Do real estate brokerage firms have any intrinsic value?

nicolebeauchamp

Well-known member
I have been saying for a while that I foresee big firms cutting commission splits.
My friends in other markets have always marveled at what splits are like here.I think the pandemic lead a few more people to leave larger brokerages, then you have some newer models finally in this market. I thing the challenge is, many firms have cut back on the services, but not necessarily increased splits - with more teams now as well, I think there is alot of change to come -before the possibly/looming regulatory changes coming around ht econrer
 

David Goldsmith

All Powerful Moderator
Staff member

Corcoran shopping its biggest franchise​

Corcoran Global Living’s West Coast expansions doubled headcount since 2020 launch​


Corcoran Global Living is on the market.
The Corcoran Group is shopping its inaugural — and biggest — franchise less than three years after its formation, according to an internal senior executive. The executive said Corcoran will execute a direct deal if it can’t find an outside buyer.
News of the offering comes after more than two years of aggressive growth by Corcoran Global Living, which formed in February 2020 when Zephyr Real Estate, a San Francisco firm, combined with Nevada-based Oliver Luxury Real Estate.
It began expanding almost immediately, purchasing a Northern California firm in August 2020, a Los Angeles firm in November of that year, a Beverly Hills brokerage in May 2021 and a Bay Area firm earlier this year. The acquisitons grew Corcoran Global’s headcount to more than 1,000 brokers, compared to 450 at the time of its inception.

Rumors had been circulating in recent weeks that the firm was going out of business. In response to an inquiry on the matter, a Corcoran Global Living executive said the brokerage is reconsidering the extent of its office footprint.
The affiliate had 80 offices in April, up from its initial 13. Corcoran Group had a total of 122 franchise offices at the end of 2021, according to SEC filings, divided among 23 franchises.
“Like many brokers with the shifting real estate market, we are in the process of evaluating our office space footprint in Southern California,” said chief operations officer Matt Borland. “We are not closing our doors.”
The brokerage did not respond to a request for comment regarding its impending sale.
Corcoran’s parent company Anywhere, then known as Realogy, decided to franchise the Corcoran brand in 2018 amid diminishing margins and slow growth for legacy firms.
The cost of opening a Corcoran franchise at the time was between $153,000 and $518,000, according to documents filed with the Federal Trade Commission. Franchisees paid Corcoran 6 percent royalties initially, and were required to contribute between 1 percent and 0.5 percent of gross revenue to marketing.
 

David Goldsmith

All Powerful Moderator
Staff member
Cross posted from this thread:
All Real Estate brokerages profit from the "float" - funds they receive from commissions collected but the haven't paid agents their splits yet. Bellmarc and Sopher were notorious for being slow payers so they could extend their float. They say their cash position is $431 million, but just 2 weeks of float on $6.4 billion revenue is about $250 million.
I'm not surprised at all to see any brokerage firm slow paying agents in the current market slowdown. In this new case against Corcoran Global Living the complaints remind me of the bankruptcy case where I was brought in to be an Expert Witness. LBKaye International Realty had 2 divisions. The residential division becoming a Prudential franchise in 1993. Eventually the companies split, with most assets (including as claimed by agents who had not been paid: their commissions) to the commercial division, and the liabilities to the residential division which declared bankruptcy.

My point being that I think many agents are under the delusion that owners/management at large firms are their best buddies and "will always have their backs." In reality they will do what is in their own best interests and when the chips are down will cut agent's hands off at the wrists if they try to reach for them. See Robert Ringer's "Three Type Theory" in his book Winning Through Intimidation.

Corcoran Global Living CEO awash in lawsuits amid agent pay delay
Agents at Corcoran Global Living have waited on hundreds of thousands of dollars in late commissions thanks to the alleged fraudulent behavior of CEO Michael Mahon, whose leadership has reportedly brought the company so close to the brink of financial disaster that it has failed to keep the lights on and put leases in default at some offices, according to lawsuits and agents who spoke to Inman.
The worsening crisis at the company may also be driving agents away at a critical moment for the broader industry when agent ranks are shrinking and competition for talent is more fierce than ever.

In total, three separate lawsuits have been filed this year. Plaintiffs in the cases include Jessie Rodriguez, Corcoran Group LLC (in this case, a countersuit to a lawsuit initially filed against them by Mahon) and Brighton Way LTD. And collectively, they allege fraud and breach of contract by Mahon, and paint a picture of a company teetering on the edge.
In addition to the lawsuits, four agents told Inman they experienced first-hand, weeks-long delays in getting paid their commissions beginning around April 2022, when normally they received wires for sales within two or three days of closing. Moreover, a member of the management team at one of the affiliate’s Southern California offices, who spoke to Inman on the condition of anonymity, estimated that over the course of the past several months agents have been missing hundreds of thousands of dollars in commissions from the affiliate — which now boasts approximately 2,600 agents across more than 70 offices, making it Corcoran Group’s largest affiliate.
When Inman reached out to Corcoran Global Living for comment, the company attributed the agent pay issues to the changing market.
“Like most brokerages, the shifting market over the last few months has caused cash flow challenges,” Chief Operating Officer Matt Borland said in an emailed statement. “This has impacted some of our regions, and we have made fundamental changes to our accounting processes to ensure they don’t recur. Our finance team is actively working towards resolving any lingering delays as well.”
When Inman reached out to Corcoran Group LLC, the company declined to comment, pointing Inman to Corcoran Global Living’s press contact and noting the affiliate is independently owned and operated from Corcoran Group.

‘Bad management’ or ‘outright stealing’: Agents notice something amiss​

Ultimately, the situation raises questions about Corcoran Global Living’s future, and about how companies treat agents amid a historic housing downturn.

And indeed, agents who spoke to Inman began feeling like something was wrong months ago.
“I started noticing in the springtime, that instead of my wire being in my bank account two to three days later it would take a week,” an agent from one of the affiliate’s Southern California offices, who is not involved in any litigation and wished to remain anonymous, told Inman. “And then I started to overhear phone calls to some of the admins in my office that were rather unpleasant, like, ‘Why has it been two weeks since I’ve been paid?’ That was the start of it, and it never really changed.”
After the agent had pressed the admin for more details about late payments, the administrator explained that corporate offices at Corcoran Global Living had said that due to changes in the accounting department, agents would only get paid twice a month moving forward, the anonymous agent told Inman.
But the payment delays escalated from there, making it clear more was going on in the accounting department than policy shuffling.
“Over the summer is when I had my biggest issue and wasn’t going to get paid for a few weeks,” the same agent told Inman. “So my broker covered my check and waited a month or so for corporate to reimburse him.”

A few months later, the agent left Corcoran Global Living.
Yet another agent who spoke on the condition of anonymity from a different Southern California office, who is also not involved in any litigation, told Inman that as of Nov. 1, pay was yet to come for the source’s last three transactions, and the source would likely be separating from the company soon. When Inman checked in with the agent again the week of Nov. 14, they had departed from the brokerage — and still had not been paid for those three transactions.

Aaron Juarez, an agent who was working at the Corcoran Global Living Claremont North office but recently left the company, told Inman he did not receive his commission checks for over a month after closing. He never received a clear answer about what was happening at the company, whether it was “either bad management on their part or outright stealing,” for instance, but said things seemed to be “going in the wrong direction,” which is what pushed him to leave, he said. Juarez is also not involved in any related litigation.
“A commission check comes in and Realtors want 70, 80, 90 percent of it, and the whole 100 percent goes to the broker, the broker comes to the agent, takes their percentage, says, ‘We borrowed it, I should have it in a couple days, it’s no big deal,’ ” Juarez said.
“But if it takes 30, 40, 50 days, that’s a little ridiculous for the brokerage to be holding onto the majority of your commission for something that should be, if everything’s on the up and up, [quick] … If this is happening to other agents, I think there’s something wrong. Realistically, it could put somebody out of business or at least hurt their business not having funds to pay, not only their household bills but anything they have as far as business bills.”

Inman asked both attorneys and agents involved in the situation how many individuals might have had their commission payments delayed. However, those who spoke to Inman for this story were not willing to speculate how widespread the alleged problem might be.
Out of approximately 40 Corcoran Global Living agents Inman has reached out to across California, four located in Southern California reported that they had experienced significant pay delays, and five located across Southern and Northern California said they had not experienced any problems getting paid on time. Several did not respond to Inman’s queries.
In any case, as of September one of the anonymous sources told Inman that the utilities in the source’s Corcoran Global Living office and some others in the region had been shut off because the affiliate’s corporate offices, which had taken over paying for rent and utilities at the beginning of their contract, had neglected to pay the office’s bills.

A crisis years in the making​

Corcoran Global Living was launched in early 2020 when Mahon’s company ELI Realty entered into a franchise agreement with Corcoran. The agreement involved Corcoran giving loans to ELI Realty to purchase independent brokerages, which would be geographically grouped and made into separate franchises.
At that time, independent brokerages Oliver Luxury Real Estate of Lake Tahoe and Reno and Zephyr Real Estate of San Francisco joined to form Corcoran Global Living’s first franchise under the leadership of Mahon. It brought together 13 offices and 450 real estate agents across these regions in California and Nevada. At that point, Mahon had held a number of leadership positions at other brokerages in years past including as president of both Midwest-based indie brokerage HER Realtors and Southern California’s First Team Real Estate.

Over the next few years, Mahon rapidly grew Corcoran Global Living by acquiring and forming franchise agreements with other independent brokerages across Nevada, California and central Ohio with promises of a profitable business model and fruitful partnerships. By early 2022, the company had about 2,600 agents located in more than 70 offices throughout these regions.

A ‘smokescreen’: The wave of lawsuits​

Mahon’s troubles officially began on June 21 when he sued Corcoran Group via his company ELI Realty Investments LLC. His claims included, among other things, that the parent company had provided his affiliate with faulty transaction reporting technology that cost his firm hundreds of thousands of dollars.
A person who previously worked at Corcoran Global Living, and who spoke with Inman on the condition of anonymity, said they believed this claim to be baseless and essentially a way for Mahon to cover the tracks of his own financial mismanagement and fraud that cost agents time and money, and led Corcoran Global Living franchisees into debt.
Corcoran Group countersued on June 27, stating that these claims were a “smokescreen” for fraud being committed by Mahon and his companies. The countersuit further alleges that after taking out loans from Corcoran Group to purchase brokerages and create new franchises, ELI Realty used some of the loan proceeds — without Corcoran Group’s knowledge — to engage in fraud, including paying bonuses to Mahon, Pamela Mahon (Mahon’s wife and Corcoran Global Living’s vice president of business development in California, Nevada and Ohio), and others.
The suit also accuses Mahon of selling his company’s future receipts at a discount to a company called Libertas Funding while cutting his franchisees out of the loop.

“This controversy has little to do with the allegations contained in the Complaint — which are a smokescreen,” Corcoran Group’s counterclaim states. “This matter really involves the unlawful (and often clandestine) conduct of ELI Realty and its current management.”
Jessie Rodriguez and several other brokers who entered into franchise contracts with Mahon filed a second suit against Mahon on Sept. 26. This suit alleges Mahon deliberately deceived the brokers about the financial state of his company. The suit accuses Mahon of both fraud and breach of contract.
Among other things, the suit describes delays to agent pay, resulting in agent departures — corroborating accounts from agents who spoke to Inman — and mentions Corcoran Global Living’s corporate offices’ failure to pay basic bills, like rent and janitorial services.
The suit also alleges that Mahon commingled funds of Corcoran Global Living’s Southern and Northern California offices, diverted funds to himself and his associates, sold future earnings at a discount to Libertas Funding without consulting franchise owners to cover his own debts and used his corporations as shells for his own financial purposes.

The primary plaintiff, Rodriguez, is a broker and was the owner of Cal American Homes, which was founded in 2005 prior to joining Corcoran Global Living. He entered into a franchise contract with Mahon to become a franchisee of Corcoran Global Living in June 2021.

“Most alarming, in April 2022, despite receiving a cash infusion from Libertas on the 13th of the month, Defendants missed several payments to various real estate agents from escrows — a betrayal that none of the plaintiffs would ever let happen in their own businesses,” the lawsuit states. “Plaintiffs began losing real estate agents, the lifeblood of their businesses. This also resulted in severe reputational harm.”
Finally, Brighton Way LTD sued Mahon on Sept. 30 as Corcoran Global Living [allegedly] continued to fall into financial ruin and was unable to pay rent on its offices in full. Brighton Way is a commercial real estate company that owns offices Mahon’s firms use.
Brighton Way’s suit accuses Mahon of breaking the terms of his lease by not paying the full amount of rent starting at the beginning of September. The suit says Mahon owes Brighton Way over $107,000, but that amount continues to increase as he’s unable to make full rent payments.

A rocky road ahead​

As for the company’s future, a few sources suggested that bankruptcy may be in the cards for Corcoran Global Living at this point, with no foreseeable bailout option for its current debts, having been unable to come to an agreement with Corcoran Group, according to court documents.
“I feel like there’s going to be a battle,” one agent, who spoke on the condition of anonymity, told Inman. “They’re probably going to fire all their employees here pretty soon, file for bankruptcy, and then probably come back and do it all again someday [with a different company].”

However, on Monday, The Real Deal also reported that a Corcoran Group internal senior executive told the news outlet that the company is shopping the affiliate around. The source said if the company fails to find an outside buyer, it will execute a direct deal.
A termination of Corcoran’s franchise agreement with ELI Realty is also a possibility on the horizon. Following ELI Realty’s sale of the company’s future receipts to Libertas Funding (which was outside the bounds of ELI Realty’s contract with Corcoran) Corcoran Group demanded that the company and its franchisees immediately pay back their loans with Corcoran, but have yet to receive payment.
No decisive action has been taken to terminate their franchise agreements as of yet, but in its counterclaim, Corcoran notes it reserves the right to take additional action against ELI Realty and its franchisees, including terminating their contracts.

A wave of defections

Whatever happens to Mahon’s companies, the crisis couldn’t have come at a worse time. Thanks to an ongoing downturn in the housing market, agents are expected to leave the industry — which in turn will make already fierce competition for talent even more intense.
It’s unclear how many agents might have left Corcoran Global Living over the firm’s various struggles. But the sources who spoke to Inman noted that Rodriguez left Corcoran Global Living shortly after filing the lawsuit against Mahon, brought his agents who originally moved to Corcoran Global Living back with him, and is now operating under the Cal American Homes brand once again.

Anthony Morel, who joined Corcoran Global Living as an agent with his brother, Danny Morel (a plaintiff in Jessie Rodriguez vs. Michael Mahon) in December 2020 and then became a regional vice president of education and a coach, has also since left Corcoran Global Living and launched Pak Realty, a revenue-share model real estate company.
All of this is happening against the backdrop of a general belt-tightening in the industry. Despite a tough third quarter which saw profits down year over year and losses growing at many real estate companies, some brokerages are still managing to increase their agent count now. Compass, eXp Realty, RE/MAX, Fathom Realty and Keller Williams all grew their agent ranks in the third quarter of 2022.
 
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