Maybe not you specifically, but the teams that are pulling in $1mm+ in fees.
I know several teams in NYC whose book of business is their own (especially those in tenant rep or IS) but stay at a firm that takes $350,000+ to print marketing materials and keep data subscriptions paid up. The few I’ve asked this question of say something to the effect of “ah too much work/paperwork to start it up.” Doesn’t seem that plausible for people who, in my experience, already work very hard.
Searched far and wide on WSO but doesn’t seem to have been talked about. Perhaps a good discussion.
Not a broker, but I would imagine it is because when you are pulling in that kind of commission cash, it's because you're working every possible moment you can to bring in and execute on deals. Now go and start your own firm; either you are now spending several hours a day on administrative tasks (and not interfacing with potential clients) or spending many thousands of dollars on people to do it for you. Essentially, you are taking a minimum of 10% of either your cash flow producing time, and spending it on something that won't earn you money, or taking 10% of your cash and paying people to do that for you. Maybe that number is slightly off, but you get the point.
Some of the all star brokers have extremely favorable commission splits. If you're good enough, you can command well over 50% of the commission for you and your team. So if you're a team like Harmon & Spies (as an example), why in the world do you move on from taking your nice majority piece of the commission, which carries no risk and no overhead, and start your on firm, which requires a ton of extra work and risk, in return for almost no additional gain? Does making the extra 10-15% of the commission really compensate them adequately for the massive expansion in risk?
Been a broker since 2001. Had an office at one location until 1/2009. One full time assistant and my rent was about $2000mo. I had a few agents but they all sucked. Anyway, just to keep the doors open with one full time assistant was $10kmo. Imagine if you need two of them and a research team, etc. It could hit $20k mo fast. Also, back around 2005 the State of Ca and all their glorious wisdom required brokers to have workers comp insurance on 1099 agents WTF??? So, having agents costs money even if they don't make any money.
Today I contract everything out in an effort to not have so much emotion tied to my business decisions.
In 2008 my revenue decreased by 50% from 2007. I still kept my full time assistant for that full year (2008) because she was a single mom and I knew her long before she worked for me. I also paid her health care which in 2008 was $1200mo.
With contracted TC's and loan processors, they don't make money until I do. Sometimes I'm stuck doing things an assistant should but that's ok.
I'm at a Regus shared office in La Jolla. It's great. Zero start up capital required. No printers to buy, no servers, no cleaning, no shred force bills to pay. Totally easy to open up shop at these places.
If you're on a heavy hitting team pulling in $1mil+ a year in fees and have a 70% split, I'd probably not leave given all the support the big shops offer. I've always been on my own and it would be tough for me to go to a large firm.
I have fairly low overhead. Prospect Now is only $85mo for the county. I do pull lists from it...about 300 owners at a time. That's only $75. I don't use CoStar for two reasons. One is I've been in town so long that if I need a scoop on a building I'll just call a broker buddy or the listing broker direct. Also, in SD we have the apartment directory of all owners and their phone numbers. That's about $1200 year, so CoStar isn't really needed.
I don't know about other regions, but in San Diego MF listings of 5+ units are still listed in the MLS, whereas even a small commercial deal will not be. So, if you're into MF and in SD, the MLS will have tons of data too.
I haven't done marketing in nearly 20 years. But I'm starting to now. Depending on the results of a test batch of direct mail, I might spend $1500mo there. Not sure yet. The mailer lands throughout next week.
With marketing of $1500mo to very specific owners, my overhead is in the $3000 - $3500 range. In June I closed 5 deals so my TC fees were high. It's overhead but TC fees are good overhead :)
Thanks for the compliment!