even got a little press! In any event, I completely understand and agree with your point.

    Except that it’s really a sub-issue of what I am trying to get at. Using the old WaLaw model as an example, what term would describe it as a real estate brokerage? It charged a non-contingent fee, the agents were either principals in the firm, or employees, and it rebated its commission to buyers. The term “non-contingent brokerage” doesn’t capture it, does it? Moreover, I see WaLaw as just one variant on the “modern brokerage” that is beginning to emerge (again, Redfin being the biggest example). Surely there must be a term that we can agree defines all of these new models, in contrast with the standard, traditional model.

    • My alternative brokerage? Thank you for asking! The most important advantage that Quill offers is the attorney. Quill provides each client with a lawyer plus a real estate agent. No other firm – traditional or alternative – provides its clients with this sort of legal counseling and advocacy.

      Quill takes a modest up front fee, and the balance of its fee is paid out of the commission at closing. The fee for sellers is $1k up front, and 2% total. Buyers have options. Quill offers a $250 up front, $3250 due at closing single transaction fee. The balance of the seller-paid commission is rebated to the client at closing. Or, $1k up front, and either 2% (where clients find the homes initially) or “full commission” where Quill provides all of the services of a typical agent and simply keeps the seller paid commission (with a rebate of $1k).

      Hopefully that answers your questions Lauren! Definitely check out my web site for lots more info, and feel free to call as well. I’m always happy to chat!

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