A “tipping point” for real estate teams?
Seven is the world’s favorite number. There are seven days of the week, seven colors in the rainbow, and seven seas. When it comes to real estate teams, does this hold true?
To find out, we spoke to Tracy Tidwell, who knows a thing or two about operating real estate teams. As Principal Broker for ERA TEAM Real Estate in Conway, Arkansas, she has built her own team (of seven!) as well as led teams ranging in structure from equal partnerships to parent/child to lead agent/assistant teams.
Tracy’s initial foray into teams was a partnership, which personified the quintessential challenge for this type of team: unequal levels of commitment. Research on teams suggests that there is little incentive for partnership teams to stay together beyond convenience. Other challenges specific to this type of team include the shared responsibility of team performance, and the burden of effective communication and coordination of tasks. In this case, two can be the loneliest number, I suppose.
Next, she tried a rainmaker team, with a clear leader who supports other team members and holds them accountable. This worked much better, as she was able to take care of clients better and hold the team to her high standards for how clients are treated. Tracy explained that after rising to be the #1 team in the city of Conway, she joined forces with the #2 team to create a team of...that’s right! Seven. Things that make you go hmmmm.
“We found that volume per team member appeared to peak at 5, and then declined, with a precipitous drop starting with the 8th member.”
This spiked our curiosity, and we decided to analyze team sizes across all Realogy brands. We found that volume per team member appeared to peak at 5, and then declined, with a precipitous drop starting with the 8th member. (Disclosure: we assumed that team member count on public websites was accurate.) For reference, 38% of teams across the industry have 2-3 members, 41% have 4-9 members, and the balance (20%) have 10 or more members, according to RealTrends/ERA Playbook 2016.
What the what?
Our finding reflected a Laffer curve! The Laffer curve shows that there is an optimal rate of taxation to maximize tax revenues. Many economists, including Brad DeLong from the University of California, Berkeley, and Dean Baker of the Center for Economic and Policy Research have said the revenue-maximizing top tax rate is about—believe it or not, it starts with a seven—70%! The concept holds for optimal class sizes (too small, and there’s no discussion; too big, and there’s no personalized attention) and optimal degree of government control (too low, and it’s too risky to do business; too high, and it’s too cumbersome). Perhaps the same holds true for real estate teams.
“This chair is too small!” exclaimed Goldilocks.
When teams are smaller than 5-7 members, the benefits of having back-up support cannot be fully enjoyed, and people can burn out easily. It’s harder to recharge and take vacation. What’s absent beyond just back-up is the tremendous value realized from bringing on team members who specialize in the different areas. In Tracy’s case, a specialized team structure laid the groundwork for excellent client service. While she might discuss pricing with her clients, different team members focus on staging, photography, marketing and support. Typically, a client of Tracy’s will interact with 3-4 different members of her team throughout his or her journey.
“This chair is too big!”
When teams have more than 5-7 members, communication flow is more challenging, and more personalities must work together in one well-oiled machine. Importantly, diversity of skills only extends to certain skills sets. Once all relevant skill sets are covered, there can be diminishing returns. If the eighth person doesn’t bring something new to the table, their impact may be much lower than the person who brings a skill that is not yet represented on the team. A smaller team may also keep higher quality standards because they feel more responsible, know each other better, and communicate more directly.
A similar phenomenon is present in another economic principle—stock diversification. Many economists argue that 90% of the diversification benefit is derived from portfolios containing between 12 and 18 stocks. Beyond that, the benefits of diversification decrease, and the need arises to keep track of more stocks in your portfolio for not much benefit. (Investment Analysis and Portfolio Management, Frank Reilly and Keith Brown)
At ZapLabs, Realogy’s innovation and technology hub, we are developing technology tools to help manage these challenges. Our focus is on providing teams effective ways to collaborate, including providing transparency into leads and actions taken across the team; visibility and scheduling rights across team members’ calendars; ability for the team leader to track tasks, performance and status; and solutions for intra-team communication and coordination.
The Tipping Point Theory for Teams
Tracy sums it up well: “Specialists give our clients the best quality of service. But grow too big, and you lose the integrity of the customer service, and communication channels begin to break down.”
“Grow too big, and you lose the integrity of the customer service.”
From our perspective, there does seem to be a sweet spot for the size of real estate teams where the benefits of specialization are realized but the challenges of communications and coordination stay in check. The tipping point for this phenomenon appears to occur between 5-7 team members. Or maybe we’re all just suckers for seven brides for seven brothers, seven dwarfs, and seven swans a swimming!
As Vice President of Marketing at ZapLabs, Leslie is charged with driving the adoption and engagement of Zap technology across all Realogy brands and franchisees, which include world-renowned real estate brands like Coldwell Banker®, ERA®, Century 21®, and Better Homes and Gardens® Real Estate.