Monday, April 2, 2007

Business model analysis

Perhaps I was unfortunately in a renegade's office then. To my understanding there is still a $150 transaction fee per event. So when I sold a $300K house. At average commissions of 3% (I assume there are better markets that does 4% or higher as the norm). I take 70% at $6300. Paying $150 transaction fee. I am taking home $6250. That would result in a 68.3%. It would make more sense to then sell higher priced homes. Selling a $200K apartment, I would take home after 70% split and -$150, $4050. That is 67.5%.

Still not bad assuming there are no other costs. Unfortunately, the broker's office does not cover agent's own advertising costs. And that is a heavy toll.

Further, as a business model, every transaction, Exit Realty Corp from Canada pays 10% to the recruiter. Where does Exit Realty Corp generate this money to pay the 10% when it does not make anything from a sale except the $150? If every Exit agent in an office is productive and meets industry standard of $40K-$50K income. Exit Realty Corporation in Canada would have to pay $4K-$5K per agent to their respective recruiter.

Right now where does Exit Corporation's only source of revenue? It is from annual membership fees, training courses, training dvd's, stationery that you have to buy through exit resource center. Are there any other means Exit generates revenue? I hope there are but I am not aware of them.

The more agent who are successful, the more 10% Exit Realty Corp has to pay out there does not come from a real estate transaction. Therefore, Exit cannot sustain all successful agents. To my understanding, it is imperative that many agents fail. That way their $300 annual membership fees plus other fees paid to Exit would be able to be able to balance out the 10% given to recruiters.

It is a business model that can only survive if there are much larger number of failures than successful agents. That's just how the math works out to my understanding. And that is why I think Exit Realty is a deceptive business model much like Amway, World Financial Group and other schemes that depends on large new recruits failure rates. Especially because they over emphasize the unrealistic income earning potentials. And during the entire recruitment process there is no clear explanation on each revenue streams.

I understand that each franchise owners are unique and can practice good ethics. However, the underlying revenue generating method is not clearly disclosed. The risks are downplayed while the rewards are overemphasized.

Am I complete in my analysis of where Exit Realty Corp generates its revenue? Are there other sources where they make money besides membership fees, training seminars, dvd's, and things targeted at the new recruit?

Thank you all for your feedback and once again I apologize if I come across as overly negative but this is my current understanding of their business model. good luck to all.

04/03/2007 by RomoGracie

Unfortunately, Exit Realty seems to fit the marketing methodology of many MLM's, eg Amway, to the cue.

There are a lot of company rallies, a lot of training DVD's, there is even a positive affirmation CD. And you are told to avoid negative people and think positive. These are all red flags that MLM's and Amway type schemes uses.

Of course Exit Realty might be the exception. I hope it is, but in the recruitment video, Steve Morris emphasized that what Exit Realty doing is not illegal. I am not aware of any legitimate business's recruitment videos emphasize that they are not illegal.

Still those are speculative issues. Is there any peer reviewed source for that $49million paid out as residuals. If that was the case, since it's 10% of transactions commissions, that would mean that there was $490 million in commissions generated. At 3% average commissions rate for real estate commissions, that would mean a $16 billion worth of homes sold by Exit Agents. With the average price of homes around $200,000 - $300,000, that would mean 50,000 to 80,000 homes sold by Exit agents in 2000. Now Exit claims to have sold 500-1000 franchises, , this year. So let's say there were 500 franchises 7 years ago in 2000. That would mean each franchise sold 100-160 homes in just 2000.

I, personally, am not aware of any single franchise that has 100 real listings. Total listings that they have to show people, let alone actually sell (I have seen exit franchises that puts a lot of fake listings and/or steal other company's listings). 100-160 homes sold per franchise in 2000. that's 1 home sold every 2-3 days.

I am not sure then if I should trust that $49million paid out bonuses figure.

And where did Exit Realty Corp get $49million to pay out when they make only $150 per transaction fees? Where did they get $49million as they claim to be able to pay out to recruits? What kind of business is able to generate at least $49million when they lose 10% on every transaction?

The only solution I can think of is that most agents pay the annual membership fees, training videos, dvd's , rallies , and never sell a single home. So sustainability of Exit Realty strongly depends on high failure rate of new recruits. And a large large number of new recruits at that. And that is why the huge income potential(tho unrealistic) is emphasized, while the risk of losing $300-$1000 the first year and never surviving in the business is completely downplayed if not out right ignored.

I don't know, I hope I am wrong in my analysis but this is what I can deduce from what Exit Realty itself is saying.

I apologize if i come across as overly negative but this is the conclusion I come away with from the evidences that Exit Realty has presented. Good luck all.

04/03/2007 by RomoGracie