In 2010 we conducted a survey of hundreds of Real Estate agencies to pull together a Benchmark for the industry across sales, property management, staffing and salaries. When it came to commissions, the Benchmark found the typical agency charges 2.4 per cent to vendors, and splits 40 per cent of this with sales staff.
Our intent with the Benchmark was to give principals an informed idea of what the industry average is, but there’s only so far you can apply this 40 per cent commission split figure. It’s not a hard and fast rule of thumb.
For one, commissions varied markedly according to size of agency. Small agencies (less than 10 staff) gave an average of 38 per cent to sales staff. Mid-sized agency commission splits were 42 per cent. And large agencies (more than 20 staff) gave even more – up to 46 per cent. In dollar terms the big agencies paid the most generous commissions – 35 per cent of agents in large agencies earned more than $150,000, compared to just nine per cent in small agencies and 19 per cent in mid-sized agencies.
Elite sales staff
The Benchmark found the top one per cent of agents earn more than one million dollars a year. And the top two per cent of agents earn more than $500,000 a year. This is an important aspirational goal for agents who want to succeed and it gives some genuine balance to the stories of super earnings currently out in the market.
For those having to deal with employed agents who want a larger slice of the pie, having the knowledge that such a small group achieve these high income levels is important, especially given the enormous challenges faced by these agents and the support staff they must carry to write these volumes. The average top sales person in a real estate agency across the country earns $304,091 in gross commission.
Putting aside for a moment the commission split numbers based on agency size, there are other important differences between agencies that affect the level of commission split with sales staff. The cost of sales support and other less tangible items, including marketing and brand presence varies between agencies and needs to be factored into any remuneration and commission structure. The culture of any organisation and the work environment needs to be considered as part of commission split discussions.
Sales staff need to understand what it is that you and your business bring to the table. For example, you may have been operating in your particular market for 25 years and have 30 per cent market share. Arguably the brand and proven reputation you have built during those 25 years goes a long way to securing a listing.
Know where the market is at Of course the type of market you’re in affects commission splits too. It’s worth knowing some of the numbers (eg up-to-date median property prices) so you can make your case with any sales staff when setting commission splits and key performance indicators. And if the argument goes along the lines of “the agency across the road pays 60 per cent split” you could argue that your brand gets more listings. 60 per cent of a smaller pie is after all a smaller dollar amount.
In terms of knowing the type of market you’re in, from the very start 2008 has been a much different property market than last year. Certainly days on market are already lengthening. Indeed we are finding an increasing trend towards longer settlements too. This has an obvious cash impact on the business which needs to be budgeted for in any cash flow forecast. Rather than entertain the idea of raising commissions to sales staff, we suggest agencies consider alternative strategies to assist staff to get more listings. For example, greater investment in sales training and advertising for the agent as well as the office. Incentivise the agent to get more listings rather than give them a larger slice of what they are already writing.
Understand your cost base
When days on market lengthen, cash becomes tighter and some agencies may even try altering remuneration structures such as moving sales staff to performance-based pay.
Our advice, when cash is tight, is to understand your cost base really well. When there is a lot of top line revenue coming in, many agencies don’t fully examine costs. It is not time to slash and burn, but you do need to understand where your spending is. For many, the last time they dove into the nitty gritty of their cost base was the last downturn in 2004, or even earlier when the GST was introduced in 2000.
Equity stakes lock in key staff
While commissions motivate staff to perform, offering an equity stake may be an alternative way to lock key talent into your business. This is something that should be planned well in advance as part of your business planning process. Indeed, succession planning must be the primary objective of offering an equity stake. Both the principal and staff member need to be clear and happy with the decision and both doing it for the same reasons. While there is no hard or fast rule, equity offerings can range from five to 50 per cent, depending upon how many people are involved and at what stage the business lifecycle is at.
In conclusion, it’s not right to think of commissions as a necessary evil where you give away your revenue. When commissions are right they can increase your revenue through motivating sales staff. Profit-sharing schemes linked to performance have been de rigueur in the corporate world for decades.
Jason Roach is the joint National Head of Real Estate with Macquarie Relationship Banking.
Disclaimer
The information contained in this article is of a general nature only and does not constitute financial product advice. Nothing in this article shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. In publishing this article we did not take into account the investment objectives, financial situation and particular needs of the reader. You should consult a professional investment adviser before making any decision regarding any financial product.
The data and statistics contained in this article were sourced and collated from the Real Estate Agency Survey Benchmarking Report 2007 (“Report”) commissioned by Macquarie Bank Limited ABN 46 008 583 542 and are not indicative of any actual projections or forecasts. The Report is current as at 5 November 2007. Past performance is not a reliable indicator of future performance. Whilst all reasonable care has been taken in relation to the accuracy of contents of this document, no warranty as to accuracy or correctness is given nor should one be implied.Lorem Ipsum is tha or-less normal distribution of letters, as opposed to using Content here content here making itLorem Ipsum is tha or-less noorem Ipsum is tha or-less normal distribution of letters, as opposed to using Content here content here making it
