For over a decade, Phoenix-based brokerage West USA Realty, which uses a flexible compensation plan model for its agents, has consistently found itself ranked in the top-20 of the RealTrends 500 rankings by transaction sides, with a top finish at No. 9 in 2020, when the firm closed 26,485 transaction sides in 2019.
In 2023, West USA Realty came in ranked at No. 19 for transaction side, after recording 20,871 sides in 2022, and at No. 41 in sales volume, which came in at $5.455 billion in 2022.
RealTrends recently caught up with Todd Menard, the COO of West USA Realty to learn more about the firm’s flexible compensation plan and to what he attributes the firm’s long term success.
This interview has been edited for brevity and clarity.
Brooklee Han: Before we dive into your firm’s model, can you tell me a bit about what current market conditions look like in the areas West USA operates?
Todd Menard: In my market, inventory is currently one of the first statistics we talk about. We currently have three times the inventory we had a year or two years ago, but I am currently watching inventory contract about 2% a month, which is not a good sign. But, what is helping that contract at a slower pace than it could be is a decrease in pending home sales. Buyer are staying away from the housing market because they are afraid of the sensationalized national news that they are hearing about inflation and then the word recession is being used out there and some of the people just hang on those words and it provides a sense of doom and gloom instead of them looking at how they might navigate through this.
So right now, at any one time there might be roughly 4,000 people in escrow, whereas last year we had 5,700 people in escrow at any one time and two years ago, we had almost 7,000 people in escrow. Now maybe the 7,000 people was caused by the California rush, but the 5,700 is where we need to be if we have 25,000 homes on the market as that gives us about 2.5 months of supply, which in my opinion is the sweet spot for the market out here, as it makes sellers motivated to sell and keeps price appreciation at a level where buyers are still willing to buy.
But right now, according to the Arizona Multiple Listing Service, closings are 28% off, meaning that we are closing 25% to 30% fewer properties this year than we did last year, which impacts corporate incomes or losses, as well as agent commissions.
And we also have interest rates. Sellers have more equity than they have ever had in their homes in the history of homeownership, but if they have a 2.5% or even 3.5% mortgage rate, they don’t want to move right now because even if they bought the same house, they would be looking at a higher monthly cost due to the 7% interest rates. Right now, someone has to have a reason to want to sell and the buyer has to have a reason to want to buy and most of these folks have grown up in a 6% mortgage rate environment. My first house in 1986 was 13.9% mortgage and I thought that was a deal.
Then the last piece of the puzzle is inflation and if you go back pretty much since 1960, when we began recording the economy in this way and you look at how much of your income it took to own a home in the 1960s versus how much of your income it takes to days and ironically it is still roughly the same, it is still roughly 40% of your income. So, although prices are higher and everything else is more expensive, home ownership is approximately the same as it has been for the last 60 years, so it is really one of the best if not the best investment you can make.
BH: You all have been ranked in the top-20 for transaction side for over a decade now. To what do you attribute this long term success?
Menard: I think a lot of it has to do with our founder Clay Fouts’ vision. He implemented what was called a family business culture with corporate efficiency. This means that every decision that is made is always filtered though. Everything we do is based upon whether or not it will help an agent close more homes, meet more people or make more money and if it doesn’t do any of those three things we don’t do it.
The other thing is that we are a 100% company, as opposed to a split commission company. But for us, that means that we constantly have to operate within the margins of a flat fee, but we still manage to offer more services to agents, more training, more skill development and more technology than these other firms, who charge agents extra if they want access to the firm’s technology.
We also look at our agents as individuals and if we need to make adjustments to our normal procedural process to get a transaction to the closing table for them, we will review the case with our company policies and determine if we can find a way to make something work for this agent.
But at the end of the day, our success is not about us; it is because of the way we set everything up and it is really about the agents that work for the company because the production falls on the back of every single one of our licensees.
BH: Can you tell me a bit more about your flexible compensation plan?
Menard: We have always been a flat fee firm and our model has only really had one or two revisions over the years. The flex plan is designed to allow people to navigate and choose anywhere from paying nothing per month and maybe having a higher transaction fee or paying what feels comfortable for them per month and having a much lower transaction fee. We also have a yearly cap for transaction fees in place once you choose at least a certain level of monthly fee and transaction fee and it is based solely on the plan the agent chooses.
BH: How do you feel using this model has helped you all grow the business over the years?
Menard: I got here 10 years ago this month and that was when Clay Fouts retired and his son Clint took over and since then we have tripled the size of the company, we have tripled the production and we have almost tripled our revenue and I think that is an amazing accomplishment. I think we are still the best kept secret because we don’t advertise to agents that much and instead we allow people to make the decision to learn about us on their own. If we bring in a super high producer, unlike a split firm, we won’t make any more money if they do $30 million in volume versus $5 million, so from our perspective it doesn’t make a huge difference. But we have been focused on bringing in some more teams because this is a really good deal for them and we currently have some of the top teams in Arizona working with us now.
BH: Is there anything else that you feel makes West USA Realty stand out from other brokerages?
Menard: We put a survey out to all of our agents annually and we look at those our marching orders moving forward. We want the licensees who are within our organization to reply to that survey and give us a report card. What are we doing? What aren’t we doing? How are we doing? But most importantly what are we missing the mark on because that is energy that is being put out there and directed into things that really aren’t making a difference in a licensee’s income or success. So, we feel this really gives us an opportunity to take a look at the services we are providing and ensuring that we are doing the things that are necessary for the success of our agent base. We really do our best to listen to our agents because, as I said earlier, if it wasn’t for them, we wouldn’t be here.
