As part of their 3rd quarter earnings report on Tuesday, national online brokerage ZipRealty announced that they will transition all of their agents from being employees to independent contractors. This is big news for one of the brokerages who pioneered an alternative compensation model for real estate agents, removing the salary and benefits that used to be available to their agents and falling in line with how the vast majority of brokerages currently compensate their agents.
Agents as employees
Why would a brokerage want agents to be employees rather than independent contractors? I think it boils down to teamwork and consistency of service. With a team of employees, a real estate brokerage can institute a consistent standard of service, ensuring that you will get the same experience from agent to agent. A real estate brand cannot represent a standard of service when it doesn’t have the ability to require those standards from each and every agent.
Providing a compensation package of salary, benefits and performance bonuses is exceedingly rare in the real estate world. Being able to provide some level of income stability during volatile real estate cycles is key to agent recruitment and retention, and I have yet to meet an agent would wouldn’t like help with medical/dental insurance or retirement plans. Of course there needs to be a mechanism to participate in the upside when times are good, so an employee compensation plan must also have a bonus component.
Almost as rare as agent benefits is agent teamwork. A fend-for-yourself independent contractor model leads to agents who don’t help their team members, or agents who fear asking for help from their competitor one desk away who may try to take the client. By employing agents, a brokerage can require and reward teamwork as a way to optimize client satisfaction.
Agents as independent contractors
The benefits to hiring an army of independent contractors is obvious to a real estate brokerage. Real estate revenues swing in volatile cycles, and we are in a particularly nasty cycle at the moment. Independent contractors don’t require a salary, don’t require benefits and are paid only when they sell homes. It is far easier to manage the bottom line when their isn’t an employee benefits outflow each and every month.
Many agents also like the independence that comes with such a model, effectively operating their own business and brand under the umbrella of a larger company. The result of this model, however, is that the bulk of agents in the industry make a sub-standard living selling a few homes each year, while still paying for their own benefits and business expenses. There is a sliver of top producers who sell large amounts of homes and make out well, but that is not true for the bulk of agents in this business.
findwell agents remain employees
Does the ZipRealty announcement signify the “beginning of the end” for this alternative business model? Will the current real estate slump put a nail in the coffin of these brokerage models that are striving to make changes in the industry? It is our hope that alternative brokerages like ourselves and Redfin can find a way to weather the storm and continue to provide more options to consumers and agents.
We believe that there is a better way to run a real estate company, and maybe Zip just got hit too hard by the market downturn to continue the model. findwell remains committed to hiring our agents as employees and providing them with a compensation package that is more generous than industry averages. We strive to share in the up and down market risks with our agents, rather than making them bear the downturns alone because we believe that the financial results of agents and the brokerage they work for should be closely aligned.