This report is available exclusively to subscribers of Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.
Lured by a generous incentive package, a top-performing agent signs on with a big brokerage.
In addition to her normal splits, she’s offered an additional incentive totaling, say, 2 percent of each transaction.
Years later, while taking the next step of her career, the agent gets a bill from the brokerage she’s preparing to leave. It’s that $50,000, $70,000 — and in some cases far more — that she earned from these incentives. And she’s expected to pay it back in full.
That’s the point when a number of agents in this situation turned to Mike DelPrete. Many agents feel they were misled about the nature of these incentive splits, which must be paid back in full when agents leave their brokerages, with no expiration date, the real estate analyst says.
DelPrete shared his thoughts on the topic this week in a video interview with Intel. He described a practice that is likely still uncommon in the industry. But it’s one where agents can go years without realizing they’re racking up bigger and bigger bills that their own brokerages can later force them to pay.
Intel: You’ve recently written about the practice of incentive splits, which you argue amount to a “golden handcuff” policy. How do these incentive splits work, and should agents be wary of them?
DelPrete: Yes, agents should absolutely be wary of them. Agents should absolutely read the fine print. Before you sign a contract that represents your livelihood, you should get a lawyer to look at it. It’s important. That’s the key here, and it feels ridiculous to have to say that. But do it. Do it, do it, do it. Because the details matter, and the devil’s in the details, and it’s all about that fine print.
So things like bonus payments and marketing support — there’s nothing new there. That makes sense. And even the idea that those are considered incentives that need to be paid back if you leave after a certain period of time, there’s nothing new there either. If I say, ‘Here’s $50,000; come join my company,’ you can’t leave after a day and keep the 50 grand, right? And you have to think, well, OK, how long do you have to stick around? Like a year? Two years? That’s just common sense.
But the key around these incentive splits is that’s an innovative new mechanism that isn’t as clear-cut. And when you explain it to somebody, not everyone thinks it’s fair. The way it works is not really intuitive.
It basically gives an agent a bonus commission for every home they buy or sell. Whenever they get a commission, they get a little extra money out of it. That’s that incentive commission. So that makes sense. That’s an incentive. But the thing is, that’s an incentive with a capital ‘I,’ and it needs to be paid back if you leave.
So now we’re starting to get into this gray area. It’s like if you get your paycheck, and every week you get an extra $500, but your employer says, ‘Oh, but by the way, if you leave, you owe that all back to us.’ Does that seem fair? I don’t know.
But then the second thing is that there’s no time limit on that. So that incentive payment can get collected all the way back. It’s like, every time you sell a home, you get that incentive and you put it in a piggy bank. If you ever want to leave, ever, you have to pay all of that back.
And I think where some current and former Compass agents — and other brokerages, because other brokerages do employ this — feel aggrieved is in that, that they have to pay all of it back, going back one, two, three, four years in time. And that’s a pretty big bill.
What’s your sense of how prevalent this particular practice is?
I have no idea. There’s adverse selection at play here. The agents I talked to are generally pissed off about something. People are not going to reach out to me and say, ‘Hey Mike, by the way, everything’s fine.’ They’re going to reach and say, ‘I just got a bill from Compass for $100,000. This is bullshit. I want the world to know.’
And also, to be fair, I hear some folks on the other side that say, ‘I don’t have this, or this doesn’t affect me.’
Compass told me that it’s a small number, a very small number of agents that have this. And I think it’s kind of a bigger deal for high-performing agents as well. So my sense is, it’s not the majority of agents, and it’s probably not half-and-half. It’s probably a minority of agents that have this in their contract. But I can’t be sure. We don’t know.
In a particularly high-profile move last year, Compass abandoned many of its most lucrative incentives for agents. Were incentive splits not phased out with them, or did they remain? It seems like they might benefit the brokerage a bit more than some of the ones they got rid of.
Well, the other thing to remember here is when a brokerage is offering incentive splits, they’re giving away more money. It does come at a cost.
This is Compass paying out thousands, tens of thousands, hundreds of thousands of dollars extra to an agent. And that can add up to millions and millions of dollars. So for a business that’s under a cash crunch, that’s trying to preserve its cash like Compass has done in other areas, they’re holding off on offering those incentives. So there’s clearly a cost.
And Compass is giving that money away to agents, and they’re probably never going to see it back. The amount of times when an agent does leave, they do owe money and Compass successfully claws it back is probably a small percentage.
Is there anything else in the realm of incentives that you’re keeping your eye on as brokerages navigate this down market?
My hope for the industry is that agents stay at brokerages because they love the brokerage — not because they’re scared to leave, or they can’t afford to leave. That’s a pretty negative way to work in the industry.
So I’d love to see more of that. What can brokerages do to just absolutely make agents love them and love working there and love the community and love the culture? And there’s plenty of that. People talk about that quite a lot across the industry at brokerages, including Compass.
I’d rather just be positive and optimistic about it and see more of that stuff and see less negative incentives to retain agents.