Point of Origination
Two weeks ago, I wrote about the Massey Knakal/Cushman & Wakefield territory system and the benefits of that system. When discussing how business is generated and is handled between agents in different territories, I used the expression “origination” to refer to the genesis of a piece of business. I was surprised to receive several emails from readers asking me what origination was, how we determined who the originator was and if, and how, we tracked that metric.
It’s interesting that while originating business is probably the most important thing that we do in the brokerage industry, it is something that is really not focused on in many companies. There are three components of a commercial sale: 1) finding out someone wants to sell (originating the business), 2) securing the exclusive listing (assuming you only work on exclusives), and 3) executing the business. Of these three components, originating business opportunities is where the rubber meets the road. This is the case in any sales organization.
Origination is simply finding out that a property owner is interested in selling a property. Because we have always only been seller representatives, this has been relatively easy to track.
There are some property owners who own properties in many of the 50 territories that we have established in the New York City marketplace. Let’s assume for the moment that one investor owns properties in 25 different territories. From our prospective, if 24 agents call that owner in a day and the 25th broker finds out that the owner is interested in selling 123 Main Street, that broker is credited with the origination. This is irrespective of whether other brokers in the company have known that owner for decades or have done several transactions with that client. Discovering that someone wants to sell is the single most important piece of information there is in our industry.
Why is this so important? To illustrate, let’s assume Broker A originates a piece of business that has a $1 million potential commission. For whatever reason, Broker A may decide to bring in Broker B to help on the transaction (it could be that either the property is in Broker B’s territory or Broker A feels that Broker B will be helpful with the execution) and they decide to split the deal on a 50/50 basis.
After the successful closing of the transaction, Broker A would receive credit for $500,000 of gross production and Broker B would also receive $500,000 of gross production. If this happens 10 times over the course of the year, Broker A and Broker B will have a gross production of $5 million. In most brokerage environments, these brokers are viewed as identically important.
However, if Broker B decided to leave the firm, Broker C would come along (or a combination of other brokers would come along) to help secure and execute the transactions originated by Broker A. Given common splits in the industry, the $10 million of gross commissions on these transactions translates into about $4 million for the company’s share. If Broker B leaves the company, he still receives the $4 million. However, if Broker A were to leave the firm, the $10 million of gross production does not come into the company at all and the $4 million company share evaporates. Therefore, from our perspective, Broker A is much more valuable to the organization than Broker B is.
Focusing on this origination component has several benefits. First, it allows the company to identify who the most valuable brokers are. Second, it provides incentive and motivation for brokers to go out and generate business. Third, knowing that originating transactions establishes hierarchy, brokers are much more willing to bring in help to work on assignments.
At Massey Knakal a dominant market share was consistently achieved as it created a culture of aggressive hunters, always intensely focused on that next opportunity.
Origination is really what separates the men from the boys, and the women from the girls, in our industry.
Robert Knakal is the chairman of New York Investment Sales for Cushman & Wakefield and has brokered the sale of approximately 1,700 properties in his career having a market value in excess of $12.5 billion.