Realtor’s Best Kept Secret
Have you ever wondered how real estate agents get paid? Maybe you assume they get the entire commission after closing (some do!). Or maybe you assume that your agent only gets a small portion after their managing broker takes their cut (this is true for many agents). Let’s delve into the hidden world of real estate commissions.
NOTE: Most people don’t know this, but Realtors are not employees of their brokerages. They are sub-contractors who cannot be forced to do ANYTHING other than maintain a basic level of decency. That means that agents do not (and often don’t) attend meetings, trainings, or maintain a presence in their brokerage’s office. That should freak you out a little bit.
Ok, let’s start with the “big guys”…
Recruiting the agents is a big part of the plan for these guys. They need high dollar real estate to lure in agents who need an office to call “home”. It also brings some sellers and buyers, but without a couple dozen agents at each location, they’d be sunk. If you approve of the large chunk of the commission you pay going towards their overhead, then read on.
There are many ways a big brand can get paid. “Desk Fees” are common in the industry. Simply put, desk fees are paid by the agent to have a place in the office, regardless of whether or not they actually use this said office. Fees can be very high, and it’s a guaranteed way for owners to collect an income despite an agent’s inability to perform. Most agents sell LESS THAN SIX HOMES PER YEAR so collecting a percentage of their sales isn’t always the most effective way to make money off of them. Alternatively, high performing agents might prefer this model as it’s a predictable and capped form of paying their brokerage.
The upper end agents who thrive in this model are likely uninterested in the complexities of owning their own business, so here they can occasionally drop the ball without major repercussions. This type of model often adds a “nickel and dime” approach to working with their agents by charging them for everything from business cards to copy machine use – with a mark-up, of course.
Another way these agencies collect fees is through “splits.” This is the most common setup for agencies, as it allows them to make an increasing profit from agents who perform. These agencies are attractive to some agents because they eliminate a lot of the “nickel and dime” silliness and have a more straightforward compensation plan. “Lower end” or beginner agents might give up as much as 50%, but have little out-of-pocket expenses. This allows dabblers to occasionally sell houses without big monthly expenses between sales. As agents gain experience and success, they often move away from this model and go to a desk fee or open up their own shop.
Both compensation models charge their agents for leads. For example, if you fill out a form online that says you are interested in speaking with an agent, the brokerage will charge the agent who takes the lead an additional percentage when you buy/sell. Calling an agent directly is always best.
There is no hard and fast form of a compensation plan. While some agencies might follow one of the above descriptions to a tee, it’s true that most agencies will fall somewhere in the spectrum between these two options, creating a hybrid model. Either way, agents who belong to large agencies often pay enormous fees and struggle to fully realize their worth through shared compensation.
What about the little guys?
Smaller agencies have their own set of challenges. Marketing is competitive and expensive, and it can be very difficult to compete with the “Big Guys”. While an agent who owns his/her own shop gets to keep 100% of his/her commission, he/she has to carry all the overhead themselves. Copy machines, office rent, utilities, website creation, and marketing is enough to sink an agent after a couple of slow months. Add in MIBOR membership dues, administrative staff expense, and a company car and WHAMO, the small guy is often teetering on insolvency.
Staffing is always an issue because it’s a fixed expense in an industry with highly variable returns. For that reason, many one-man-bands have little choice but to handle the details themselves. This distracts them terribly from the activities they need to do to sell your house. I’ve always sympathized with the “Little Guys”. They have big tasks and small staffs. Unfortunately, they will often burn out and head back to the “Big Guys”.
So Which One is Better (or Less Worse)?
I know “less worse” is terrible grammar, but it has to seem like you’re left with a “lesser of two evils” rather than a “good, better, best.” That’s one of the challenges Rocket Realty set out to solve. We don’t want low performing agents. They’re not good for you, and they’re not good for us. We also didn’t want to ravage our high performers and leave them feeling unappreciated and under compensated. So we took our top agents and set them down to solve the “What’s right for everyone?” question. Our agents created the compensation plan while reviewing the company’s P&L. They were motivated with creating an exciting compensation plan for the agents that made sure the bills were paid, too.
I must say, they nailed it! They pay the bills first, and then make hay the rest of the year. Anxious to cross the line into the big bucks, they start the year like penned thoroughbreds. Pawing and snorting, they rush out of the gates on January 1 to reach the finish line as soon as possible. That’s good for you, Mr. Seller. They’ll spare no time or expense to sell your home as quickly as possible. Once they meet their goal (which is typically mid-year), they are “in bonus.” That means they get to keep nearly all of their commission. At this point, they now have a different motivator.
The company has been funded for the year, and every sale they make feels amazing! Also, we all agreed that penalizing agents for working with clients who came to the brokerage rather than a specific agent was unfair to everyone involved, so we scrapped that mentality entirely. If you call/email the brokerage, I’ll set you up with the Rocket agent who will work best with you, NOT the one who is willing to pay me the highest referral fee.
The Truth About Rocket Realty
My agents will likely make more money than I do (I’m on a salary), and nothing could make me happier. They aren’t capped on their income potential, and I get to help people reach new heights in their success. Money is nice (I do like to travel!), but seeing the look on someone’s face when they reach a new level of success is much better in my eyes.
Overhead here at Rocket is slim, which is great for our clients and our agents. We don’t need to charge outrageous commissions to pay for expensive (and unnecessary) offices. We work out of a central office and share staff with our sister company Kent Property Group, Inc. It’s smart, efficient, and cost effective.
Rocket Realty is the innovative approach to an age old problem. Stop paying for what you don’t need – and doesn’t benefit you- and start saving with Rocket Realty.
I hope this general explanation of compensation helps you understand who is really getting paid what, and why it should matter to you.
Good luck out there!