End of the independent contractor
Perspective: Salary will ensure real estate quality
By Inman News, Friday, February 6, 2009.
Editor's note: This month, Inman News is focusing coverage on the issue of percentage-based real estate commissions and other industry compensation practices. The following guest perspective is written by Buz Hurley, a real estate agent in Georgia. Please join in the discussion: Click here to share your views and insight with Inman News readers.
By BUZ HURLEY
Are commissions the problem or is the "independent contractor" brokerage system the problem?
The predominant brokerage system in place has an attractive allure: Be in business for yourself. Earn big commissions with nominal expenses and effort.
Real estate careers are touted as part-time, full-time, anytime opportunities: "Educated or moronic -- it doesn't matter. If you know someone who will buy or sell a home in your circle of friends or family, you should be in the real estate business so you can cash in on those relationships."
Almost everyone has a friend or family member who is a real estate agent. Some are highly competent and ethical; others are incompetent; and many are unethical.
How can an occupation be professionalized when its very nature will not allow it?
To make real estate a true profession and not just a catchall for anyone who can pass the exam, I believe the sales force has to be salaried by brokerage companies.
All agents would be employees, thus eliminating the independent contractor and the need to revamp a compensation system that is designed to lure the "treasure-seekers" and not to identify and develop the treasure (good-quality agents).
A base-salary-plus-commission system would force brokers to hire only quality people and retain only those who are productive and ethical.
The "we'll-accept-anyone-with-a-license-and-see-who-will-stick" mentality of today would automatically be eliminated, as would part-time, unethical and incompetent agents.
I estimate the current crop of 3 million agents would be reduced by at least two-thirds, leaving a sales force of professional men and women who are dependent and accountable to their employer, the broker, for their livelihood.
This would also force brokers to actually train and coach their agents, and invest their time and talents into helping these men and women develop into competent professionals.
In summary, if we don't change the system itself, revamping the commission plans won't solve any of the industry's chronic problems and challenges -- it will just cover them with a different wrapper.
Buz Hurley is a real estate agent for Solid Source Realty in Georgia.
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Submitted by Bill Fooks on February 6, 2009 - 3:10am.
Bill Fooks
TFT realty Marketing Service
Warwick, RI http://www.fooksteam.com
Why don't the top producers like Buz, start a team and offer them a salary. This way you can prove it works.I don't see a high work ethic in our new generation of agents, that I would be willing to offer a salary to.How about you?
Submitted by Lenn Harley on February 6, 2009 - 3:30am.
I disagree completely.
Forcing brokers to pay a salary plus commission or any permutation of the salary structure would simply leave the well financed mega brokers in business and all of the small independents out of business or sole practitioners with no agents. The megas can raise investment capital and borrow capital. Small brokers operate from personal savings or cash flow. The capital requirements of salary plus FICA plus office overhead would leave nothing but the megas who often have the lowest hiring standards for new agents. Small brokers are often more selective because they can't take the risk of inexperienced agents.
There is nothing wrong with the commission structure since it's a contingent fee. No sale, no fee.
The best way to raise the level of competence for agents would be to raise the entry bar. Pre-licensure of more than 60-90 hours would be a start. Examinations that are more than multiple choice with a 75% pass goal would be another.
Seems to me that the place to limit the number of agents and raise the quality would be at begining, at the licensing level.
Lenn Harley
Broker
Homefinders.com
http://www.homefinders.com
Submitted by Donna Bruno on February 6, 2009 - 4:13am.
I agree that our industry is broken....
Too many agents who are unwilling to go for training, but I think the public reinforces this. They shop by commission rate instead of value. Agents shop that way for their brokers too. And what's worse is that we don't charge anything until the house is sold.
Guys...this is getting old. People don't respect what they don't pay for up front. Agents don't often take "free" training, although it might be awesome and consumers are suspicious of "free."
As brokers, we can't operate without income to support our new clients' marketing. Whether a house sells or not, we have costs attached to it. We need to do better.
With all of the flipping around of agents in our region, why train an agent if they are going to be your competitor next week???? Perhaps a guarantee of employment with a minimum term is what needs to be called for too.
Submitted by Jay Thompson on February 6, 2009 - 4:38am.
"A base-salary-plus-commission system would force brokers to hire only quality people and retain only those who are productive and ethical."
A broker shouldn't need to implement base salary to force them to hire only quality people.
I've turned down many more agents than I've hired. Of course those I declined just went to the next broker down the street...
The question is, why do we have to force brokers to bring in quality agents and let go poor performers? If a broker gives a flip about how their brand is represented, they'd hire the right agents regardless of the pay structure.
Brokers need to move away from the hire anyone with a license and a pulse mentality. I'd much rather have 10 outstanding, high quality agents than 50 (or 500) mediocre agents.
As a small independent broker, I'd be out of business if I had to implement a payroll based model.
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
.
Submitted by Robert A. Hulme on February 6, 2009 - 4:51am.
One of the big problems that I see with a salary plus scenario is that many brokers understand the business of selling a home but are not very good at marketing and finding the customer. I really don't think the present system is broken there just needs to be a little more accountability for what is taking place within it.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
Loan Officer
Mortgage Xpress
www.UtahCountyRealEstate.us
www.UtahRealtor.ws
801-885-2586
Submitted by Brian Nygard on February 6, 2009 - 4:55am.
Brokerages need to trim the fat. Low expense structure is our approach. Technology.
Thanks,
Brian
--
Brian Nygard
Realtor/Owner
IllinoisRealEstate.com
http://www.illinoisrealestate.com
Submitted by Maureen Francis on February 6, 2009 - 5:02am.
Of course, I would like some of the benefits of being an employee. Group health insurance comes to the top of my mind. The current model of independent contractors does not happen in any other field that I know of at this scale, and was probably created by NAR lobbying congress to benefit brokers, not agents. Agents have been without the safety nets afforded most Americans (like unemployment insurance.)
But...
I cannot even imagine at this point how we could switch.
I have long agreed that more and better education is important. I don't think it will be a priority any time soon though. Our numbers be culled by the economy, not legislation. We won't necessarily be keeping the best, or the most qualified unless consumers learn to recognize what is important in a real estate agent. Also not going to happen.
Maureen Francis
SKBK Sotheby's International Realty
248.430.4450
www.miOaklandCounty.com/blog
Submitted by SarahGray Lamm on February 6, 2009 - 5:18am.
Education is the key to clearing out the ranks of the "treasure seekers". The days of getting a license so you could sell one house a year began to go by the wayside as the requirements for maintaining the license have increased. When NC made CE mandatory and then required brokers licenses for all and 2 years as a provisional broker under an experienced broker before you could hang out your shingle, it slowly began to change.
Educated consumers also help the cause. The internet has made it easier to evaluate results and practitioners and choose success over learning the lesson the hard way.
The downturn in the economy will allow the cream to rise to the top. Nothing wrong with paying percentage based commissions to people who can prove their worth. Keep your salary idea...it's like cold water on the spirit of a creative and talented entrepreneur!
Submitted by Teresa Boardman on February 6, 2009 - 5:21am.
The current pool of agents would be reduced if we were employees. I don't think I would do what I do now as an employee. I am very well educated and professional. I seek freedom and Independence. It is more important to me than money could ever be.
Submitted by Mary McDaniel on February 6, 2009 - 5:28am.
The real estate field has become increasingly complex and the pace of change so rapid that continuing education is a logical step for ensuring that your skills and knowledge stay current and viewed as your commitment to ongoing professional development for your customers and future clients.
For over 16 years, I have enjoyed working with buyers and sellers from coast to coast in real estate and mortgage transactions. The longer I am in the industry, the more certain I feel that the consumer will require several qualities in a real estate professional today. First, someone they can like and trust. Second creditability, someone who they know has the knowledge, experience and education needed to get the job done! Third, accountability, someone that adheres to a code of ethics, code of care and code of conduct.
Independent contractors in many cases swing by the seat of their pants more self
I believe an employment/commission agreement would be beneficial to real estate companies, their agents and the community in providing superior services from "trusted advisors".
Cathy McDaniel
American Real Estate University
Submitted by Vickie Flowe on February 6, 2009 - 5:29am.
Agree that it's broken, but to quote an old colleague "the fish stinks from the head". The missing link is with management. Until executivies, owners, brokers and managers everywhere start treating agents like professionals (with professional expectations, training, accountability, etc.) the downward spiral will continue. Just look at the 20% (in any market) who are successful and you'll see the proof, the systems, the solutions.
Vickie Flowe
Broker/Owner
Gibson Flowe Properties
Charlotte NC
Submitted by Doug Patterson on February 6, 2009 - 5:32am.
"How can an occupation be professionalized when its very nature will not allow it?"
Your premise is completely wrong.
Lots of agents run their business like a business. Read "The Millionaire Real Estate Agent" by Gary Keller.
Putting a bunch of agents on salary (and incurring the unemployment insurance expense and other admin overhead) will not make anyone "professional" and will only raise costs to the brokerage.
Submitted by Brian Bartley on February 6, 2009 - 5:36am.
I think Buz is right on target. Let's raise the professionalism of the industry. Pay the agents a base + commission just like most other sales professions. Require the agents to work a minimum of 40 hours per week, to hold "X" number of open houses per month, to attend weekly office meetiings, to attend training classes, etc... We all hear the following all of the time in real estate office "They can't tell me what to do I'm an independent contractor". The costs for the brokers aren't going to change and the overall compensation for the top agents isn't going to change but it will restructure the industry and make both the agents and the brokers accountable to someone, and that isn't happening now. In addition, it would stop this commission cutting by the low end agents who have no abilities and are just trolling on price. A brokerage company would be able to establish a commission for the entire company and you wouldn't have agents inside the same company competing on commission rate.
Unemployment insurance, workmens compensation, GROUP HEALTH INSURANCE, paid holidays, vacation time are a few of the items I as a sales associate would love to see. So make my commission split a bit less, I would would trade less commission for the above items. Brokers would also look at the people the are hiring a lot more closely, possibly hire fewer agents and spend more time training them because now they can require them to do things as employees.
Buz, what a great article.
Submitted by Jeff Bergstrom on February 6, 2009 - 5:50am.
There is a point here, but its still stuck in the old-fashion structure of the franchise system. Forget the franchise system--its outdated and old. Salaried agents would work if the function was moved into the Banking system. With what NAR spends in stopping that movement, its doubtful that will happen in our life times. More realistically are agents, on their own, forming "practices" similar to the legal and medical professions. Smith, Smith and Jones (all agents) will brand themselves in the same manner as the franchises but with total control and local focus. Agents will band together, share workloads and expenses. They will call themselves "realty" companies. The Broker function will be replaced by a business model that focuses on "services" only.
Jeff Bergstrom
Wynd Realty
Atlanta, GA
www.WyndRealty.com
Submitted by Gregory Bain on February 6, 2009 - 5:53am.
The problem is the BROKER. It is way too easy to become one. There is no accountablity of the agents to the broker because of the "BOARD" that is run by the brokers.
If I were an independent contractor, I would have my license in hand at all times. The listings I acquired thru my hard work and "sphere" would remain mine. My advertising and "farming" would not have the company name and logo on it be bigger than my name. It would have several logos or a neat little "independent contactor" logo. Like my cousin, the independent insurance agent, I would be able to fit the homeowner with the brokerage that would best market the type of home we wanted to sell. In truth, I am an employee.
I am subject to the brokers demands. I must go to his stupid meetings, answer his telephones (and in the manner that he sets but does not enforce), attend his "free" training (that is more often the dissemination of incorrect information) to use the insurance, title, and lawyers he wants me to use. I must work with people he "hires" and that requires me to keep my files under lock and key just because there is an outside chance that the new hire will bring him business. I must watch him give out his leads that became his leads because of the hard work of a few to agents he wants to "reward".
Everyone talks about the agent, but where is the continued education for the "brokers"? Why take and ethics course when there is no ethics among the brokers. They are out there trying to "steal" the talent from each other every day. Not a week goes by that I don't receive an offer to go to lunch, or get an email or post card in my mail box - they know where I'm working. And, I'm not that good. That sets the tone for agents to try and steal ech others listings and customers.
I am tired of hearing about the agents. Clean up your own act. Change the system. Make the broker accountable for his agents. Make them his employees with a LOW wage and commission rates based on his production - like a waitress. Make them pay into the state unemployment, workers compensation, and require them to the same withholding taxes laws of other business owners. If your a franchise provider, go visit the "each office is an independent broker" field office. See the real world and how much damage to consumer confidence is done every day under your logo.
While this may be tough times for agents, I'm hoping all the brokers who hired and taught those dirty little sales tricks start closing their doors. What sorry excuse is that, "if I had to act like an employer, I'd be out of business"? The economy is the only way to separate the wheat from the chaff in real estate. Or, you could change the system. Clean up your own act and stop pointing the blame on the agent you hired.
Gregory Bain, ABR, SRES
Realtor Associate
NJHomes@Ask4Greg.com
Submitted by Ken Lampton on February 6, 2009 - 5:56am.
It is too easy to obtain a real estate license. That is the reason we have too many agents. The paradigm-shifting changes in this article might or might not improve things. But any reform of this industry must begin in the state legislatures. An individual should not be licensed to practice real estate just because he says "What the heck, I'll give this a try."
Submitted by David Curry on February 6, 2009 - 6:14am.
Why does everyone I read on Inman insist that the current model is broken? Why is the industry in such a hurry to abandon the classic business model of a traditional brokerage? It's already been shown that buyers won't pay for a fee based service, and sellers too would rather only pay if they're first rewarded with a closing. Not we're supposed to be employees? If brokers hired agents as employees, you'd take all of the motivation out of the agent. If I'm receiving a decent salary as it is, am I really going to go out of my way to set up a Sunday morning showing when I'd rather be playing golf or in church? Not a chance. Yet if I'm hungry for commissions, a buyer could request a showing at 1 am and I'd be there. Maybe even with a tie on. Inman needs to relax a bit and focus on quality articles, not just "content".
David Curry
Geneva Lakefront Realty
49 West Geneva Street
Williams Bay, WI 53191
262-245-9000
www.genevalakefrontrealty.com/blog
Submitted by David Davidson on February 6, 2009 - 6:29am.
I believe that putting agents on salary is a great idea. However, sellers should then be required to pay upfront fees to list their property plus selling costs (advertising, signage etc. + buyer's agent fees). Someday this will happen when large corporations get into the business, but as long as the present system is in place Realtors will be on a commission. No brokers in their right minds would pay a salary to a sales person and no respectable sales person would want to be on salary. If you want a salary go work for the government. Dave Davidson www.davidsonrealty.ca
Submitted by Sheralyn Skaar on February 6, 2009 - 6:30am.
Buz needs to review the concept of capitalism. If it were not for capitalism, our professional choices would be very limited. Agents without professional experience or who are not willing to acquire professional practices will be edged out anyway. If anyone needs a great blueprint for a successful, professional real estate business, read Gary Keller's Millionaire Real Estate Agent. And if you have questions, feel free to call me. (678-298-1619)
Submitted by Derek E. Brown on February 6, 2009 - 6:57am.
WOW!!! Gregory great job!. Thank you for taking the time and effort to shed light on a big part of the problem. The BROKER(s)! That is where agents look to for guidance when the crap hits the fan and when the BROKER'S behaviour is unethical, immoral, illegal or any combination thereof it only sets the tone for the agent(s).
Again, thank you for sharing and pointing the light into the darkness where nobody has had the courage to do so!
Thankfully not ALL brokers behave this way but it is an area that needs alot more attention when discussing the behaviour of agents!
Derek E. Brown, GRI
RE/MAX Advantage Realty
E-Mail: DerekEBrown@remax.net
Submitted by Matt Case on February 6, 2009 - 7:02am.
I agree with Bill Fooks- Go do it then! There are lots of agents who would love a steady income + commissions, not to mention health insurance. But it's not going to happen by force. Someone build the model, show us it works, and that's when change will occur.
As a Director for a large broker with a major franchise (Coldwell Banker Schmidt REALTORS) I've repeatedly heard the rap that we just want to fill the office with bodies. That's total crap. It takes me way more time and effort to train, motivate and educate a bunch of halfwits than a few good professionals. I've scared away plenty of prospective agents- at least twice in the last year I've heard "I just don't think I'm willing to work as hard as you would want me to."
That said, if someone has the drive and desire, strikes me as a quality individual, and will be a good fit in my office, I'm going to give them a chance. If they can't make it with our training and tools, either they aren't capable or they weren't willing to make the effort.
Much like raising the minimum wage, however, if I HAD to pay a base salary, there would be a lot of folks who would never get a chance to get started in the business. Like two current broker owners whom I recruited, trained, supported, encouraged, and then bid good luck when they decided they would like to run their own show.
I don't know where Buz got the educated or moronic quote, but if someone is actively working from that mindset, they won't be in business long.
My opinion might be skewed by my libertarian views, and am a true believer in the power of capitalism, but when someone suggests the use of force to guide private enterprise, I get a bit riled up. More Carrot. Less Stick.
You paint our profession with an ugly brush, Buz. I'm glad I don't see it the same way you do.
Matt Case
Coldwell Banker Schmidt Realtors
(231) 357-1609 mobile/text
http://nwmirealestate.blogspot.com
http://www.benzierealestate.com
Submitted by Sammy Wolcovinsky on February 6, 2009 - 7:03am.
I AGREE 100% WITH YOUR COMMENTS.
I am the owner of Panama Flat Fee Realty and I pay my agents a salary plus a bonus.
Also they receive tangible and intangible benefits.
Why would you pay an agent commission when most of the clients (at least in my case) come directly to the company (Via website, classified ads online, direct mail, etc..)
If one of my agents brings a client then I pay them a % on that sale - but its payable every X amount of months.
Also X percentage of the income of the company is given to our agents based on their production.
What I did was hired great customer oriented persons who had never been in real estate (Most of the currents agents did not want to work here)
and trained them. They are doing excellent.. If they are happy - our clients are happy.
At the end this is a customer service company that sells real estate.
Sammy Wolcovinsky
Panama Flat Fee Realty
www.panamaflatfeerealty.com
Submitted by Ken Fisher on February 6, 2009 - 7:03am.
I fully agree with Buz and have promoted the end of the independent contractor status in real estate for years. Salary plus would impact the consumer by eliminating those agents who merely pass the 'mirror test' once they figure out how to hold the mirror. Greedy companies would lose out on 'desk rents', mentoring fees, etc. And, of course, the local, state and national folks would see their dues incomes drop considerably, but the agents remaining in the business would finally allow these associations to actually reach the goal of "professionalism" in the real estate business. And, those who don't make it would finally qualify for unemployment comp. You know that the IRS would be happy too.
Submitted by Adrian Sherwood on February 6, 2009 - 7:05am.
The freedom means more to me than money. The problem is money is considered to be the only compensation that counts when, in fact, it's not.
I'm a few weeks away from launching my RE career here in Houston. I'm proficient in video editing,DVD authoring,CD-ROM authoring,presentation design, graphic desgn, Photoshop,Acrobat,Powerpoint,and music creation.
When I'm sitting down with an interviewing broker and he/she offers me a 9-5 gig(what I'm currently doing now)I'm outta there buddy.
This industry is an intellectual aphrodisiac for me in that it is so wide open. The possibilities are the selling points that attracts someone like me.
The fragmentation of the current model drives up the cost of doing business. Then you have what I call the 'See-Saw of Success' which is the built in friction of New vs. Old business. For every new listing I get my costs goes up as well. This is where the focus should be, the process itself.
I would accept a lower commission if I could:
1. keep costs in check
2. have more time to spend with my family
3. have a process that keeps the overbearing client off my back
4. have the skills I bring to the table valued
5. lower the cost of promoting myself
I believe these factors are just as much compensation as any commission check. They serve as a beacon calling any and all entrepreneurs that will answer. This is where the collective brainstorming should be, not more shackles. Because if all you have to offer me is more shackles, then I'm no longer your Agent, I'm your competitor.
Submitted by Gretchen Faber on February 6, 2009 - 7:07am.
This had been tried in our market before. Coincidentally, it was in the 1980's when the market was in the tank and the brokers were trying to hold onto good agents. As soon as the market picked up steam, the agents who were successful jumped ship to companies without salaries, but with higher splits.
To the brokers above who say they couldn't make their company profitable under this scenario - think of it from a business and finance standpoint. Of course we couldn't be profitable paying a salary, health insurance, a commission at current rates, etc. Wouldn't you revamp the entire pay structure and not just add on a salary on top of high splits? The commission splits would naturally have to be much lower.
Finally, I work at a company that is renowned nationally as a firm with among the highest producing agents in the U.S. We sell approx. $1.3 billion in volume each year with 155 agents. How do we do that? We associate ourselves with only professional, well-educated agents. They work full-time, they dress and act professionally at all times. They enthusiastically attend our meetings and tour each others listings. And finally, they acknowledge that we have minimum standards to be able to associate with our firm. That's getting back to basics, regardless of the compensation structure.
Gretchen Faber
The Kentwood Company at Cherry Creek
Denver, Colorado
www.LifeStyleDenver.com; www.GretchensDenver.com
Submitted by Michael Russer on February 6, 2009 - 7:28am.
There are plenty of companies in other industries with salaried employees who are still incompetent. And tightening up licensening will only filter out the poor test takers. As Pogo would say: "We have seen the enemy and they are us."
In the 15 years I've spent speaking to real estate sales associates and brokers all over the world, one thing has become crystal clear --failure of the current model to enforce standards and professionalism comes from the top down.
Despite protests to the contrary, most brokerages are just body shops with little or no accountability & behavioral standards, especially when it comes to business practices. We attract who we are, it is really that simple.
I have seen real estate business models that are highly successful turning sales associates into W-2 employees who are paid only by commission. Liz Moore & Associates in Virginia (www.LizMoore.com) is a perfect example of this. The level of professionalism and passion for the business throughout her company is amazing compared with the typical bunch of whiners found in most others.
Another company that imposes high standards using the traditional independent contractor model is @Properties in Chicago (www.atProperties.com). Once again, the difference in sales associate attitude and passion for their business (yes, even in today's market) is immediately apparent.
Frankley I find all this hand-wringing amusing. It starts where the buck stops --at the top. Most management (at all levels, including at the corporate franchise level) seem to be stuck talking about and doing the same things over and over again and expecting different results. Unfortunately, the current market cycle just makes them more strident in their sisyphean efforts and therefor blind to the very simple solution.
When we start insisting on and enforcing high standards of behavior and complete accountability this issue goes away. Every company deserves the sales associates they have. If you don't like the way they operate or who they are, YOU must change first.
Michael Russer - aka Mr. Internet
CEO, RUSSER Communications
www.OnlineDominance.com
www.mrinternetnews.com
Submitted by Marc Lucarelli on February 6, 2009 - 7:53am.
Unfortunately I have to disagree with this article. Changing the way we as Realtors are paid will not create more ethical or professional practitioners. The reason for a less than professional or unethical preception is due to the ease with which anyone can obtain their real estate license.
The statement: "Educated or moronic -- it doesn't matter. If you know someone who will buy or sell a home in your circle of friends or family, you should be in the real estate business so you can cash in on those relationships." is in and of itself crazy. The costs involved to "cash in" on one transaction would not even produce a profit.
Again you cannot change the way the public, or we ourselves view Real Estate professionals based on the way that we are paid. There is only two ways to change this point of view. First, through more a more difficult process to obtain a real estate license. And secondly, by the owner/broker of any specific office being more critical of the agents that they bring into the company.
Submitted by The Honest Answer In Barrington IL on February 6, 2009 - 8:42am.
Our state is trying to pass legislation to do away with the sales license and making everyone obtain a broker license – equates to more CE for us existing sales floks and more class room time for newbies. More education and stricter state requirements is a start. The brokers need to get involved more on the back end! They need to have stricter mentoring programs. The only way that would change is if the state mandates that as well. But we must remember the 80/20 rule. 80 percent of the agents are great to ok and then that lower 20 percent creates all the problems for the upper 80. That 20 percent will ALWAYS be there!
Submitted by jim canion on February 6, 2009 - 9:03am.
Helloooooo....
Amusing at all the different solutions posed.
Hasn't anyone heard of Zip Realty. They are today
doing what many have proposed is needed. They
pay salaries and commission,benefits etc. Check
how they are doing. Not so good. But they are
not franchised and have good tech systems so they
have a chance for success if they can cut overhead and run a lean business. I can't say the
same for the big boxes of the industry that are locked into a death spiral not too unlike the
auto industry. Sorry ,no bailouts seem likely for
this industry.We need change but it needs to be
productive change and the independent agent is a
cornerstone of this industry and unless we move
to a socialist state(which is possible)we will
always be better off with this element of the
current model. Only after the big boxes fail will
the industry be able to focus on the things that
will produce better agents. Virtual offices,no
middle man, new tech tools, better training,
consistent management; you know the rest..
Lets not forget that we have so many great agents
waiting for a new model like this and when it comes a new day will dawn for real estate.
Jim Canion
Submitted by Robert Young on February 6, 2009 - 9:16am.
Unfortunately I have to disagree with this article as well. I believe one of the biggest problems are Brokers accepting just about anybody who shows up at their door. All they are interested in is the numbers and not willing to do the proper training. Because they know "even the blind chick gets it's peck of food".
Submitted by Chad Clement on February 6, 2009 - 9:40am.
You don't have to be a commercial real estate broker to understand that a retail shopping mall is not in the business of selling goods to the public; it is in the business of attracting and retaining quality retailers. They do so by signing "anchor" retailers and by marketing their mall brand. The higher quality stores it can attract, the more shoppers it will attract. The more customers it attracts, the higher the likelyhood that the mall will have a low vacancy rate and will be paid on time each month. The mall then makes its money through the collection of rents and by retaining a percentage of sales (in a nut shell). Real estate brokerages are the same; they are not in the business of selling properties to or for the public but, rather, are in the business of hiring and retaining the most productive agents. Some try to do this through low fees, while others do this by creating an excellent brand. Aren't we agents basically "stores" in the mall?
Sears would not sign over its profits to the owners of the mall in exchange for a monthly stipend and a few additional bonuses for volume... but a mediocre teriyaki stand who's making it day-by-day might. In the same way, a broker offering a salary-plus-bonus plan would only attract those who don't have the know-how to be wildly successful. By nature they'd attract only those who aren't capable of making it on their own. If a broker opened up in my town right now and began offering a few thousand dollar per month salary, they'd have agents lined up around the block like a soup line during the great depression. The only agents who WOULDN'T be in the line are the successful ones!
Agents need to understand that they are solely responsible for their own success. This is not a job, it is a business. You don't work for your broker, you partner with them. In fact, I am my broker's customer, not their employee. They make the space available and hopefully give you a solid brand on which to hang your hat... the rest is up to you. If you want a salaried job, hop on Career Builder and start looking. If you want to own a business, go find me one where you can earn six figures with so little investment and overhead, and with such a quick start up time. Instead of worrying about salaries from brokers, focus on being the best agent in your market area. Offer the best property photos and marketing for exposure. Practice your negotiating skills and get your clients high prices when you're listing, low prices when you're helping them buy. Follow up well, so that your past clients can't help but sing your praises and refer you. Be active in your community so others know who you are. Donate to charity because it's the right thing to do and watch the grace naturally flow over into your business. Be smart in how and where you spend money and save, save save. We will come out of this dark time, but it will happen again. In other words, take charge of yourself and your business.
I think we need to slow down all of the talk about how pay structure needs to change in dramatic ways. What really needs to happen is that we who are performers have to wait out the non-performers. Once enough agents have been beat up long enough, they'll simply decide not to get re-licensed, and those still standing will make that much more money on the upswing. Frankly, this natural cycle will create an unintended benefit to the general public; only solid, knowledgable agents will be standing at the end.
Of course, once the media begins touting that the industry is beginning to turn around and the sun is out once again, we'll go back to normal... millions of uneducated people will see real estate as a quick, easy way to make a lot of money and will line back up to get a license. Hey... I know.. let's make it more difficult and more expensive to obtain a first-year license and put more cost and training requirements on the first couple of renewals! What if we required an AA before real estate classes could be taken? There's a reason everybody's not an attorney or a doctor. I run a real estate practice much the same way those professionals might run theirs. Our requirements certainly don't need to be as sturdy as theirs, but do we really have to pass out a license to anybody with a breath?
Chad Clement
John L Scott, PCR
President's Elite
1-888-727-CHAD
ChadClement.com
Submitted by Kevin Lisota on February 6, 2009 - 10:06am.
I came to real estate after many years in the tech industry. I can never figure out why real estate couldn't be successful with a "employee-based" sales department just like in most other industries. Salary + bonus works well for so many industries.
Our brokerage has employees who are paid a salary + bonus and it works great for us. To the brokers who say that a payroll system will "put them out of business", I ask how that is possible? Are we not all setup to run profitable busineses? This industry cannot function if brokers are being subsidized by their agents or vice versa.
Kevin Lisota
findwell
http://www.findwell.com
Submitted by Joseph Bridges on February 6, 2009 - 10:08am.
I do agree that we need higher standards but not sure that the salary model is the way to go. Putting all of the requirements on the brokers isn't necessarily the answer.
I do agree with the comments that higher education requirements are needed for brokers and for agents. My brother and I had our broker licenses at 26 years old and didn't have the knowledge that we have now.
Salaries don't necessarily make people accountable. I worked in plenty of places prior to real estate that I saw people on salary not give their all.
Visit the blog at: http://www.InternetRealEstateSuccess.com
Real Estate Resources at: http://www.OnlineRealEstateSuccess.com
Submitted by Chad Clement on February 6, 2009 - 10:31am.
Even in a good market real estate has about a 95% failure rate within the first couple of years. How many "ex realtors" do you know?!
Find me another job where 95% of those who get hired can't do the job and fail within a couple of years. I guess if you got hired as a doctor or lawyer with no schooling or experience it would happen, too. But most careers are not nearly as easy to get into nor nearly as difficult to succeed at as ours.
Getting a license is the easiest thing about our industry... that's where the change is needed. Every year we purge countless thousands of agents who learn it the hard way, but we gain that many more. Every pretty housewife, 23 year old kid with stars in his eyes, likeable bartender and soon-to-retire engineer who wants "something to do to earn some extra money after I retire" approaches real estate with the thought "Hey, I'm likable, and based upon what I've seen, a realtor merely unlocks a door, does half an hour of paperwork and earns $8000! If they can do it, I can do it". They don't realize the time, knowledge and expense necessary to truly become a great realtor. Brokers support that silly way of thinking by 1) allowing it to be so easy to get a license without petitioning their state boards and 2) using that license as their primary hiring decision (if you have one, you're hired).
Chad Clement
John L Scott, PCR
President's Elite
1-888-727-CHAD
ChadClement.com
Submitted by Gregory Bain on February 6, 2009 - 11:07am.
Nothing is going to change. Almost, every real estate agent is required by their BROKER to join a local BOARD. The BOARD requires the agent to join the NAR. The required dues and fees support the LOBBYISTS that are destorying our country.
Imagine instead if agents were represented by a union and not paying union dues for the BROKER.
Imagine going into a McDonalds and having them make a BigMac whatever why they wanted.
Imagine going into SEARS and being told they don't carry the Craftman brand because it cost too much.
Imagine going to JC Pennys and buying a suit off the rack and the salesman taking you over to the tailor he wants you to use.
Imagine buying a new car that the dealer owns because he bought it from the factory in the color he picked for future sales from his lot and being told by the salesman, "well, you don't ask a Doctor or Lawyer to cut his fees".
Imagine living in a dark cave - no wait. Plato used that allegory already. Let's just keep it the way it is. Sorry about the light.
Gregory Bain, ABR, SRES
Realtor Associate
NJHomes@Ask4Greg.com
Submitted by Chad Clement on February 6, 2009 - 11:13am.
Greg, I'm going to open a new office and I want to pay you a salary. We're going to put you in charge of morale.
Chad Clement
John L Scott, PCR
President's Elite
1-888-727-CHAD
ChadClement.com
Submitted by Walter Boomsma on February 6, 2009 - 11:29am.
Wow. We have a solution in search of a problem. My eyes glazed over reading the responses, but I will tend to give thumbs up to those who are putting brokers/managers at the core of the problem, although I'm not sure anybody has clearly stated what problem we're trying to solve.
Broker/owners tend to have the biggest influence on the industry. I'd suggest that one of our "industry problems" is that you don't have to look deep to realize that most of the work done by "our" Realtor Association benefits brokers, not individual agents. Put your thinking cap on and take a hard look.
Several brokers hit it on the head: no matter what the "model" is, that person running the organization controls (or at least should) what happens.
Compensation is not going to and I think we've proven that regulation doesn't either. Too often education only results in smarter cheats. At the end of the day it's what the broker allows or the individual agent's "ethics" that count.
I have to go do another agent's job today in order to get a transaction closed. I don't think paying him a salary would matter. He's already violated several fundamental laws. Since he's been doing this for 20 years and prefers telling me how smart he is over getting off his butt, I'm reasonably sure education isn't the answer.
The problem needs to be fixed an agent at a time.
Submitted by Gerard Maher on February 6, 2009 - 11:31am.
I Think we all recognize the problem of incompetent or unethical agents. The states standards to become an agent are minimal. What we need to do, since it won't be legislated, is to make the REALTOR characterization really different. Instead of taking an agent just new from the exam and letting them slap the REALTOR label on themselves, we need to have an apprenticeship period. They can join the NAR, but the would be designated another term(like Realtor Apprentice) until they have 2 years experience, or 10 transactions under their belt (Details would be haggled over) Until then, they would be under a REALTOR to ensure that they were doing transactions professionally, and ethically. This way, we wouldn't water down the REALTOR title to mean the same thing as real estate agent. We would have at least agents that have a little real world knowledge and experience. Then the local board need to keep up the reputation, by encouraging clients to give feedback to the board on any negative expereinces of any agents. That's my opinion.
Gerard Maher (G-Man)
REALTOR
http://Go4Gman.com
Submitted by Patrick Veling on February 6, 2009 - 12:21pm.
Buz needs to be careful here, because his own firm is one of the the biggest offenders he rails against.
According to year end 2008 FMLS MLS statistics, his firm, Solid Source Realty, had only 56% of its agents close one or more transactions during the year. The average volume closed by the active agents at his firm was only $625,424. Assuming a liberal 3% listing commission side, and a liberal 80% gross commission earned by the agent on the volume, that equates to an annual income of $15,010. Wal-mart greeters make more than that, if I am not mistaken.
My goal is not to embarrass Buz, because his firm is not alone. Nor will I list the results of the firms his company competes with. But suffice it to say that if Buz is indeed a top producer like those he hopes will be left standing, he may want to consider aligning with a firm that he is more philosophically in line with.
Submitted by Herbert Genelly III on February 6, 2009 - 1:07pm.
OK...great article...but...send all the bad agents to "bad agent purgatory", and one of them will eventually figure out how to pass the broker test after 5 or 6 attempts, and bam....we've got a new Real Estate Company.
Most of the posters are right, in that when I had my license in hand.....every office I walked into said "we'd love to have you". I had never even sold a home, or anything for that matter....yet they were willing to put me in a chair and let osmosis take its course?
To professionalize this industry: Make getting a license subject to getting a 2 or 4 year degree in business or related field, with an internship period ala an appraiser, and that will weed out agents not committed to the profession. We have a brokerage where I live that will only employ agents with a 4 year college education, and they've been tops in Commercial Real Estate for years.
I must say, regardless of all my education (College and Real Estate related), not one of my clients has ever complained about the commission I earn. I think it's because I answered their calls immediately or within the same day it was received! And the same goes with their emails, because I use technology to get information in their hands quickly and work for a brokerage that is in the top 5 visited Real Estate websites.
I solve clients problems, I admit when I make a mistake, and NEVER get in the way of a deal because the other agent is a "Big Shot" and making decisions as if THEY were the Seller. My referral business is now a huge part of my success. If it were not for the "Bad" agents...I might not have been so satisfied and dedicated to be in Real Estate, and I'm doing better in the beginning of 2009, than I have in the last 3 years that I've been an agent.
One man's opinion...and I realize what opinions are like!
Submitted by Derec Shuler on February 6, 2009 - 1:27pm.
I agree with Teresa Boardman on this. I'm highly educated, professional, and add value to my clients. I'm in real estate because I prefer the lifestyle and flexibility. On the face of it, having "security" and corporate benefits would be nice but I'm willing to take more risk for a career I prefer and the opportunity to excel.
Derec Shuler
www.MileHighUrbanLiving.com
Follow me at:
www.facebook.com/people/derec-shuler
www.linkedin.com/in/shulerd
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Submitted by james downing on February 6, 2009 - 3:08pm.
I completely disagree. You think just because they are paid a salary that the big brokerages would hire quality people? Thats laughable.
How about the small firms that rely on great quality folks. They wont be able to afford a salary and all taxes associated with it.
How about making it harder to be a licensee? 90 hours of class work; a 1 year mandatory apprenticeship.
Currently a well-trained monkey could get his license if he had a checkbook and a social security number.
Submitted by Greg Salera on February 6, 2009 - 3:29pm.
Commissions are still by far the best incentive for real estate agents to sell. RE agents are salespeople. Of course we also guide our clients, educate them, and protect their best interests but at the end of the day we are salespeople and selling homes is how we earn our income. Being a salesperson is NOT a bad thing. Being paid according to our efforts is not a bad thing. Good salespeople earn high incomes and many are respected in their professions. Motivated agents who cold call, advertise/blog/prospect online, work open houses, and farm their areas are doing so because their hard work pays off for them. There business grows through referrals. Take the incentive of high commissions out of the picture and the productivity of many agents will fall to whatever minimum standard their employer sets for them. It's tempting and too easy to become lazy when we're provided with a paycheck. To combat this potential lax environment the brokers who are now managing payroll must manage his/her business with as few employees as possible to best manage their bottom line. To succeed they will create expectations and follow up, provide reviews, grant cost of living wages, provide competetive benefits, and insure that the clients needs are met. Eventually there will be a hand full of agents per office working harder and harder as the managers strive for efficiency. From there there the personal touch of agent/client relationships becomes strained as the office streamlines. Some agents will go out to tour homes with clients, others will handle listing presentations, another to handle paperwork, another to handle escrows, and another who takes the clients to closing. That's NOT what most clients want in their Realtors. They want a confident who will take them from search to close and handle all of those things that can happen during a sale. Someone they can trust and call upon when needed. Employees on the other hand will have a work schedule and won't be available on-call as they are as a contractor. That means clients may deal with different employees throughout the process depending on the times they are available. This doesn't benefit the consumer.
Keep salespeople as contractors and keep them on commission. It's a fact in my area (N Virginia) where we do have employee based brokerage firms that those firms are consistently lower volume brokerages than the commission based ones. This is because that model simply does not work as well and does little to motivate staff to truly care as a good contractor does.
As far as the bad agents, the local MLS boards will revoke their licenses when the lines are crossed and others who aren't motivated will leave the business and others who can't succeed will fail and drop off anyway. The strong will always survive and there's no need to address a commission structure that isn't broken. Only the weak in this business will endorse this employee structure. They are the ones who would benefit most as employees being managed. The rest of us simply don't need it.
Greg Salera
Northern VA Association of Realtors
Residential Top Producer 2004,2005,2006,2007,2008
Partners Real Esate
9300-A Old Keene Mill Rd
Burke, VA 22015
(703) 304-9852
www.virginiarealtyservices.com
Submitted by i-Hudson Realty NY -- carrie gingrich on February 6, 2009 - 3:33pm.
I can envision major brokerages providing their best agents with a combination of salary and commission. Their less than producers should be required to prove themselves in order to be salaried. As for us small brokers -- I can envision providing substantially higher commissions for talented agents in essence creating a type of mini-broker -- this encouraging proposition could only enhance professionalism. In the long run, this might even out competition between the small and large brokers as a small salary may not be the best incentive for a top producing agent who may have to compromise commission in order to receive a salary and alternatively could assist a talented agent who is in need of a steady income.
Submitted by Chad Clement on February 6, 2009 - 4:50pm.
Agents incapable of consistently producing decent numbers are the only ones who would benefit from a salary-plus pay structure. I'm not a big-city agent making millions, but I am earning a very solid six figure income and have complete independence. I work from home in my boxer shorts if I feel like it and can attend all of my 3 kids' games (or stay home and cuddle with my wife!) if I so choose. That, and I have the occassional $60,000 month. Find me someone on a salary-plus plan who can say any of that.
A salary-plus plan would dictate that the broker would have those $60k months instead of me, while I would get a few grand worth of salary, a relatively weak bonus and a plaque at the end of the month thanking me for all the profit I generated for them. I would lose my independence and freedom, and I wouldn't bother marketing myself because I would be a faceless employee of the firm. Instead, I'll just set aside some of that $60k month for the down times. Ask even a well paid commission-plus salesperson, say a pharmaceutical rep, if they'd rather receive their base-plus or have all the profits from the sales they make and simply pay the pharm company twenty grand a year in franchise fees. You may have to splash water on their face to wake them up from the daydream that is independent contracting.
I don't think that having a master's degree gives anyone a better eye for photographs, a superior mind for marketing or a stonger ability to get deals done. There are plenty of educated idiots out there. However, there are more uneducated ones. Our industry requires both IQ and EQ (emotional quotient; the ability to understand and empathize with people). As a sales manager for a $100m company prior to beginning my real estate career, I had people who hadn't even graduated high school, yet were capable of out selling West Point grads each and every month. That doesn't mean that I necessarily want them explaining the finer points of half million dollar contracts to me. I'd prefer a combination of both in my representative, thank you very much.
While we don't want to be exclusive and force silly requirements, we also don't want it to be so easy to obtain a license that every attractive, bored housewife or retired factory worker wants to get in on the action. Those of us who've been around for a while know that those types will likely join the roughly 95% who fail within their first couple of years (of course NONE of the brokers they interviewed with prior to paying for real estate classes bothered to tell them that). A few years later, as I'm listing their house for them, they'll "know everything" because they "used to be an agent". One, of course, who probably did seven or eight deals over their two year real estate career before figuring out it "wasn't for them". If I had a dollar for every time...
Finally, this point. Ask any sales rep who is on commission, whether at a car lot, a makeup counter or a shoe store, if they'd rather be on commission or have a salary. The top half will always say commission, the bottom half will always say salary.
So I say leave it alone, but make it tougher to obtain a license up front. Weed the likely failures out at the beginning instead of at the end, when they've already done a medioce-to-terrible job for a small hanfull of clients (i.e. friends & family who felt obligated to use them). All those "new" agent's clients could have had a true professional handling their marketing, negotiating and advice-giving instead.
My niche in our vast industry, by the way, is selling expired listings. One thing I am thankful for is that it is so easy to improve on what others have done.
Chad Clement
John L Scott, PCR
President's Elite
1-888-727-CHAD
ChadClement.com
Submitted by Michael Volkin on February 6, 2009 - 5:52pm.
I encourage all brokers to adopt this salary model, that will leave more agents for brokers like me, who understand that agents are entrepeneurs and the bad ones weed themselves out.
Submitted by Jan E Callne on February 6, 2009 - 7:44pm.
The idea about paying agents a salary plus commission at the same time and agents would stay professional and ethical, that’s dream for your next life! The whole real estate brokerage system has been a broken business model for a long time. First it was all about controlling all the listings with the printed MLS, and now there’s no control at all with the Internet. The consumer and media control it now. The ethical thing will never be solved, people are people! Look at some of the biggest banks in the country, and the ethics of their CEO’s… Get a life, if you’re going to stay in the business you do the best with what you got to work with. And, hope clients realize your professionalism, ethics and knowledge in the industry, and of the community. The Internet and too many so called savvy business visionaries have messed up for good. Once you lost the control it's hard to take it back. All you can do is the best you can do...
Submitted by Gregory Bain on February 6, 2009 - 8:12pm.
Morale?!? That sounds too much like morals and I ain't got none. If I'm gonna get a job with a salary only, I'm holding out for a LOBBYIST position or at least a nepotist in training at the local board.
Heck, now that I've got my license, lets raise the bar to include morals, too. Maybe it will rub off on some of the brokers when they hire them? That is if they can ever stop telling us how wonderful they are ;-)
Gregory Bain, ABR, SRES
Realtor Associate
NJHomes@Ask4Greg.com
Submitted by Douglas Quenzer on February 6, 2009 - 9:39pm.
I sold real estate for a number of years before becoming a full time real estate appraiser. My conclusion is that it is far too easy to become a real estate agent. If we want professionalism, then make it a career worthy of calling a profession. But if someone can become an agent after taking a 72 hour course and answering a 200 question test, then we have no right to call it a profession. It takes years to become a licensed appraiser and twice the education. Indeed the education and experience requirements have nearly doubled in the past year. It now takes 200 hours of education, 2500 hours of experience and 2 years of college to become a certified residential appraiser. I believe it needs to be much harder to become an agent. I see many "stupid" agents, and this will keep out those people that simply want to dabble in it. I believe the number of educational hours should be at minimum 150 hours plus two years of apprenticing under a broker. The agent should be supervised to have completed a certain number of transactions before getting a license and earning full salary or commission or both.
Submitted by Tina Merritt on February 7, 2009 - 9:55am.
The problem arises with the current means by which real estate brokers make money. The only way they currently monetize their business is through the sales of their independent contractors. By paying their agents a salary plus commission, the pressure for those agents to "perform" (i.e. make sales) will only increase and push agents to become even pushier with the public.