Who Will Win the Real Estate Compensation Battle? Salary, Commission, or Both?
For decades the real estate industry has maintained a devotion to independent contractor-dom. But times they are a changin’. In this post find out what the industry’s best and brightest are developing for their team’s compensation models and what is to come for real estate pay structures.
The flicker of conversation surrounding salaries in the real estate industry has become more of a resounding boom as of the last few years. Navigating the muddy waters of what defines a real estate team goes hand in hand with meandering through the maze of real estate compensation models.
And if you are a small business wanting to blossom into the butterfly you’ve always imagined, then choosing the right compensation model could manifest as a strong wind on a cold day.
But in all things business, if you search hard enough (scroll down for examples) there are always other professionals who have already paved the way for new models.
Real Estate Pay Model Map
First, the breakdown. Real estate has rested on the laurels of independent contractors for so long because it has worked. And it still does for most firms today.
But several businesses are looking to bonuses, adjustable commissions, and salaries to accommodate their new team structures.
The issue of reviewing real estate compensation models seems to arise when professionals are first growing their business, or readjusting things after several years.
When you are looking at compensation models for your business, first make sure to check off these items from your list: workable business plans for every member of the team, basic business processes, and your exit plan. Yes, an exit plan.
As Kevin Smits, Century 21 Gold, will divulge in a team study later in this post:
“A mentor of mine once told me, whenever you start a business, the first thing you should do is prepare your exit plan.”
This is an excellent strategy to make sure you are thinking of everything from Point A to Point B. But it also works in your favor for growing a lasting business that will help you make the most of your career for however long you decide to be involved.
The Duncan Duo: “Same Splits = Greater Value”
The Duncan Duo & Associates are killing it in the Tampa Bay real estate scene. And even more so, their company culture and agent satisfaction is something you don’t always see in larger operations.
This team operates with the same commission splits for every member of the team. Only one commission increase exception is reserved for extremely high earners.
Andrew Duncan says this strategy provides “massive” amounts of value for their team.
In an industry rife with real estate team definitions, Duncan sees it plain and simple.
“A team in my eyes has centralized leadership. You have a rainmaker who does a massive amount of marketing, there is one brand, and then you have centralized operations, listing coordinations, transaction coordinators, etc.”
The Duncan Duo’s overall goal with their real estate compensation model is to remove the non-dollar productive activities and a consistent commission split does this for them.
Now, for the logistics.
- 50 Team members: 15 staff members, 10 listing agents, 25 buyer agents.
- The Duncan Duo requires all staff members to have a real estate license, and operate on a salary basis.
- Performance bonuses are included dependent upon goals set in planning sessions.
- This strategy allows lead sources and other factors to be taken out of the equation leaving hyper focused goals on the table.
And the end goal?
“You have to make your commission split requisite to value. 70 percent of zero is still zero.”
Century 21 Gold: “Law Firm as a Basis for Longevity”
Kevin Smits ventured to achieve what small business owners all over dream of: being able to walk away from a solid business while still reaping the benefits.
Much like the Duncan Duo, Smits agrees there are a myriad of real estate team interpretations out there and it is up to you to experiment and find what works best for your situation.
In this case, he chose to emulate the traditional structure of a law firm with a base layer of associate level members, then junior partners, along with partners.
The law firm real estate compensation model emphasizes training and technology as a foundation and builds throughout each layer of progression.
Associate Level Part I: All new members start at this level and new agents spend their first 90 days learning the ropes of customer service, support, and technology.
“This way, everyone learns right away how hard it is to get these leads because they have done it before. And they are much more invested in the system,” says Smits.
For every deal closed, the ISA or entry level associate receives $250.
Associate Level Part II: If the agent decides to proceed, the next step is showing specialist. In this role they continue training and preview hundreds of properties over the next few weeks and months. Again, this is a practice in mastering the basics in order to build upon each layer of expertise.
The agent spends at least 9 months in this role with a salary of $25,000 and 5% bonus for each closed deal.
Associate Level Part III: The last associate level is reserved for buyer agents. At this point the only remaining basic training is the contract and negotiation. All other elements are addressed in the different levels.
Once agents close 24 deals then they are qualified as junior partners.
Junior Partners: Agents do not have to reach this status and can remain at any other position along the way if they decide it fits them better.
Moving forward from the 24 closed deals, these agents transition to independent contractors with a 40% split.
Partners: This level is based upon an invitation, but consideration is paid to 36 deals a year minimum, how much they advocate for the company culture, timeliness, and general business acumen.
If all of the requirements are met, these agents would have an opportunity to buy in as a partner and own 5% of the company for $100,000.
Smits admits there is very low turnover in the business and this serves as further proof of the system they put in place and the insistence upon training at every step of the way.
How to Protect Your Real Estate Business
With more intricate team structures comes the need for protecting your business and your assets. This is a simple fact of running a business and is not to be feared, but approached as any other necessary step in building a business.
Aside from carrying Errors and Omissions Insurance, every business considering hybrid real estate compensation models needs to have an airtight agreement for team members.
“We spent almost a year putting together our OSA agreement and used a few different attorneys,” said Kevin Smits.
These compensation models, if they are meant to last, will need to be compliant.
Both Andrew Duncan and Kevin Smits work with compelling compensation models. And both of these models are proving to work logistically and benefit the loyal team members.
Team Culture, Compensation, and Recruiting
Each of the businesses in the team studies above have solid logistical structures, but they also have a plan in place for company culture and well-being.
Any new player to the game will instantly evaluate monetary benefits, but as Andrew Duncan understands. There is much more to why team members join, and more importantly, stay at a brokerage.
“As a team leader, it is about providing a culture and being a part of something special. Show us the statistics about our average agent income and then combine this with the culture. We are very rarely against [recruiting] competition because of this.”
The hybrid compensation models used by Kevin Smits and Andrew Duncan encourage support, training, and company culture. This is in large part due to the value offered by specialized roles in these instances.
And the value add is what hits home your team over another when it comes to recruiting.
Hybrid Compensation Models Are the New Normal
Hybrid models are not new. But combining the rapidly changing real estate world with everything teams have already been doing can be a challenge. The key to not only grow, but master the industry on your own terms though is a fail proof process to accompany your business plans and compensation models.
And this is where both of our team studies converge once again. They rely on the BoomTown system to facilitate transactions, training, and fuel business. And because of this, they have had the time to step back and build businesses made to last.
If you would like to learn more about how BoomTown helps to effect every part of your real estate business, please don’t hesitate to reach out!