High commission splits may not benefit agents

Simon Parker

Offering sales agents a bigger slice of the commission pie can be a short-term means of attracting star performers that can undermine an agency in the longer term, the head of a franchise group's NSW division has claimed.

“In order to attract good agents, many businesses have used the ‘carrot’ of bigger and better commission structures,” said Sadhana Smiles, chief executive officer of Harcourts New South Wales.

“This may work in the short term but is it really a long-term solution and is it what good agents actually want?"

“Given the current challenges facing the property market, one of the key issues that needs to be addressed in the real estate industry is what has been termed by many as the ‘great fee debate’.”

Ms Smiles said while commission splits varied from between 40 to 70 per cent, with structures ranging from consultants, commission only to debit credit, “at the top end of the commission scale the agents may be expected to pay for everything however the business will potentially still provide training, technology, systems, leadership and bonuses.”

“My question is, how is a business supposed to cover all these additional costs when the majority of commission splits are around 60/40 per cent in a changing market.”

“As a business have you worked out what it costs you to have an agent sitting at a desk?

“There is no simple answer however there definitely needs to be a focus on profit for the business and a fair package for the agents,” she said.

Steve Martin, managing director at Albury, NSW-based Stanley and Martin, agreed that there is no one single way of handling commission splits. He told Real Estate Business that principals and agents needed to consider a variety factors when establishing a suitable remuneration package.

Mr Martin, who recently received the Real Estate Institute of NSW’s (REINSW) highest honour after being awarded the 2011 Woodrow Weight Award, said from a principal’s perspective, it was important to provide a new sales recruit with an appropriate level of job security in their first 12 to 18 months of employment.

This might mean giving them a set wage, or a set wage plus reduced commission, during this initial period. This would remove some of the initial pressure a new, and often talented recruit might feel in their first months of the job, and could also go some way to keeping more of these people in the industry.

The principal is effectively sending the message that “we don’t want to bury you” in that first year, Mr Martin said. The set wage safety net can be removed once the sales representative has built up the requisite amount of skill and experience, he added.

Like Ms Smiles, he said it’s dangerous for sales agents to evaluate agencies based solely on the commission split they’ll earn. An agency offering lower splits might be the better option once local profile and reputation, training, marketing support and career opportunities – amongst other things - are taken into consideration.

“What is the opportunity for my [long-term] success?,” is the key question Mr Martin suggests sales representatives ask themselves before committing to a particular agency.

Moreover, from a principal’s perspective, it’s key that new recruits aren’t employed solely on their previous sales results. For instance, it’s important the new employee will fit into the office culture, he said.

Ms Smiles said that, while she knows this is a “controversial subject, and from an agent perspective it’s in their interest to get the best commission split possible,” it’s important that agents consider how much they enjoy where they work, and how it’s helping them with their professional development.

She said businesses should deliver sales agents training, career paths, culture, awards, technology and support.

“Agents should also have the ability to participate in a bonus scheme based on achieving annual targets,” she added. “The reward needs to be something that is highly valued by the team and aspirational.”

Simon Parker

Offering sales agents a bigger slice of the commission pie can be a short-term means of attracting star performers that can undermine an agency in the longer term, the head of a franchise group's NSW division has claimed.

“In order to attract good agents, many businesses have used the ‘carrot’ of bigger and better commission structures,” said Sadhana Smiles, chief executive officer of Harcourts New South Wales.

“This may work in the short term but is it really a long-term solution and is it what good agents actually want?"

“Given the current challenges facing the property market, one of the key issues that needs to be addressed in the real estate industry is what has been termed by many as the ‘great fee debate’.”

Ms Smiles said while commission splits varied from between 40 to 70 per cent, with structures ranging from consultants, commission only to debit credit, “at the top end of the commission scale the agents may be expected to pay for everything however the business will potentially still provide training, technology, systems, leadership and bonuses.”

“My question is, how is a business supposed to cover all these additional costs when the majority of commission splits are around 60/40 per cent in a changing market.”

“As a business have you worked out what it costs you to have an agent sitting at a desk?

“There is no simple answer however there definitely needs to be a focus on profit for the business and a fair package for the agents,” she said.

Steve Martin, managing director at Albury, NSW-based Stanley and Martin, agreed that there is no one single way of handling commission splits. He told Real Estate Business that principals and agents needed to consider a variety factors when establishing a suitable remuneration package.

Mr Martin, who recently received the Real Estate Institute of NSW’s (REINSW) highest honour after being awarded the 2011 Woodrow Weight Award, said from a principal’s perspective, it was important to provide a new sales recruit with an appropriate level of job security in their first 12 to 18 months of employment.

This might mean giving them a set wage, or a set wage plus reduced commission, during this initial period. This would remove some of the initial pressure a new, and often talented recruit might feel in their first months of the job, and could also go some way to keeping more of these people in the industry.

The principal is effectively sending the message that “we don’t want to bury you” in that first year, Mr Martin said. The set wage safety net can be removed once the sales representative has built up the requisite amount of skill and experience, he added.

Like Ms Smiles, he said it’s dangerous for sales agents to evaluate agencies based solely on the commission split they’ll earn. An agency offering lower splits might be the better option once local profile and reputation, training, marketing support and career opportunities – amongst other things - are taken into consideration.

“What is the opportunity for my [long-term] success?,” is the key question Mr Martin suggests sales representatives ask themselves before committing to a particular agency.

Moreover, from a principal’s perspective, it’s key that new recruits aren’t employed solely on their previous sales results. For instance, it’s important the new employee will fit into the office culture, he said.

Ms Smiles said that, while she knows this is a “controversial subject, and from an agent perspective it’s in their interest to get the best commission split possible,” it’s important that agents consider how much they enjoy where they work, and how it’s helping them with their professional development.

She said businesses should deliver sales agents training, career paths, culture, awards, technology and support.

“Agents should also have the ability to participate in a bonus scheme based on achieving annual targets,” she added. “The reward needs to be something that is highly valued by the team and aspirational.”

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