Commission Cutting vs. Agent Compensation: How to Make Everybody Win
By Lorne Wallace, C.A., B.Comm
Every conference you attend, every article you read, all talk about commission cutting as though it is a given, a fact of life. People wring their hands and question what is wrong with the industry. The intention of this article is not to discuss what is wrong but rather to identify what is right and work from there.
First, there are agents who are able to convince their buyers and sellers that their services are worth the compensation they are requesting. Any real estate brokerage has these stars in their offices. So we must identify who they are. Take your agent roster and rank each of them, not the traditional way by number of ends or sales volume, but rather by average commission percentage. This is their total commission dollars divided by their total sales volume. In a perfect world you should see a number between 2.5% and 3.0%. We'll call this your Commission Cutting ReportTM.
At this point, you might be saying, "Yeah right…I wish!" But don't just look at a couple of agents, look at the rankings. At the top will be some solid producers, not flashy, maybe not even award winners, just steady producing agents who command a fair value for their services. These are some of your top agents and you don't even realize it.
Armed with this information, there are several paths to follow. First, how do you react when an agent on a 75/25 split comes into your office and starts to complain about not making enough income? They are trying to take a problem of theirs, not having enough money, and make it into your problem. So you won't have enough cash! You can take charge of that discussion by using your commission cutting report and reviewing where that agents stands Let's say that you expect an average of 2.75% in your office and this agent did sales of $3,000,000 at an average of 2.25%. They left $15,000 on the table compared to your expectation. Which conversation would be better to have, them taking a couple of thousand out of your pocket or you helping them put $15,000 in theirs?
Use your new information to become pro-active in managing your agents. Generate these numbers and review who is falling below expectations. The report should show how much money each agent has left on the table as a result of them not meeting expectations. For those agents who claim that your expectations are too high, generate the report using the office average. That is not subjective, it's the reality of what happened in your office. Now compare agents to the office average and see how much each has left on the table. Remember, the agent not making enough compensation for their work is creating a problem for themselves…not enough income! And they will attempt to make that problem your problem. Head them off at the pass by calling them in, working with them and getting them on the right track to generate great commissions. Time invested now will be time you won't have to spend later in unhappy meetings fighting over compensation.
Calling the agents in is a very proactive thing to do.You've just stepped past about 90% of managers in all types of businesses. The next step is to be super-proactive. What do you do at your sales meetings? Recognize the best agent right? Probably by number of ends, sales volume or commission dollars. Why don't you add another category, highest average commission rate? This is where the stars I talked about before will shine. They won't be the flashiest but they will be the solid producers who year after year pay their desk fees or split their commission and contribute their fair share towards the operation of your office. Call them up to the front of the meeting and ask them this question: "Why, when everyone seems to running around, like Chicken Little crying the sky is falling, about commissions; are you able to generate such excellent commission rates?" This agent has information in their head about how to sell their services, how to respond to challenges and how to be compensated properly. The rest of the agents can gain from this knowledge, your company can gain from this knowledge.
One of the secrets of management is to unlock the power of the information flowing through your company. Utilizing commission rate reports gives you power to control the struggle between yourself and your agents in the areas of compensation. They make money, you make money, it's as simple as that.
Lorne C. Wallace C.A. is the owner of Lone Wolf Real Estate Techologies, a company with over 3,000 offices utilizing its software to administrate and manage their real estate operations. For more information, please contact email@example.com.
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