Real Estate: Is It All About the Money?

IN HIS NEW BOOK, The 60 Second Entrepreneur, CEO and Co-Founder of the Eview Group Manos Findikakis investigates the role money plays in new agent turnover, and why the remuneration an agent receives is of such importance.

HAVE A NUMBER of quotes when it comes to money, the following being my favourite: “We all know that money doesn’t make us happy. It’s just that we all want to find out for ourselves!”

But is it really all about the money? It just doesn’t quite sound politically correct, does it? There have been many studies on what motivates and drives us into action, what satisfies, fulfils, and makes us happy to turn up to work day in and day out, and rarely does money come in at first place. It usually comes in around fourth, with feeling valued and appreciated, doing great work, and having the opportunity to grow and progress preceding money in almost every survey.

I certainly do subscribe to the premise that money shouldn’t be the most important factor in your real estate success. What I do find is that money, or should I say the lack of money, is one of the major underlying factors as to why many agents don’t make the first 12 to 18 months. Baseline rewards, commission splits, wages, salaries, benefits, and so on need to be substantially adequate and fair to the individual for them to attain success. I don’t think anyone would like to go to work (regardless of what the culture or conditions are like) in the knowledge that their counterparts are earning substantially more than they are.

I do place a high importance on the remuneration an agent receives for the effort and results they provide. To this end, I see a lack of transparency within the industry regarding what an agent is entitled to. There are many ways agents can be remunerated: I will focus on the more common form which is a commission split from a sale. You would think it is straight forward, however, I find that many agents are quite confused as to how commission breakdowns are calculated.

I’ll detail it as simply as possible. As an example, we will use the common practice of 20 per cent for a list and 20 percent for a sale. That is, if an agent were to list and sell a property, they would be entitled to 40 per cent of the total commission.

Home sale price: $500,000
Agent’s commission: 2.2% inclusive of GST, which equates to $11,000 agency fees
Total commission payable to agency: $10,000 (after GST)
Based on the example, the agent would be entitled to 40% of $10,000 = $4,000
Add the compulsory 9.5% superannuation entitlement (i.e. 9.5% of $4,000 = $380), which brings the total entitlement to $4,380.

So, in actual fact, the agent receives $4,380 from the $10,000, which really equates to a list and sell split of 43.8 per cent. Fairly straight forward. The complexity arises when deductions are made from the commission for office expenses. These may include franchise fees and/or marketing levies.

Revisiting the example: let’s say that this agency deducts the common 8.5 per cent franchise fee and a further $500 marketing levy.

Therefore, total commission to agency: $10,000
Less 8.5% franchise fee: $850
Less office marketing: $500
Balance of commission: $8,650
Using the calculation as per the above example: 40% of $8650 = $3460, plus the 9.5% superannuation of $328.70 = $3,788.70.

So, the agent is not on a 43.8 percent split, but rather a 37.9 percent split.

This is a significant difference of 5.9 per cent. This represents a reduction of over 13 percent to the salary of an agent.

What’s important here is that both agency and agent are crystal clear on how the net commission figure is calculated and attributed to the agent upon a successful sale. (I have seen even more confusing calculations than these in the marketplace and although I don’t profess to be, or put myself out to be, an absolute expert on commission splits if you have any questions or would like any guidance on your current arrangement drop me an email and I will see if I can shed some light.)

It is also important to note that there are many statutory requirements that, as a minimum, an agent is entitled to receive from personal leave to holiday leave and car allowance. If you have any concerns or questions with regard to your current employment agreement seek professional advice. It’s okay to know what your rights are. The majority of principals I spend time with have an open policy with regard to commissions payable and office splits. And don’t be the agent that only considers themselves in the equation. That is, “What’s in it for me?” Principals invest large resources of both time, money, and sacrifice to run a business in the hope of a favourable return. They are equally entitled to earn a fair profit for the risks and effort they take. Always seek ‘win-win’ outcomes when reviewing and negotiating commission splits.

Whenever I interview agents, a common question I ask them is, ‘Are you okay with the principal of the business and your colleagues earning a profit?’ It’s a fairly obvious question and one which most people would think would not need to be asked. Unfortunately, there are many people who have a scarcity mentality and think that for them to get ahead, someone else has to lose. That’s a very dangerous mindset and, to avoid it, clear rules of engagement and transparency are key.

Which now brings me to the point of remuneration in general and why I felt disgruntled about the industry. High performers are often paraded at seminars and conferences as writing hundreds, if not millions, of dollars in annual commission.

They are part of the elite and I congratulate them as I know first-hand the effort that is required to achieve such a status. They deserve every accolade and every aspect of their rightful success, and if you are one of those reading this chapter, be humble and very proud of your achievements.

For the majority, however, such lofty goals and achievements are a rare occurrence. Less than 2 percent of all agents write $1 million in annual GCI (let alone take it home as profit). The average sales agent in Australia sells less than 24 homes a year and earns approximately $60K–$70K in gross salary. Deduct from this the many out-of-pocket expenses an agent personally incurs for vehicle purchase and running costs, phone, personal promotion, and so on, and the gross salary diminishes significantly. Of course, it’s easy to say ‘Just go and sell more houses,’ but we all know it’s not that simple.

While money is not the most important factor, it does need to be fair and transparent.

If you would like a copy of The 60 Second Entrepreneur email us

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Manos Findikakis

Manos Findikakis is the CEO of Agents'Agency, Australia's first multi-brand real estate network.