The other day I wrote a blog about how I wish the whole world operated under the Tempur-Pedic model of Satisfaction Guaranteed or Your Money Back! Which, in a way, is how our industry operates as well since in most cases we don't get paid until/unless we perform. However, I promised to also explore the other side of the equation - that is - a real estate industry without commissions, without the emphasis on Pay for Performance. In other words - a salaried or fee-based model.
The most common objection to the salaried real estate agent (and for simplicity, let's just call all non-contingency-based models "salaried") is that without the incentive to perform, service to the client would suffer.
In theory, that makes perfect sense; as I've experienced way too many times in the last year, once you've paid for something, you're stuck with the service you get or don't get, whether you're satisfied or not satisfied.
But here's the thing. That blanket assumption actually CONTRADICTS a big part of the traditional real estate compensation model - specifically - that we are paid a PERCENTAGE of the deal. That is - we make far more money on a $500,000 deal than on a $100,000 one. Therefore, the anti-salary line of reasoning says that we will naturally work far harder on the bigger deal than on the smaller deal.
I don't know about you, but I don't work that way. My $100,000 clients get pretty much the same attention and service as my $500,000 ones. Not necessarily because it's the nice thing to do, but because that's WHO I AM. If someone hires me to do a job for them and I agree to be hired by them, my pride ain't gonna allow me to give them a half-a$$ed effort, regardless of the final paycheck. That's how I'm wired. Aren't you?
So, if we agree that we don't treat our lower dollar-versus-higher dollar clients much differently, is it really that big of a leap to assume that we are capable of providing excellent service under a salaried model?
If you were hired and paid a decent salary to take great care of a handful of buyers and sellers, would you really do a sub-standard job because you aren't being paid on contingency? Or would you take your job seriously and do your best because that's who you are?
Now, I'm not talking about prospecting. I'm talking about doing what needs to be done to market, contract and close your seller's home or getting your buyer into his first home, next home or dream home.
But see, this is where it gets fuzzy. BECAUSE of how we're compensated, our business tends to attract practitioners who view the career as primarily sales, not service. They enjoy the chase, the hunt, the pursuit - that is - they like to prospect. And there's nothing wrong with that. But those aren't necessarily the skills and talents that make a great real estate agent - one who gets her deals to the closing table - leaving a stream of satisfied buyers and sellers in her wake.
Which is, in my humble opinion, something we need more of in our industry.
But that soapbox aside, I can easily see a model where real estate agents are paid a salary to do the job their buyers and sellers hire them to do. The companies that have the best tools, training and systems in place to serve their customers will naturally get a larger share of the local business, assuming they have a decent marketing department. Sure, there would be a sales force, but most real estate license-holders would focus on taking care of their current customers, rather than on the pursuit of new ones.
This little blog isn't meant to be any sort of manifesto crying out for change, or anything like that. Personally, I like being paid on contingency because it means if I do a good job for my customer, I get a juicy paycheck, due to the risk I agree to take by working on contingency. And I like juicy paychecks. But if I were to open my own real estate company, I'd seriously consider a salaried model, simply because that's the sort of practitioner I want to attract - one who would rather serve than hunt.
Just a few too many rambling thoughts on a chilly Monday morning...
It's Here!!!!
Just Released, like YESTERDAY!
The Sequel to Sell with Soul.
Own one of the first 1,000 copies printed, numbered & autographed.
www.SWSStore.com
We had at least one salaried real estate company in our area and they are now out of business. Don't know if it was their model or the market that did them in but the "team" now all works for another brokerage under a commission plan.
Pat - As a practical matter, it may not be possible to change our industry to accept a salaried model. There would have to be lots of paradigm-shifting. But I wouldn't mind exploring it!
OK I'm coming out of the closet here. I have socialist tendencies. There, I said it. When I was 10, I wrote a letter to my principal suggesting we all wear school uniforms so that no one would be able to tell which kids had money and which ones were poor. I lamented to my mother, "Why can't we all work at what needs to be done and then split everything up so that no one has more than anyone else." What does this have to do with your post? Though I'm all about service, what I like about how real estate agents currently get paid is the fact that we earn more on the sale of higher-priced homes and less on lower-priced ones. To me, this is fair and just: those who can afford to pay more (based on the value of their home) do, and those who can only afford to pay less (based on the value of their home) do. I know that the value of one's home doesn't always reflect what a person can afford to pay, but in most cases it does. What do you think? -- Tanya in Montreal
The focus is closing the deal - not service! OK, I relent - enough service to get the deal closed! Do I agree with the approach? Nope!
Jennifer,
Making a salary-based firm profitable and sustainable would be a management mission.
It is all would start with great management and initial capitalization. Hiring, training, motivating, measuring performance, establishing quotas, maintaining accountability for expectations, making payroll during slow periods.
Impossible? No. But, I'm with you; I very much like working on a 1099 as an independent contractor paid on a contingent basis.
Gary - I'm not sure I understand - what deal is it you're closing? Getting the sign in the yard or the buyer to sign an EBA? Or getting the contract negotiated and to closing? Please clarify!
Tanya - Ooooooh, I'm so not a socialist - very conservative in fact, but I don't think your political perspective is in disagreement with the idea of a salaried agent. Keep in mind that I didn't even address how the CUSTOMER pays for representation - maybe that's still paid as a percentage of the sale, whether it's commission or some sort of flat fee. How would that work for you?
Mike - you raise a good point that I'm not sure you were trying to raise, but if a company committed to paying a salary, might they not spend more effort making sure their people knew what they were doing and were well-trained????? Might be a VERY good thing for our industry.
BTW,
One of the blessings(?) of percentage compensation is that higher-end homeowners de facto subsidize the marketplace for those who can afford less home. It is unlikely that that $500,000 buyer/seller would get the same service at the same cost as the $100,000 buyer/seller.
More likely that both would foot a bill similar to a current $300,000 buyer/seller. More cost on the low end, and less cost on the high end.
I'm gonna speak from the Broker's side of the table for a moment. Under the salaried model, I suppose that would make me the person responsible for issuing the paychecks.
And unfortunately, I am afraid I just don't have enough personal wealth to pay everyone a salary throughout the ups and downs of our market.
And if I was forced to terminate agents during the slow times because I couldn't continue paying their salaries, I know I would lose some good people.
I don't know where this line of thought gets us. I'm just sayin'. :-)
"Mike - you raise a good point that I'm not sure you were trying to raise, but if a company committed to paying a salary, might they not spend more effort making sure their people knew what they were doing and were well-trained????? Might be a VERY good thing for our industry."
I see "spend." As in "Expense." As in "Overhead."
I think "Capitalization" involves "Capital" and lends itself to huge corporate and venture capital involvement.
Training is great, and self-regulation and enforcement of rules and law are lax. But, always, the consumer will pay all costs unless the company fails, and I would be curious what a realistic pro forma financial projection for a W2 based firm might look like. Hey, someone will give it a go and crash and burn or survive and thrive, all the time presenting an interesting case study.
@Mike -- Doesn't Redfin have a salaried model? Redfin CEO Glenn Kelman has written a few posts on Bloodhound Blog, if you dig thru his post archive you'll come across some of his thoughts on compensation models.
( Hope you don't mind the outbound link, Jennifer, if you don't like it you can delete it http://www.bloodhoundrealty.com/BloodhoundBlog/?author=40 )
Cheryl,
Is it a profitable organically-funded salaried model that participates in percentage splits, i.e., graduated compensation?
A rhetorical question I will not follow up as, really, DOJ, and all that, I'm more comfortable theorizing in the clouds than discussing other firms' business specifics...
Mike & Cheryl - I'm not much of a business-woman - so I won't even try to speak to the specifics of how it would be capitalized, funded and all those other fancy words... and I have no plans to run right out and open up a Salaried Shop anytime soon... but I would like to hear your thoughts on my premise that customer service might NOT suffer under the model; in fact, it might be vastly improved?
Jennifer, I feel the need to clarify. In Canada, there is no mainstream socialist political party. I'm not a big S Socialist; I have socialist leanings. But I'm also a realist, and know that there are many, many reasons why socialism would never work as a governing structure. That said, your proposition of customers paying a percentage based on the value of their property could potentially work for me, though not being salaried makes me feel like my own businesswoman -- which I LOVE. This is an interesting conversation. --- Tanya in Montreal
Jennifer- From owning a company side- no way for the salaried agents. Not going there. Not only that, once we start getting into salaries you get into the employee mentality which is not a right fit for our company or for me for that matter. THen we have workman's comp and all that? I don't think so. Not only that, this is a business and each agent needs to treat the business as a business and not a job. This is one of the problems we have with agents- they treat this as a job not a business. They don't think like business people.
A lot of the service parts that you are talking about can be handled by VAs and assistants. We pay our transaction coordinator $200 per deal she closes, not on salary, it is a per transaction closed and she is an independent biz woman. Why would I pay a salary to an agent when I can pay per transaction?
Nestor and I are the ones that go and get the listings. We love the 'hunting' part of the business.
But after that, our listing manager takes over, our closing coordinator takes over when the deal gets to the closing part, our listing manager does the processing of the paperwork for short sales and Nestor and I do the negotiating with the lenders.
We treat in human terms the 100K client the same as the 1 M client. But we focus on getting the 1 M dollar client. Do the math. You can either do more deals at 100K or more 1 M deals to produce more income. Some agents do unit volume to increase their net, some do income volume to increase their net. While both clients get service, I beg to differ that you would spend more than the commission on a 100K transaction but you could spend that much when your ROI is going to be more.
This is a business. Real estate is a great business model because of the low entry level and high earning power possible. If it were a salaried model- you would never see me in this business because I am an entrepreneur and we don't work well in salaried environments. :)
Just some food for thought: I wonder if the general public would have more respect for real estate agents if we *were* salaried vs working on commission??
Jennifer- I did originally stop by your blog to wish you a very Happy New Year! Katerina
I think there are two sides to a salaried agent. In a larger market you could do this - but in a small market it wouldn't work. Great idea - I think that it would give many the boost they need to enter the business.. Great thoughts.
The salary issue requires some money on the part of the company. You have W-2's and taxes to pay. We smaller guys would have a hard time starting up using this model. Having said that I do believe that saleried with some commission and quotas for sales peole as it is done in other industries is a really good way to go.
Re: but I would like to hear your thoughts on my premise that customer service might NOT suffer under the model; in fact, it might be vastly improved
I am trying to visualise how my own smallish brokerage would work with a salaried model. I don't think our customer service would change. All of our people really work hard to do right by their clients. That seems to be the nature of the best folks in this business, regardless of income.
"but I would like to hear your thoughts on my premise that customer service might NOT suffer under the model; in fact, it might be vastly improved?" (An echo in here? LOL)
We wanted a refrigerator and clothes washer.
Went to Best Buy. BB guys always say, "We are not on commission." That's French for, "I am not financially tied to the outcome." And in this case, he was untied from the process. He showed us a clothes washer and discussed it with product knowledge. We didn't pull the trigger in a nanosecond so he was bored and wandered off to play with another associate. He never noticed that we spent ten minutes poking at refrigerators. Missed a bigger ticket item entirely.
So WE wandered off to Lowes'. Met a young fellow who admitted that he received salary and a small commission. He was attentive, and did not leave us, but did not intrude in our conversation. We got his product knowledge on both appliances, and bought from him, due to better service.
Anecdotal, but supportive of commission model? No. not at all. The tale is supportive of the need for management to address customer service, regardless of associate compensation model. Management must be on a mission, must convey that mission to associates, and must get results, i.e., $$$ and ongoing business, to float the operation.
Management's mission MUST be to tie associates in some manner to the outcome. Money has always been the easiest tie for management, even though it is not the most important tie for many employees. Maslov's Hierarchy of Needs etc... But, I won't work for donuts and coffee and a Christmas party. I work for satisfaction that I have handled myself professionally, my clients' needs thoroughly, and to make a nice deposit afterwards as my reward.
When customer service meets production and profitability and associates and clients are satisfied, you have a sustainable business model. Either management will lead the way, or evolve very quickly to steer the operation, or the business model is moot.
(I make one more comment, and I'll do a "Best of..." blog.. LOL
I have always treated my clients equally, no matter the dollar amount, Actually sometimes the lower dollar amount ones get even better treatment because they require more hand holding.
I have always thought the world would run better if everyone was on some form of commission.
PS: HAPPY NEW YEAR!!
I have always thought of myself as a salesperson first, and thus I earn a commission on my "sales." That does not mean I am not service-oriented. In fact, as Robert Rauf (above) said, I also treat my smaller clients just as well as higher dollar volume ones because it's who I am. But I wouldn't be as motivated without the commission.
Jenn - I just completed my broker application this morning. I have been thinking a lot about all of the different compensation models for agents. If you have good systems in place and great people working for you the salary model will work great. Maybe I'm making an assumption but it seems the type of personality you must have to be a lead generating machine, is not the same type of personality it requires to be naturally good at servicing your clients (as you mentioned). One challenge with the salary model is the amount of money required to start a brokerage company. Your overhead would be substantially higher and the risk of failing would be greater in my opinion within the first year. Although longevity wise, it might be possible to last longer if you a have a well oiled machine running vs. agents on commission that don't have as high a level of accountability like a salaried agent would.
Hey! Tickled to see your new book is released! I need something new and inspiring to read.
Can you believe how cold it is? We could get snow by the end of the week, and with the ground so cold.....maybe some will stick.
Ann - my pipes were frozen this morning. In Lower Alabama... and my pipes are frozen. Sheesh. This won't do - I think I'll have to move further south. You should hear me whine whine whine!!!
Christopher - Yep - those are pretty much my thoughts, too! I know there's a way to make it work, if someone so desired, because obviously other service industries run their businesses with employees and real estate is simply that - a service industry.
Margaret - I don't consider myself a salesperson first, second, or at all - I think of myself as a self-employed transaction manager. And I guess my overall point is that IF real estate were a salaried profession, you (and others who think of themselves primarily as salespeople) wouldn't be attracted to it. There would just be a different sort of practitioner - and that's what I'm interesting in exploring.
Robert - I agree, I love the idea of pay for performance. My only problem with it is that you end up with salespeople trying to do a job that's more suitable to a customer-service mindset. But I realize I'm mostly alone in that opinion!
Mike - I appreciate all your thoughts!!!!! And I kinda think, maybe... we're on the same page?
Cheryl - you are lucky to have the quality agents you do! I really don't think anyone can argue that there are a LOT of agents in our industry who don't have a clue how to properly service a listing or negotiate effectively for a buyer... even though they ARE paid on the assumption that they do.
Charlie - I agree - other not-dissimilar industries operate with employees rather than IC's. Yes, there are details to figure out, but it's not as if our industry is operating without a hitch under the current model!
Katerina - Thanks for all your thoughts! I must argue (as I do frequently) that what makes me an exceptional manager of a real estate transaction could not in a million years be handled by a $20/hour virtual assistant or a $200 per transaction coordinator. There are many levels of proficience in this business, quite apart from rainmaking, and I think we can agree that some agents have a far better handle on the nuts and bolts of real estate than others. Shoot, we complain about the incompetent ones all day long around here! If I, Jennifer Allan, were to go to work for a real estate company as a salaried employee, I would demand, and be worth pretty much what I earn as an IC... even without rainmaking responsibilities.
In my humble opinion ;-]
Not a bad idea. But i think everyone here has covered all the points. I prefer the model that's in place right now. It's like an adventure. You never know what you will make from day to day.
Jennifer,
Yes, I think we are on the same page. We think we become successful as we help our clients to succeed!
You brought up a lot of valid points Jennifer! It would be like buying a house at wal mart or any other store in which you can get ignored and still expected to pay full price...
Jennifer, even during the freezing winter, you've found a lively hornet's nest! Interesting ideas. I agree with CJ's view from the broker's side that it would be a difficult model for most firms. I think the future of our industry will be led by agents who give exceptional customer service resulting in successful transactions.
Jennifer, Interesting concept. I can see both sides, Katerina's and your thoughts as well. It would have to be the absolute right fit, with some type of a contract on a trial basis to see if it would work on both ends.
Heather - thanks for your comment! And I didn't really expect too many to agree 100% with me... sigh. But seriously - the system we have now ain't exactly working flawlessly, so why not explore alternatives??!!
Two thoughts have fluttered through my mind over the course of this virtual conversation:
1. Maybe we could create right here on Active Rain a kind of "Fantasy Brokerage Game" (taking the hint from NFL fantasy league) ... We could create an imaginary brokerage with imaginary agents, and imaginary scenarios, and a talk it thru a series of "what if" simulations....
2. I bought, read, and enjoyed Sell with Soul... I wonder if there is a niche for "Manage with Soul"... I don't think I am alone in saying that I did not start out with the plan to manage other agents.... life just sort of evolved that way ... and dare I say it? There is so much I don't know about what I am doing...
Cheryl - I love your idea of a Fantasy Brokerage! And Managing with Soul - I can't say I have much experience on that topic, except to say that you can and should trust your gut. Don't do things because that's "how they're done" or that's "how you were taught" - especially if these approaches don't seem to be working. Feel free to bounce ideas off me - I'm always willing to share my opinions!!!
You quoted: "The most common objection to the salaried real estate agent (and for simplicity, let's just call all non-contingency-based models "salaried") is that without the incentive to perform, service to the client would suffer."
IMO, which is, of course, meaningless to most, salaried real estate agents would require huge capital investment, more government involvement (withholding, etc.), mountains of paperwork, and worse.
Leave my income model alone and let me benefit financially by personal achievement. Contingent fees are where the big money is. We take the risk, we gain financially when a sale closes.
That's real estate brokerage and that works for me.
Lenn - I wouldn't dream of messing with your business model ;-]
But I do question why we think our industry is so special - that the model that works for lots and lots of other industries would be impossible or impractical for ours. Selling real estate is really no different from hundreds of other service-related industries - most of which also have the need to generate business for themselves - but they just have a small sales force who focuses on that, while the rest of the crew takes care of that business. Which, really are two different skill sets.
Hi Jennifer,
Our industry is special because we are not manufacturing something and use a skill set to make and another to sell. We have a complicated service that involves often handling and caring for the acquiring or disposition of one of many customer's largest asset in their portfolio. National and state regulations ebb and flow with regulations as the economy changes which affects how our business is done. Continuing education is a must..this is not a business to enter for the faint of heart. Those who want to work hard and treat real estate as their own business are offered a chance to make a difference in peoples lives and their own pocket book.They can work as hard as they want and develop a strong, honest reputation with a following that enables them to earn as much as they want or be satisfied with less income..it is all up to how hard they want to make a success of owning their own business. It's a choice that one has in entering real estate..no one capping their potential.
We had a broker try that model here several years ago it lasted 4 months. This is not a 9-5 job. He had a good firm with great agents but instead of perfecting something good superior he spent most of his time searching for pie in the sky. He's still up there looking!
Salaried? Like punching a timeclock? No thanks for me.
Great discussion, Jennifer! You bring up some good points about the pros and cons of commissions vs salaries. Ultimately, you're selling yourself either way . . . and I believe that's most successful salespeople's motivation for the great service they provide.
I've had assistants that took care of this and that and, sooner or later, they mess up. I've learned to control every aspect of my buyer/client's transaction and transaction needs to ensure quality representation from the time a customer becomes a client to the time they walk out of settlement with the keys to their home.
Lenn - unless I'm misunderstanding your comment, I think you sorta just agreed with me???!
Dorie - thanks for your comments! But don't other industries have similar requirements and challenges? My job previous to real estate was a salaried position with a health insurance company and my job description was almost identical to what I do as a real estate agent - with the exception of generating business. Hmmmm, there might be a follow-up blog in there...
Jennifer- I'm new to the business and I am committed to your sales ideas. These ideas would, I believe work very well in an employee based operation. I have felt since I first started in real estate that the basic business model is flawed. I came to real estate after years of owning a Mack Truck dealership. We paid our sales people small salaries (15-25K per year) plus commission. (in a good year most made nice 6 figure incomes) We also provide some expenses and full benefits. They were not required to punch a clock, but we had performance goals they were expected to meet. If they did not meet the goals, they were gone. We provided training and lots of supervision until they were able to work alone. I liked it because we had more control over what was said and done in our name. This type of system requires that a company have a very stringent hiring policy. I think that the real estate industry misses a lot of talented young people, because very few of them can afford to start a job where they have to front all the cost it takes to get started in the business.
Tom - I agree. In fact, I'm writing a blog with a similar (sorta) approach - that there are other models that would work and the model we have certainly isn't a picture-perfect model of success!
Hi Jennifer,
I think real estate is one of the few things left in America that makes me proud to be working in America....if it were salaried...it would be a J. O. B. and yes that's the equivalent in America for "JUST OVER BROKE"....and I don't want to be any part of that.... I already know what the unemployement numbers are and all the salary cutbacks, etc.... who wants that... no one. I say NO to Salaried Real Estate!
Love it the way it is!
I'm happy to be a Professional Realtor!
Thanks,
Tom Davis
I have to agree with Tom in that being employed (unless you are in the financial sector) means being just a little over broke. A lot of people who have been working for themselves a long time don't realize how badly people on salary are doing these days. Under such a model, there would have to be far, far fewer agents and each agent would hve to be VERY productive in order for the "house" to turn a profit - or just stay out of the red. There isn't enough business for the agents out there now. I think most agents in my area earned less than $10k last year. I have a feeling the salaries would be very, very low..say around $40k. If you want to know how bad salaried life is just look at the $38k I was offered for a 60 hour a week full-time professorship that included working through the summer, getting grants for research projects I would do, having a full course load (about 200 students) and having to shuttle between two campuses. That's what salaried life has been reduced to in the US.
I heard that Weichert was testing this in Chicago. Don't know how iit worked. Think about how much Wall Street capital Redfin has burned through before finally becoming profitable.