In 2017, the Macquarie Residential Real Estate Benchmarking Report found the national average commission had slid from 2.6 per cent in 2009 to 2.18 per cent in 2016. Meanwhile, agencies were ‘looking to get more value from their investment in salespeople’.
How can I help you?
As a second-generation real estate agent who has experience building both franchise agencies and his own successful real estate businesses, Andrew explains that leadership has taught him to ask one important question in all areas of business: “How can I help you?”.
An agent who writes 15 to 25 contracts a year will require more assistance to grow than an agent writing 50 to 100, he says, and often more experienced agents come with their own teams and resources that they need to support financially.
He argues the more experienced agent should receive a greater share of the commission split, and for a top performer that could be up to 70 per cent, including superannuation, and in special cases even more.
“Once there was a time where agency/agents were seen as being equal in the equation. That’s changed. That doesn’t diminish the value that a good brand and principal bring, but that’s just the way the industry is going. If you look at the US, it’s been that way for a long time.”
The business balance
When operating at their maximum efficiency, every real estate business will have agents of varied experience.
There will be the newcomers, who need the financial stability of a salary but the incentive of commission; the established self-starters who readily write 20 to 25 contracts but need the backing of an agency, the support of a leader and the benefits of a brand to get to 50 contracts and beyond; and the top performers, who come with a team of their own and a reputation that surpasses the brand they work for.
The question here is, “What are they worth to you, and you to them?” Andrew notes, and in business, it’s all about balance.
The industry newcomer
If an agent requires extensive support to learn the game and needs assistance with marketing while benefitting from the brand, Andrew starts them at award salary and 50 to 55 per cent commission after they reach an agreed target.
“When new people are starting, I believe they should be rewarded. They need to feel how wonderful it is to earn money,” he says. But it’s also about being pragmatic.
“A business needs the salaried agent to generate twice their salary in fees in the first year to be viable. Things are never that perfect but that’s the minimum aspiration. The principal will have to help, but whilst on salary an agent should be looking to learn and pay back the principal for all that they are giving. So you might be looking at $60,000 salary with $120,000 fees minimum target.
“Whilst on salary there is still commission but only after targets, so the $120,000 target is to set the benchmark for establishing if the agent is to continue in the business.”
Andrew’s advice to agents starting out on salary?
“Show what you can do by generating fees, then the time will come to sharpen your commission deal.
“Salary is just a stepping stone and, for a true aspiring agent, they’ll wish to get off the salary for a more lucrative commission share.”
The established self-starter
Andrew notes that any agent worth their salt can generate 20 to 25 contracts a year at pretty much any agency they work for, but getting beyond that is often when the challenge arises.
“Going from 25 to 50 contracts a year is where most people struggle. If you do 50 settled sales a year, you’re a very good agent.”
But to get there, some agents need marketing assistance, others need the support of a brand, and this is where leadership and that all important question, ‘What can I do for you?’ comes into play.
“There is a whole world of agents who want to become more, and we need each other. The key is to identify people I want to work with, and I can make a difference to.”
Andrew encourages principals to renegotiate with their rising agents as they reach the different levels.
The top performer
In an age where the individual agent can be bigger than any brand, Andrew notes that top performers can be a valuable investment for an established agency. But they can and should come at a price.
“I might look for an excellent established agent if I’m looking to build my brand,” he says.
“But I ask myself, ‘Am I worthy of what they’re going to bring?’ I also ask, ‘Would I rather have them with me than with someone else?’”
Importantly, he notes the top agent can prompt a leader to lift their own game in terms of selling and leadership strategy.
“Selling is demonstrating leadership, and principals should be out there selling for the pure profit it delivers,” he says.
“Leaders need to be great sellers and sometimes that’s about working with people at your level.”
But top performers are also likely to come with a team of their own that may include a PA, or their own marketing outlays, which means their personal costs will be higher.
“Good people can be worth 70 per cent of the commission split, but above that and it’s a fine line as to whether the principal is making money.”
The magic number
For Andrew, deciding on the magic number for each agent comes down to two important factors: what the business can afford, and what’s fair.
In terms of affordability, he looks at the basic metrics of his business, determining the volume of sales and their cost.
He explains it works like this:
A sales department might cost $50,000 a month to operate (including the leader’s salary and all running costs). If they’re averaging 15 sales a month in total for the office, each sale is costing $3,300. If they’re averaging 20 sales a month, each costs $2,500.
“By looking at it like this, a principal soon works out what they can and can’t pay an agent,” Andrew notes.
Then it comes down to negotiation, and it’s something he revisits with his agents as they grow.
“If I find a great person, I’ll sit down with them to find something that will work for them, looking at what they bring and what we can offer in terms of assistance and commission. And often I’ll ask them: ‘What do you think is fair?’
“If someone comes back with something ridiculous, often they’re not the person we’re looking for. As a principal I can also just say no, while being transparent as to why. I’ll tell them, ‘Look, at that level the business would lose money.’
“But the truth is that most of the time people come back with a reasonable request.”