Incorporating employee real estate agents into a full-service brokerage operation can create advantages for both employees and brokers. Employees enjoy the predictability of income that comes with a salary, the motivation provided by performance-based incentives and the peace of mind associated with competitive employee benefits. Brokers benefit from retaining operational control, a better-motivated work force and enhanced profit margins.

However, successful implementation of such a change requires major "real business" management and a potential cultural change, via performance plans, performance evaluations, compensation management, mandatory meeting attendance and other things that may seem foreign to many brokers.

An Historical Perspective

The salaried agent concept is not new. Real estate brokers have toyed with the concept, but it is primarily utilized by top producers who hire assistants. Depending on market-specific dynamics, a volume-producing agent reaches a threshold where an assistant is a prerequisite for continued growth. Many top producers employ one or more licensed agents to maintain transaction growth and provide quality core services. Compensation generally includes a base salary and the opportunity to participate in performance incentives.

Although the term “salaried agent” is most often used, it may be more appropriate to describe such a position as an “employee agent.” Salaried agent may be interpreted as a fixed payroll expense while an employee agent typically has the opportunity to earn both fixed and incentive compensation.

The "Traditional" Process

It is significant to note that in most traditional real estate agent business models, the broker retains a confederation of independent contractors. Commission splits are in favor of the agents who operate under broker guidelines that permit personal promotion, sometimes to the exclusion of the broker. Customary practices include agent-specific photographs, personal contact methods such as cellular phones and e-mail, customer contact information, sign riders and advertising. Management is frequently at the agents’ option. “He/she who makes the gold makes the rules,” particularly with top producers who are so independent that they often cannot be compelled to participate in business meetings.

Fundamental Change

A successful employee agent business model requires fundamental change from the traditional approach. No longer independent contractors, employee agents are employees of the broker. Commission splits are in favor of the broker, who has the option of assigning sales leads, work schedules and technology tools. The broker retains ownership of the customer information and relationship, along with the freedom to even require participation in meetings, training opportunities and new revenue opportunities.

Recruiting Change Agents

Recruiting employee agents presents new challenges. Most high volume agents are top producers because they excel at prospecting for new business. Since these industry professionals usually enjoy financial and professional independence, they are not strong candidates for an employee agent operation. Employee agent prospects are typically above-average producers who are best at listing, showing and selling. They also recognize that the residential real estate industry has remained unchanged for decades and they share growing consumer frustration with transaction complexity. These agents of change thrive in an environment where the broker provides a strong source of sales leads. Employee agent candidates are naturally attracted to a broker who has the demonstrated ability to deliver technological systems and tools that generate homebuyer and seller prospects.

Focus on Implementation

Putting into practice the multi-faceted changes resulting from a brokerage business operation that relies on employee agents presents challenges in operations, consumer awareness and management.

Operationally, a fundamental culture shift occurs that focuses on the team effort. Employee agents no longer compete with one another for leads, advertising, or listings. They quickly learn that cooperating as a team yields stronger results than operating as independent contractors. This teamwork can generate a higher level of customer service, new listings and closed transactions that create internal efficiencies and generate greater revenue.

Knowledgeable consumers appreciate the employee agent approach, particularly when they experience the full benefits. Less emphasis is placed on shifting homebuyers to the higher end of their preferred price range and the focus becomes finding the right home. Sellers have a higher degree of confidence in a motivated team sales approach, particularly when combined with technological efficiencies. These and other benefits provide a foundation that leads to increased customer loyalty and referrals.

Management facilitates the concept by providing an environment that fosters team spirit and rewards performance. Thoughtful implementation generates positive cash flow and attractive margins. It also establishes an atmosphere that makes customers more comfortable and gives employees the security to enjoy vacations.

Managing, Rewarding and Retaining the Team

There is no silver bullet for implementing change. As with any major change, shifting to an employee brokerage operation presents both old and new challenges including hiring, testing, orienting, training, motivating, retaining, evaluating performance and managing compensation.

When hiring employee agents, it’s important to make sure they have realistic expectations about income and performance. Manage compensation based on market conditions; consider tiered performance incentives, base salary escalation schedules and other rewards for superior results.

Motivating performance is a never-ending contest that is key to retaining valued team members. When the newness of an employee position wears off, it becomes essential to restate the value proposition. Gross commissions in a traditional brokerage may appear attractive, but some agents are not adept at assessing the true costs of bearing their own expenses. Desk fees, advertising, MLS fees, license renewal fees, automobile costs, gasoline, telephone, supplies, computers and income and self-employment taxes add up quickly. Net commission revenue in a traditional operation should closely track the combination of employee agents’ base compensation and performance incentives.

It is imperative to provide agents of change with training opportunities. Effectively utilizing company systems, third-party software, transaction management systems and leading edge initiatives facilitates professional growth. Management can provide individual and group training as a reward for performance, a privilege for valued employees and as a method of providing continuity across operational disciplines such as field agents and transaction coordinators.

Successful execution is vital when building a team of employee real estate agents. When properly managed, the result is a victory for brokers, employees and their valued customers.

Published: November 3, 2000

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