The means by which a sales team is remunerated varies widely across the industry. Even among large franchise groups where an entire matrix of possibilities may be presented to franchisees, many are ultimately free to run their own show. In particular, the commission”only method of remuneration is well accepted and widely adopted within the real estate sector ” indeed it has been industry practice, for well for over a century. However the question of sales force remuneration was an issue that stirred heated debate in a 2007 review of real estate industry remuneration by the Australian Fair Pay Commission (AFPC).
Among the submissions received by the AFPC, some proposed that the removal of commission”only arrangements and the requirement to pay a basic periodic rate of pay could create a scenario where, sales staff who failed to perform could have a significant impact on the viability of the business. Other submissions argued the real estate industry is one that exploits workers in the extreme and that basic periodic rates of pay stop employers hiring people without any consideration for their financial welfare. One Queensland agency went so far as saying that the current structure in Queensland (that allows remuneration by commission) encourages unethical behaviour among salespeople, especially those working in the large franchise groups, who may only just survive, living from sale to sale.
In August 2007, the AFPC handed down a wage”setting decision for the real estate industry, which allows certain employees working as real estate agents to be paid by commission”only arrangements rather than receiving a retainer plus commission. This new pay scale, which took effect from October 2007 dictates that employees working under a commission”only regime, who are responsible for the sale of a property, must be paid at least 35% of the employer’s net sale commission within 30 days of the agency receiving payment from the vendor.
This decision does have strings attached. It is only available to experienced sales staff who are registered as real estate agents/salespersons and who have to agreed in writing to receive commission”only remuneration. Moreover, it must be shown that in a 12 month period in the past five years these sales staff have been capable of earning a sufficient income ” one that would match what they could have earned under current pay scales.
This legislation has the potential to have a major impact on the commission”only based remuneration methods for sales people. As every agency would be aware, all sales staff have bad patches and for agency proprietors, the pressure to pay a retainer can mean letting go of otherwise experienced sales staff during slow periods. In the past, proprietors could afford a more flexible approach. Mark Brimble, LJ Hookers General Manager of Real Estate Operations Australia, says the introduction of minimum requirements has put pressure on principals.
Angus Raine, Chief Executive Officer of the Raine & Horne Property Group says the issue of commission splits is a much”vexed question in the RE industry. He notes, There are a myriad of ways to structure a salespersons package. At the end of the day the percentage commission split depends on the proprietor’s current sales force and commission turnover coupled with the particular salesperson’s experience and track record.
LJ Hooker’s Mark Brimble points out, Franchise groups can show different models but there is no specific right one. It is a question of finding the percentages that allow a business to make a profit.
According to Brimble, Research shows it can cost around 40 per cent of gross revenue just to run an office and determining the commission that is suitable for sales staff is a juggling act because margins in the industry are so small. When you look at the margins involved and add in other charges like compulsory superannuation payments, it can be very difficult for smaller businesses to find a profit. Moreover, commission structures need to work in both a strong ” and not”so”strong market. And as Brimble points out, You can change margins but you cant change the state of the market.
Raine & Horne’s Angus Raine says, We encourage our offices to run profitable business’ and would question the giving away of too much commission at the cost of a profitable business ” remembering that the proprietor carries the cost of overheads and the risks associated with running a business”
Adding to the challenges of sales staff remuneration, Mark Brimble highlights the absence of open forums on the topic saying, Each office is left to its own devices, which has spawned a cornucopia of formulas ” many of which depend on the level of service each office provides to sales agents.
Brimble explains, Some offices offer a lot of backroom support for individual sales reps for both pre” and post”sales activities. The cost of this to the principal will be reflected in the level of commission paid to sales staff. Other offices offer very little in the way of support but provide a greater rate of payment. Under these conditions the individual salesperson may provide their own support services through, say, the hiring of a personal assistant and may even build a support team of their own.
Between these two extremes, Brimble says the industry has seen the introduction of new remuneration ideas. He explains, Remuneration can be specific to an activity ” for example, sales personnel may be paid for either just listing properties, or alternately just selling. Other agencies have tried to guarantee a high base salary ” sometimes around $50,000 annually with a lower attached commission rate. In some cases these pay structures have been contingent on highly monitored work activity along the lines of making a set number of calls per day. He cautions however that many new methods of remuneration have not withstood the test of working during both strong ” and weak ” markets.
Getting the formula right is critical, with industry research underlining the high cost of commissions to principals. According to Macquarie Bank’s 2007 Real Estate Agency Survey, sales staff comprise, on average, 42 per cent of an agency’s total staff, with sales support staff accounting for 13 per cent of staff numbers. For a typical agency, between 31 and 40 per cent of sales revenue is spent on salaries, and the average commission split with sales staff is 40 per cent. The same report shows nearly half of all sales staff earn between $50,000 and $100,000 annually (including commissions), while the average top sales person earns around $304 091 in gross commissions.
One agency principal, who wished to remain anonymous, has introduced what he believes is one of the new generation of commission structures based on salary plus commission. Here, commissions go into a pool with a stepped bonus formula based on the number of sales achieved and also depending on whether the agent listed or sold the property. The sales agent’s base salary is also made more tax effective through the provision of a travel component.
The same principal has introduced other changes that he believes avoid the office within an office scenario that can see cut throat competition developing between agents working for the same principal. These include a clear staff development scheme where sales staff rather than directors attend conferences and conventions. In return, the office has the proviso that sales personnel be involved in community groups to encourage networking.
Staff retention ” a factor of remuneration
Remuneration structures do more than impact the bottom line of a business. They also have a key effect on staff retention. While it may come as a relief to farewell a non”performing sales consultant, the fact is that in a tight employment market, staff retention is a key issue and one that has long been a problem confronting the real estate industry.
Figures from the Real Estate and Business Agents Supervisory Board (REBA) of West Australia show a high level of turnover of sales representatives with research indicating that three years after registering, less than 50% of sales representatives may still be working in the industry.
While property managers are usually paid a salary, sales representatives’ reliance on commissions can place staff under considerable financial pressure. Income may not be regular or predictable ” often being heavily influenced by economic factors and a notoriously cyclical property market ” conditions over which sales personnel have no control.
Moreover, as commission can only be claimed after settlement has taken place, commission”based staff can experience the situation where they are unlikely to earn any income for at least two months or so after commencing employment ” sometimes much longer depending on the prevailing market mood. As a result, REBA statistics show that of those sales reps who have left the industry, over 50% earned a level of income that was less than they had expected. More than 50% cited the unsteady income as a negative aspect of the job.
Staff retention is a key aspect for agencies to consider ” especially where sales staff may have extensive experience, good contacts or strong standing in the local community. While commissions are a key industry cost, the reality is that the fortunes of agencies hinge on the performance of their sales force, with Australian Bureau of Statistics (ABS) figures showing that agencies derive, on average, 73.3 per cent of their business income from sales commissions. Scrimping on base salaries or commissions has the potential to be counter”productive.
The juggling act of remuneration has no easy solution and it can only be determined in accordance with what works in a particular office. The bottom line however is that it is an area worthy of open discussion between agencies ” whether independent or part of a group.
Current property and real estate industry salaries
Sub”sector Avg. Min. Avg. Max. Average
Accounting & Bookkeeping $36,000 $150,000 $59,692
postgresistration $27,000 $100,000 $46,813
Asset Management $35,000 $200,000 $81,621
Leasing $28,000 $160,000 $62,296
Maintenance $28,000 $150,000 $81,621
Management $35,000 $250,000 $92,384
Other Property & Real Estate $35,000 $250,000 $94,918
Prop Mgmt: Commercial $38,000 $200,000 $82,664
Prop Mgmt: Residential $30,000 $150,000 $62,243
Property & Land Analyst $45,000 $200,000 $94,788
Sales ” Commercial $35,000 $200,000 $94,911
Sales ” Residential $30,000 $200,000 $81,494
Valuation $42,000 $240,000 $100,634
Average Australian property and real estate salary – – $81,071
Source: MyCareer.com.au, based on active job listings inclusive of salary (not commissions) in the 90 days prior to 31 March 2008.
Snapshot: Remuneration facts average commission splits
Agency size Amount
Large Up to 46%
National average 40%
Top sales person gross commission earned within last year
Agency size Amount
National average $304,091
Source: Macquarie Bank 2007 Real Estate Agency Survey
Salary Sacrificing your super contributions could be the smart thing to do
The government’s Better Super measures introduced at 1 July 2007 further enhance superannuation as an ideal vehicle for building wealth for retirement purposes.
Most industry commentators agree however that the current 9% Superannuation Guarantee contribution may not ensure sufficient assets are accumulated prior to retirement for most Australians. Accordingly, making additional personal contributions to super might be necessary. Often, the most effective way to do this is via a salary sacrifice arrangement.
Salary sacrifice works by having an employer make contributions to super from an employee’s before tax pay, thereby reducing their taxable income. There are a number of personal considerations required to determine if this is the right strategy.
Briefly, some key points about structuring an effective salary sacrifice arrangement include:
Salary sacrifice arrangements must arranged prospectively, that is, the employee must have a documented agreement in place with their employer regarding how the salary sacrifice contributions will be treated before the income from which they are deducted is earned. This is an ATO requirement. Many employment law firms can provide suitable or sample wording. Alternatively your local state institute or Rei Super can assist if required.
Salary sacrifice contributions do not attract the government’s co”contribution payment.
Therefore, the tax benefit associated with salary sacrifice contributions ” (generally the 15% super tax rate compared to the individual’s marginal tax rate) needs to be assessed against the value of receiving the co”contribution.
There are particular limits imposed by the government on how much can be contributed to super from pre“tax (salary sacrifice) or post”tax salary.
The employer must have the payroll infrastructure in place to deduct salary sacrifice amounts from an employee’s remuneration and remit them promptly to the super fund. This seems a routine matter but in our experience is not always handled correctly by employers.