(Note: This post is about industry-wide brokerage profitability in an IDX scenario vs a syndication scenario. It’s not about an individual broker’s profits or decision to use IDX/syndication.)
We’re hearing more often that IDX and listing syndication are essentially the same (via Rob). From a consumer advertising perspective, that argument may make sense. From a broker-centric profit mindset, it’s far from the truth.
Our company shares our listings with brokers via IDX and with portals via syndication. It makes sense based on our clients’ requests, but to claim the two are the same is to ignore the money.
5 million homes will be sold this year, no matter which websites exist today or tomorrow. That’s a fairly finite commission base. How that commission pie gets split up has everything to do with who does the customer acquisition through lead generation. There is a strategic advantage for brokers in promoting IDX vs. syndication.
IDX is about efficiency of doing business within the broker sphere. It uses the cooperative power of brokers and agents across corporate borders to keep the rewards of property marketing and client acquisition within that sphere.
With IDX, the winners are always brokers. Broker #1 makes a commission when his listing is advertised via IDX and sold. Broker #2 creates profits by generating IDX leads, and either having her agents represent the buyers or referring them to Broker #3. Broker #3’s agent represents the buyer, earns a commission, and pays Broker #2 a referral fee. The commissions are all going to brokers, and they’re either taking home paychecks, or reinvesting them in the brokerages. Agents are at least just as well off as they were before, if not better, when their brokers are making money.
Syndication brings a new entrant into the “who’s getting paid” category. The advertising portal is now taking the profits from the generation of the lead. Broker #1 lists the property and makes a commission on the sale. Broker #2 doesn’t generate income in this scenario. Broker #3 pays the lead acquisition fee to the advertising portal, instead of to a broker.
In both scenarios, a seller’s home was sold, and a buyer got the home–the fulfillment of the brokers’ duties. The amount of money earned by all brokers combined in the syndication scenario is significantly less, though. There are only two commissions being paid on the transaction. When they’re always split up between brokers, the broker sphere becomes stronger. Any portion which goes outside the broker sphere makes brokers overall less profitable.
(Follow-up: The costs for better websites and more traffic are important, but a separate discussion. Brokers don’t need to generate 100 million leads/year like the portals. They just need to make the homes available, and they’ll sell. Which broker gets a larger share is, again, a separate discussion.)
This isn’t an argument for ending syndication. It’s a greedy, profit-driven analysis of what kind of advertising will keep more money in the broker sphere’s pockets. Nor is it all-encompassing. There are website vendor fees (minimal compared to syndicated lead costs), premium advertising fees (a separate discussion from model efficiency), etc. that can come into play. Still, the conclusion seems obvious.
Syndication is a valuable outlet for many brokers, but it’s not the same as IDX. Brokers can have substantive reasons to support the use of one and not the other.
IDX creates efficiency for the brokerage sphere, which increases financial profitability for the group as a whole. Syndication is a less-efficient platform in terms of overall brokerage profits. Real estate is, on an annual basis, similar to a zero-sum game. There are only so many transactions, and commissions, that will occur based on the market. Broker financial profitability is dependent on brokers earning as large a portion of that commission pool as possible.