Firm Builds On Independent Model
At the heart of their vision was a business model that turned on independence.
The three men were working for RE/MAX back in 1995 when they decided to establish an independent brokerage.
At the time, new technology was redefining the real estate business, Carlson recalled. As they saw it, new technology could offer real estate agents the freedom to work on or off site, as well as the means to stay connected with clients around the clock.
Embracing that technology, Carlson, Blahnik and Van Assen opened Five Star Real Estate on Jan. 1, 1996, in a small warehouse.
“What we saw was less brick and mortar and the virtual office taking shape, and we thought that would be a good way to grow a company. In 1995 there really were no home offices in this market. When we started this, everybody said it would never work because agents need to be in the office.”
It turned out everybody was wrong.
Within seven years the company had expanded from its original three partners to 235 agents and four offices in metro Grand Rapids, with relocation, mortgage, title insurance and home services subsidiaries.
Five Star has been averaging about a 40 percent annual growth rate over the last several years. Last year, Five Star agents generated $491 million in sales volume via 3,850 transactions locally. Including its Holland and Muskegon markets, the company’s total sales volume was $619 million for the year.
Today, nearly 66 percent of Five Star agents work offsite by choice, which means 66 percent less office space and 66 percent less staff to do the paperwork, Blahnik pointed out. That keeps overhead down and allows the company to pass savings on to agents, he said.
Five Star operates with four offices and 10 staff people despite having 235 agents. Other area real estate companies with that many agents might have 15 offices and 30 to 40 staff people, Van Assen noted.
Five Star agents can choose between a home office fee structure of $400 a month or space in one of Five Star’s offices for $800 month, whereas agents in other companies might pay their broker a flat fee of $1,500 to $1,800 a month for company office space, Carlson said.
In addition, all inquiries about a Five Star listing only go to the listing agent, which means the agent is put in a position to be on both sides of the transaction, so they can double their income working on the same transaction, Carlson explained. He said Five Star agents sell their own listings 35 percent of the time, while the industry average is 4 percent.
Five Star has lowered agents’ overhead and given them more moneymaking opportunities “so they can work less, earn more and have a life,” he added. The company also offers “storefront” and “branchise” options that give agents the right to use the Five Star name.
“If you attract good people to begin with, it makes what you’re doing more attractive. We think the best people thrive on freedom, independence and flexibility.
“Our agents are growing their own individual businesses inside the shell of Five Star. They’re independent contractors. So we treat them as our customers, whereas I think other brokers sometimes tend to treat their agents as employees.”
Five Star Real Estate agents average 11 years of experience and individually produce an average $2.9 million in annual home sales. But agents don’t subsidize one another, Van Assen observed. Each agent pays only for what he or she uses and handles their own advertising.
Five Star doesn’t do any institutional advertising to promote the company itself. Agents promote themselves. People know when Five Star has entered their market when its for-sale signs start popping up in their neighborhood.
Blahnik, Carlson and Van Assen don’t believe that a real estate franchise, or the name it bears, is what generates business for agents; they believe it is agents that create business for the franchise by building relationships and providing good service.
“One of the myths in the real estate business is that it’s the real estate company that sells your house. It’s not; it’s the real estate agent you hired,” Blahnik said.
“We have taught our people to promote themselves and not the company. Five Star will grow just fine if they promote themselves and create their own business. It’s worked marvelously.”
According to Carlson, with new real estate agents the washout rate is about 85 percent every two to three years for the typical real estate company. In an attempt to buck that trend, Five Star started a coaching program last year that teams new agents with experienced agents who serve as coaches and receive compensation for their efforts.
Carlson said he and his partners also believe agents need to do more than the basic six hours of continuing education a year.
Five Star offers monthly educational meetings that cover a myriad of topics, from digital cameras to PDAs. It produces a monthly newsletter that includes both informational and educational material and multiple weekly e-mails that include industry news and business tips.
The three partners share many of the responsibilities of running Five Star, but Carlson is primarily in charge of agents and recruiting, Van Assen is in charge of office personnel and maintenance, and Blahnik has broker responsibilities.
“We all have different strengths and different philosophies, so it’s a good partnership because we don’t all lean the same way. Everybody has their little niche,” Van Assen said. “There’s always conversation and we respect each other’s differences of opinion.”
Five Star expanded into the Muskegon market Jan. 1 with a “branchise” consisting of 11 agents. Carlson said the company hopes to expand soon into the Grand Haven and Spring Lake areas, as well.
Additionally, there are agents in outlying areas like Hastings, Greenville and Middleville who would like to be licensed to use the company’s name, he said, adding that Five Star hopes to grow to 300 agents by the end of the year.
Also on their radar screen are the Kalamazoo, Lansing and Traverse City real estate markets. Any of the major metropolitan areas are desirable markets for Five Star, Blahnik said, but the company would like to penetrate all of West Michigan’s markets before moving on to others in the state.
“In our opinion, there is no reason for an agent to go and start his own company today, unless he wants to see his name in lights, because we’ve built a mousetrap that is so simplified,” Carlson said. “We seem to have put together a model that’s extremely agent friendly.”