Principals must focus on the true business costs of running their agency to survive in an increasingly competitive real estate market, a leading industry recruitment specialist has said.
“Ensuring there are solid return on investment (ROI) triggers in place to protect the longevity of a business is crucial,” said Sharon Bennie, of Sydney-based Sharon Bennie Recruitment.
Ms Bennie was responding to recent comments made by Sadhana Smiles, Harcourts NSW CEO, in an article published by Real Estate Business, where she said principals had to be wary when using the ‘carrot of bigger and better commission structures' to attract agents.
This approach could undermine an agency’s profitability and, ultimately, its survival, she said.
“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’,” she said.
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?
Ms Bennie said a large number of agents and well-known brands have disappeared from the market in the past 12 months.
But rather than “getting caught-up in the fee-debate, many of our clients with strong brands are demonstrating the ‘value add’ that they bring and are savvy enough when vying for the attentions of potential staff, to be able to spell-out in real dollar terms, what their brand, advertising or community involvement returns to its agents in ways of increased GCI.”
“All this taken in to account, there are still some businesses that are below the market in terms of commission splits and will continue to struggle to secure the more talented agents. We consult to businesses one-on-one around [this] strategy.
“Typically speaking, we work on a ‘3x’ principal [approach], that is, if an agent is on a $45,000 debit credit and a 50 per cent split, the business doesn’t make any money until that agent exceeds the 3x threshold i.e. $135K.
“This obviously increases to a 4x and 5x multiple if a business provides better training/coaching, administration support and company-paid advertising.”