Does it make a difference if your real estate agent is paid a salary or a commission? Will you get a better deal or better service one way or the other? This is a highly contentious question, and I’m sure that other agents will have strong opinions on it.
First, a disclaimer. Our company believes in paying our agents a salary + bonus. The bonus is based on things like our company profitability, agent performance and client satisfaction ratings. Unlike our company, most other brokers pay a straight commission. If you don’t sell a home, you don’t get paid.
So what makes for a successful agent? Here are the top attributes that I have seen.
- Marketing and personal network – Highly successful agents have a strong referral network and established marketing program to bring customers in the door.
- Customer service – Great customer service from the agent makes for happy customers who then refer their friends, families and co-workers.
- Market knowledge – Knowledge of the local real estate market and recent trends is the sort of expertise you are paying for when you hire an agent. Market knowledge makes for a better negotiator and many times will get you a better deal.
- Persistence & drive – Closing real estate transactions is a volatile business with lots of ups and downs. One month you’ll close 5 deals and the next month you’ll have 3 deals evaporate on you. A successful agent does need to be able to stay positive through these ups & downs.
I don’t believe that any of these attributes require an agent to be paid only commissions. It is true that an agent who is paid only a commission has a very strong motivation to close deals, and that motivation may improve their negotiation skills or customer service. However, there is a downside to working with agents who desperately need to close that next deal. Some agents will be motivated to close a deal to get paid that month, rather than be motivated to look out for your best interests. Professional agents know to avoid this conflict of interest, but there are plenty out there who are focused on closing a deal before focusing on their clients.
When I talk about salaried agents, the most common response from other agents is “The best agents can make far more money on straight commission, so naturally anyone taking a salary must not be a great agent.” When you calculate all of the expenses involved, the number of agents who make large amounts of money is very, very small. The vast majority of agents make a modest living, even if they are great agents. Many agents also love the rewards of helping people buy and sell homes, but hate not knowing where the next paycheck is coming from.
Our company’s compensation plan tries to address the need for a stable income via a salary, and then rewards our agents for individual and company performance to keep them motivated. There are a number of benefits that we see as well.
- Focus on the deal – We have a centralized marketing department so agents get to focus 100% of their time on doing what they like to do best, which is closing deals.
- Consistency – Having agents be employees allows us to offer a consistent service level, which is nearly impossible to maintain with an office of independent contractors.
- Teamwork – Our agents are motivated (and rewarded) to work as a team. This improves our customer service levels and allows agents to better manage their work-life balance.
When choosing a real estate agent, don’t be afraid to have a frank conversation about how they are compensated. A professional agent will gladly tell you why they choose to be on commission or why they choose to take a salary. No matter what their compensation arrangement, stay focused on what matters the most, which is their customer service skills and market knowledge.