Hi everyone,

I'm not a broker but am working with one here in Australia to create the best possible business model for her brokerage (we actually use the term "agency" here but I'll talk in US terms so you get what I mean ;)). Right now we want to grow the volume of business we do, recruit the best possible people and, down the track, open some branch offices.

In the course of establishing our business model, we're questioning all the old assumptions. Here's one I'd love to get your experienced feedback on.

What remuneration attracts and motivates the best salespeople (i.e. those who are highly ethical, get the most listings, achieve the most sales, get the most repeat business and referrals, etc)?

1. The 100% commission model
2. Some kind of combination of salary and commission.
3. Does it depend on the salesperson?

My understanding is that virtually no-one pays salaries in the U.S., and it's actually rare in Australia too (there's typically a commission paid against a minimal retainer). However, there are some agencies here that advocate paying above average salaries + commission/bonus. They claim that commission-only creates a "desperation" mentality that has contributed to unethical practices in the industry here, whereas paying a combination of a salary and commission attracts and keeps more ethical "professionals" who would otherwise steer clear of the real estate industry.

Personally, I would've thought that top salespeople are entrepreneurial and would thrive on the idea that there's no limit to what they can make... which provides them with a lot of motivation to be successful. On the other hand, maybe some of them would like some kind of salary, just like salespeople in fields like corporate sales.

What are your experiences / opinions?

If I could afford to pay salaries at this point, I would really consider that. The main reason would be so that I can direct their activities and give them work hours every day. On the other hand, the people I really want to hire are the ones who can do those things for themselves and therefor would not need a salary... Let us know what you decide to do.

Maybe a mixture??? Depending on the Agent, you may want to try both scenarios. If you pay a salary, there are other legal things that would come into play. Most don't want to deal with the extra "baggage" sort of speak. Like Carla said, I can see where this could be beneficial. You would have some control over what that agent does. This could work for new agents. I think the more seasoned agents would most likely want to stay 100% commission.

By the way, I'm new and glad that I found this board. I look forward to checking in and joining the discussions.

I'm going to do some more research on this - see if there are actually any studies that show any links between how salespeople are rewarded and how successful they are. I'll let you know what I find. One thing we're thinking is to have a base salary + commission to begin with and then give people the choice. Anyway, I'll let you know what I find.

I wouldn't make the base commission too high. I would still want the commission to be a big motivator. I would consider about $30K plus commission??? I don't think I would do a base much more than that. It's enough to make most people feel comfortable that they aren't commission only.

I am actually considering a mixed model for my brokerage. I won't be doing it when I roll out my business, no funds for salaries. However, I have got a model that I kind of like where agents would get a base salary and a percentage of their sales with that percentage increasing at different levels.

I am also considering a plan where they don't start to get commission until a certain level of sales is reached, but I am suspicious that this kind of plan might shift focus in a direction that would be counter productive in the long term. Still working it out in my head.

R

I would love to see some different options -- especially just starting out. The loss of my $30,000 annual income right out of the gate is what's preventing me from moving ahead. I'd wind up losing MY house in the process! Having 6-9 months wages saved up is nearly impossible in this economy...short of tapping into my IRA.

I'll be watching this subject very closely.

Anna, I think a lot of brokers would love to do this. We are in a situation where our only income comes from our agents. So to offer them a salary we would really end up cutting their income potential in half to justify the risk. With no other significant income streams we could quickly be operating at a loss if we are not very careful about who we hire. We would need to make sure that we hired some serious go-getters if we paid salaries. And those serious go-getters probably wouldn't want their income potential cut in half. Like RebelBroker said, this is a very fine line. Someone who got off to a strong start wouldn't want to stay on a salary for long. And we wouldn't want to keep someone who wasn't off to a good start on salary eigher.
Anyone I put on salary would definatly have to give me a detailed activity report every week. What events did you go to? Who did you hand your card to? Who communicated to you that they would be willing to send you referrals and said it's ok for you to keep in touch? Who did you call? Who did you pop-by? Who did you send personal notes to? Did you hold an open house? How did you promote it? Who attended?... They would be required to use our in-house contact management system and track everything so that I could see it as the site administrator.
Those activities would start producing them a pretty good income, and after 6 months they would probably be pretty disappointed with their salary at that point. But also, without that level of supervision, most people won't do what they need to do and won't make it. I think it would be good to supervise them very closely for the first 6 months so that they create good habits.
I'm thinking "outloud" now about how I might set it up. Probably bonuses on the first few deals would be pretty small. Maybe 10% on their first $20,000 gross income, 20% from $20,000- $40,000, and 30% from $40,000-$60,000, 40% from $60,000- $80,000. 50% $80,000-$100,000.
If they did $40,000 in gross commissions they would make $33,000;$60,000 in gross commissions they would make $42,000;$80,000 gross would make them $50,000; $100,000 gross would make them $60,000.
Now that I look at it I might keep it at 10% for their first $50,000. By the time we paid WC, SS, etc, that $30K salary would cost us close to $40K. 10% of $50K would mean they cost us $45K. So we would just be breaking even at $50K gross commission. After that it could jump up a lot faster. 20% from $50-$60, 30% from $60-$70, 40% from $70-$80, 50% from $80-$90, etc. I think I like that one best.
I agree that a lot of people have what it takes just don't have the money, and I would like for them to have a chance.

Some terrific ideas here. Check out the other thread that I started that kind of dovetails with this one: http://www.agentsonline.net/forums/ubbthreads.php/ubb/showflat/Number/133058/page/1#Post133058

Anyway, a cursory look at remuneration research that people do perform better when there is a performance based component. (You're probably saying "duh" but I wanted to have a quick look anyway). And it's definitely true that at a certain point an agent is better off on commission than on salary.

On the other hand how do you attract new, aspiring agents with loads of potential but lacking in know-how without paying them some kind of sure income? Seems to me that the real estate industry might be losing high quality people because they lack the money to survive in the first few months, like Elecat. Also, by paying new agents on salary the broker has both the right and a huge motivation to train them properly.

So how about this: you pay new agents a fair salary + commission where the amount of salary decreases and the percentage of commission increases as performance improves. This could be along the lines of what you're suggesting Carla, or it could be a transition like this based on achieving certain gross commissions:

1. $30,000 + 20% of total commission
2. $15,000 + 40% of total commission
3. $7,500 + 80% of total commission
4. Move to 100% commission where the employee becomes a sub-contractor who pays for services, etc.

As for top-producers - maybe pay them commission only and some kind of residual etc, that attracts them to your agency (apart from the other benefits you provide) in return for a monthly services fee.

Again, I'm just throwing up ideas... and, admittedly, I may not have a full grasp of how all this plays out (I'm just learning this industry).

I would've signed up for my classes YESTERDAY if there was a structure like that in place. As it stands, I'll probably try the "real estate assistant" route, get my license, and "learn while I earn", so to speak.

While I doubt if the big name companies will change their methods, maybe some of the smaller realtors will...which is fine by me! I just want to sell Real Estate, without starving for the next year or two.