Real Estate Compensation - Alternatives to the Commission-Based Model (and yes, we still make a good living!)

By
Education & Training with Sell with Soul

Last weekend I posted a blog that generated lots of impassioned comments (I love it when that happens).Debate The topic du weekend was the sacred cow of real estate - our compensation structure that pays us based on the price of the product we sell.

My firm belief is that there is very little correlation between the price of the product and the value of our service. In other words, my efforts on a $1M property are not worth 10 times more than my efforts on a $100,000 property (or conversely worth 1/10th on the lower-priced property). In fact, sometimes that $1M transaction is far easier than the $100,000 one... and sometimes... it's harder. But the degree of difficulty of the transaction is not simply a matter of the price; many other factors are involved. 

Some of my readers called me on my stance with an implied "Okay, Miss Smarty-Pantz, if you don't like the way it's done now, what's YOUR solution?"

Well, thanks for asking! I'm happy to share my thoughts on the matter (Really?)

First, let's talk about the difference between a Commission and Contingent Fee (they aren't the same thing!). A Contingent Fee is paid only if the outcome is successful, as defined by the parties to the transaction. That Contingent Fee could be a flat $1 or $10 or $10,000, OR it could be a percentage based on the price of the product; e.g. 1%, 2%, 7%, 15%, whatever (and usually called a "Commission").

Therefore, in the real estate industry, our compensation is traditionally Contingent Commission-based - that is - we don't get paid unless we are successful AND that pay is based on the price of the property we sell.

  • Commission = Compensation based on the price of the property
  • Contingent = Compensation NOT necessarily based on the price of the product, but not paid unless there is a closing.

So, as real estate agents, we could work on a Contingent (non-commissioned) basis - that is - we set a price for our service that we feel fairly compensates us for our time, expertise, effort and risk, and collect that fee if and only if we are successful. That fee will vary by client; some home-buying or -selling scenarios are potentially more difficult, more risky, more costly or more labor-intensive than others, and as professional real estate agents, we should be able to identify which projects merit a higher (or lower) Contingent Fee (I'll talk more about this in a future blog).

At the other extreme, we can also charge by the hour, project or service, upfront, and eliminate all risk of "working for free" (which will usually result in a lower per-transaction fee due to the lower risk absorbed, but possibly a higher overall income.).

Of course, there are hybrid plans where the agent charges an upfront fee as part of his compensation, with the remainder being paid on a Contingent basis - that is - when the property closes. (This was my business model for years - loved it!)

Or, there's Mollie Wasserman's consulting (ACRE) model where you offer the client a choice of paying 100% upfront or 100% contingent, or somewhere in between, depending upon the situation and as agreed-upon by both parties. (While I'm an ACRE, I probably just did a lousy job explaining the ACRE philosophy - for more information go here: http://www.theconsultingtimes.com/)

There's absolutely nothing sacred (or even sensical) about charging our real estate clients based on the price of the product they're buying or selling, regardless of whether it's at the low end or high end. At the low end, you probably aren't paid enough and at the high end, the pay is probably in excess of the value provided.

But just because you don't get paid on Commission doesn't mean you can't make a heck of a good living selling real estate. It'll just make more SENSE!

 

 RELATED BLOGS:
"No I Won't Reduce My Commission - Do You Expect Me to Work for FREE?"
"Why Should I Work for FREE? You DON'T!"

 

close

Re-Bloggged 2 times:

Re-Blogged By Re-Blogged At
  1. Glenn Freezman 03/31/2011 10:24 AM
  2. Jeani Codrey 03/31/2011 11:28 AM
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the world to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Topic:
Real Estate Sales and Marketing
Groups:
Learn to be a Top Producing Listing Agent
Realtors®
Selling Soulfully
Silent Majority
The Ninety-ninth Percentile
Tags:
real estate consulting
real estate commissions
all blogs

Comments 22 New Comment

Rainmaker
814,656
Fred Carver
Accredited Victoria Real Estate Consultant
Re/Max Camosun Real Estate

Hi Jennifer..another Great post. Consumers have been asking for Choices for some time. Why not give then some Choices and be a true professional.

Cheers

April 03, 2011 02:48 PM
Rainer
20,986
Treva Fox-Christy
GOLDEN DOOR REALTY

Hi Jennifer, I just finished your first book and OMG, if only I had read it when I first became a Realtor. I am now starting your second book and can't hardly wait for the third. Keep writing girlfriend. I LOVE it!

April 03, 2011 06:18 PM
Ambassador
1,268,960
Loreena Yeo
Realtor® | Frisco TX Community Ambassador
3:16 team REALTY ~ Locally-owned Frisco TX Real Estate Co.

I came back here because I'm in the growth phase of my business that opening my heart and head to this idea is not a bad one. One can only do so much. If it's not in "people" ie by sponsoring agents, I may need to consider this.

In prayers about this right now.

April 06, 2011 08:11 AM
Rainmaker
427,949
Jennifer Allan-Hagedorn
Author of Sell with Soul
Sell with Soul

Loreena - I think a consulting model would be perfect for you... absolutely perfect. Let me know your thoughts when you're ready!

April 06, 2011 08:17 AM
Rainmaker
495,464
Michelle Cooks
Pensacola, Pace & Gulf Breeze Property Management
Charles Stallions Real Estate Services

We are moving in the direction of some upfront and the rest at closing 

December 25, 2013 08:20 PM
Rainmaker
427,949

Jennifer Allan-Hagedorn

Author of Sell with Soul
Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the lamp to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase: