The Colorado company may be the only residential real estate brokerage to go through the process of becoming employee-owned. Here's how it works.
A brokerage in Colorado is doing things differently than perhaps all others. It may hold the title as the nation’s only employee-owned residential real estate brokerage.
Before 2019, 8z Real Estate was not unlike other brokerages across the country, using a network of agents who are independent contractors. Those agents were each responsible for finding their own health insurance, saving for retirement, paying taxes and were relying solely on commission.
That’s largely the industry standard, but it changed for 8z when its owner decided to make its top performers part-owners in the company.
Three years ago the firm created a partner program for high-performing agents to become full-time W2 employees who earn a small salary and have healthcare benefits, a 401K with company match, profit-sharing and an ownership stake in the brokerage.
The goal, says Company President Ryan Carter, was simple: “Build an organization that lasts… beyond us — beyond me.”
To achieve that, 8z created what’s called an employee stock ownership plan (ESOP). ESOPs are viewed as a tool for companies to set up a succession plan and give employees benefits while retaining agents and recognizing top performers.
In real estate, where agents typically move to a new brokerage after four or five years, that ESOP might buy some institutional knowledge that benefits the brokerage and its agents.
“You’ve got this situation where they’re always looking for, ‘Where can I get the most leads, where can I increase my potential and maximize my potential?’” said Brian Hock, managing director at Greenwich Capital Group. “When you have everyone focused on the company or the brokerage overall, there’s more incentive for teamwork and referring business to others.”
Hock specializes in the creation of ESOPs and advises companies through the onerous process of creating one. He conducted a search and found 8z may be the only residential real estate brokerage to have done it. In a country with nearly 6,500 employee-owned companies, 8z stands alone.
It appears the plan may be paying off for 8z and its agents: the firm has landed on the Real Trends 500 list for sides and volume in consecutive years and also won a number of local awards.
8z’s roughly 165 agents average 21 transactions a year and $12.5 million in annual sales volume, according to the firm. Both are above average compared to agents nationally.
“Oftentimes with brokerages, they’re built and the work is done on the back of agents,” Carter said. “Oftentimes the profits remain at the top. We think that’s broken in real estate.
Top performers become partners
One new employee-owner at 8z is Sergio Nazzaro, who joined the firm in 2017 as an agent and was named partner this year.
Nazzaro, a combat veteran in the Air Force, had healthcare covered for himself through the U.S. Department of Veterans Affairs.
“I didn’t have it for my fiancée [and] that was a little bit of a stressor,” Nazzaro said. “Now that I’m a partner through 8z, we have healthcare for me and my wife and for our child, who is coming in April.”
However, becoming a partner isn’t a given.
8z agents must achieve $15 million in volume production for four non-consecutive years or $20 million for two. There’s also a process to ensure a partner is a fit with the company culture. The benefits last as long as the employee stays at the company.
Partners are given a small W2 salary that’s separate from commission they continue to generate with transactions. The company also picks up healthcare and conducts profit-sharing with partners.
Nazzaro said the benefits give him a level of comfort he hadn’t had before.
“Now my survival and safety level, salary, healthcare and 401k and some future-facing things that could come down the line, I believe my basic needs are taken care of,” he said. “Not only can I control and feel comfortable in my personal life, that allows me to show up in a certain professional space for clients.”
How it works
ESOPs are highly regulated programs that, among other benefits, allow company owners to create a line of succession.
Once established, they also provide tax benefits to the companies offering the ESOP.
According to the National Center for Employee Ownership, ESOPs are “commonly used to provide a market for the shares of departing owners of successful closely held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars.”
Employees that are part of the program receive shares in the company trust, with allocations made either relative to pay or seniority, and shares vest over time.
“They can be used to defer their capital gains when they sell their company,” Hock said.
“It can be structured where they don’t have to pay federal income taxes when it’s 100 percent owned by the employees and the company is an S-Corporation,” he added. “You tend to have higher employee retention, higher morale. Studies have shown that employee-owned companies have greater growth than non-owned companies.”
‘Your work is paying off for you’
Angela Moss joined 8z and became one of its first partners when the ESOP was created.
She shared the notion the program acted as an incentive not only for individual performance, but to work as a team.
“It’s a nice carrot to say, ‘Look, if you work hard, it helps me. If I work hard it helps you. We’re in this together,’” Moss said. “It’s not that we’re trying to beat each other out.
“Nothing is more satisfying than knowing that you’re part of a greater group, a bigger whole. It’s not just you in the trenches,” she added. “Your work is paying off for you in the future.”
As for its lonely status, 8z Carter said he thinks it sets up agents for success at work and at home.
“A really fundamental vision of mine is to support agents holistically, also in their life,” Carter said. “Look at how they have financial well-being, work-life balance. These things in the partnership and ESOP help support that.”