In real estate, the commission is sacrosanct. Or is it?
BY ROBERT FREEDMAN
If your bullpen is full of twentysomething sales associates, there’s a good chance almost half of them would like to be employees of your company rather than independent contractors, a survey by REALTOR® magazine in partnership with compensation specialist CompensationMaster finds.
The survey, conducted by e-mail in late 2007, collected more than 9,400 responses from practitioners around the country. It identified differences in associates’ career goals — differences that can help you tailor your offerings to the types of real estate professionals you want to recruit or retain.
Women, for instance, are up to four times as likely as men to seek benefits such as paid leave, maternity leave, and child care that maximize scheduling flexibility. Men are twice as likely as women to seek perks like office space and profit sharing that maximize their income and professional status.
Looking at practitioners by length of experience in the business rather than gender, the survey discovered that financial security is high on the priority list of veteran sales associates. By margins of at least two-to-one, these practitioners value benefits that help them extend and preserve their financial gains — options like life and disability insurance and 401(k) retirement savings plans.
Moving away from independent contractor status to employee status isn’t high on their agenda; in this group, only 13 percent say they’d like to be an employee of their brokerage.
Top performers, defined as associates closing at least $10 million in sales or at least 25 transaction sides a year, seek policies that help them maximize their income while they’re at their most productive. “They feel they only have so many years to produce at their highest level,” says David Cocks, managing director of CompensationMaster in Charlotte, N.C.
Younger associates: job security
What’s the best thing to offer your sales associates under 25 who appear to be faltering in their new careers? Possibly a salary and career plan.
Although young associates seek the kind of unlimited earnings potential real estate sales offers (78 percent say that’s key), their most frequently cited reason for making a change in their affiliation is increased financial security (51 percent) and not more money (32 percent). Financial security is defined as having a predictable income rather than merely making more money in any given year.
“They’re looking for the opportunity to get into this industry” and quickly move beyond any initial roadblocks, says Cocks.
Indeed, almost 60 percent of this youngest group rates job security very high, compared with only 50 percent for practitioners 25 to 55 years old and 40 percent for those over 55.
Young practitioners also give far less weight to setting their own hours, 46 percent compared with about 58 percent for the two older groups; that suggests that for the under 25 set security trumps the independence traditionally prized by the industry.
Women: navigating dual roles
For women, scheduling control is paramount; they’re four times more likely than men to want parental leave and time off, preferably paid, to care for others.
They’re also about 15 percent more likely to want to set their own work hours and 40 percent more likely to make job security a top priority.
One way of interpreting these and other results, like the higher incidence of men as top performers, is that women are making a trade-off: sacrificing the opportunity to make more money in exchange for the time and security to manage their dual roles in their families and in the workplace.
That might be why women are 18 percent less likely to want to be independent contractors, and about 22 percent more likely to want a salary or salary-plus-bonus arrangement than men.
Veterans: taking control
By the time sales associates have been in the trenches at least five years, they’re considerably less worried about the unpredictability of their income than are their less experienced colleagues.
Less than a quarter of these veterans say that income uncertainty is a major concern, compared with almost a third of the others.
Likewise, experienced associates have almost 30 percent less concern about handling their own car, gas, and other business expenses than their least experienced colleagues, and they’re almost 15 percent more likely to choose a commission-based compensation plan.
“They’ve been able to achieve a certain level of financial success,” says Cocks. “They don’t need the money per se on a daily basis.”
What they do seek is more control: over the technology and marketing services they pay for; the taxes, Social Security, and Medicare liabilities they face; and the flexibility they have for switching brokerages. Almost half of them say they want switching affiliation to be easy.
Top performers: consolidating gains
Not surprisingly, associates who close $10 million or more or handle more than 25 transaction sides a year have little concern about meeting their monthly expenses. Only about 12 percent says its monthly income is a major preoccupation, compared with a third of associates who are still trying to break that $1 million volume barrier.
Top performers are also far less likely to be concerned about meeting their monthly marketing and other expenses and handling their tax obligations.
At the same time, the traditional attractions of real estate sales — being an independent contractor, being one’s own boss and managing one’s own time — remain far more important to them than to their modestly achieving colleagues.
What they do want, like their most experienced colleagues, is to minimize Social Security and Medicare taxes paid out of pocket and to stay in control of the technology and marketing costs they pay for. The benefits they value the most are life insurance and a 401(k) or other retirement plan.
For some of the top performers, the road to minimizing their out-of-pocket taxes might be through a salary-plus-bonus compensation arrangement. Although the vast majority of these associates are compensated on a conventional commission basis, the same as for others, more than 4 percent of them are compensated by a salary-plus-bonus arrangement. That remains a tiny share of their ranks, but it’s more than twice the share among the lowest performers and more than four times the share of middle performers, those closing between $1 million and $10 million.
Putting it all together
Given these different preferences, how you recruit and retain productive sales associates becomes a function of the kind of associates you want.
“If you’re trying to fill your ranks with new associates, there might be a better way than reaching out to them with the traditional independent contractor relationship and focusing entirely on the size of the commission split,” says Cocks.
“An employee relationship that offers them some steady income and paid time off might be the way to go,” he says.
Conversely, if your goal is to have an office of experienced hands, the traditional arrangement with higher commission split is already tailored to their needs. But you might retain the flexibility to also offer a salary-plus-bonus arrangement to attract high performers who want to minimize that annual tax bite. The out-of-pocket tax expense is lower for salaried staff because the employer covers half of Social Security and Medicare taxes. Independent contractors must pay the entire amount themselves.
In any case, you should look at your mix of sales associates and compare it to the ideal mix you’d like to see for your brokerage, says Cocks. Then, begin to close the gap between what you have and what you want based on the kinds of things your associates are seeking.
“The results show one size doesn’t fit all, so take a look at what you’re offering and see how you might tweak that to attract the people you want,” says Cocks.
Source for charts on the following pages: Independent Contractor vs. Employee Survey, November 2007, REALTOR® magazine and CompensationMaster. Choices don’t apply to all respondents in every case, so responses won’t equal 100 percent.
| What type of position would you like to have? |
| (Percentage answering “very important,” by age) | -25 | 25–55 | 55+ |
| Employee paid by commission | 11.11% | 8.21% | 5.82% |
| Employee paid by salary | 4.04 | 1.86 | 1.56 |
| Employee paid by salary & bonus | 30.30 | 20.42 | 17.02 |
| Independent contractor paid by commission | 42.42 | 55.35 | 61.91 |
| Independent contractor paid by draw against commission | 9.09 | 7.45 | 7.43 |
| What would be your motive for a change in situation? |
| (Percentage answering “very important,” by age) | -25 | 25–55 | 55+ |
| Earn more money | 32.32% | 34.01% | 32.60% |
| Increase financial security | 50.51 | 48.27 | 44.10 |
| How important is . . . |
| (Percentage answering “very important,” by gender) | Female | Male |
| Steady income | 54.83% | 43.14% |
| Job security | 53.20 | 38.26 |
| Setting own hours | 61.42 | 52.86 |
| How important is . . . |
| (Percentage answering “very important,” by annual sales valume) | Below $1m | $1–10m | $10m+ |
| Being my own boss | 46.69% | 53.71% | 65.61% |
| Having control over schedule | 56.49 | 59.04 | 65.28 |
| Changing affiliation easily | 43.60 | 44.96 | 48.08 |
| Having steady income | 55.29 | 47.33 | 41.24 |
| Job security | 51.89 | 44.19 | 41.40 |
| Brokerage covering marketing, tech costs | 37.47 | 27.03 | 22.87 |
| A major factor for me is . . . |
| (Percentage answering “very important,” by years of experience) | Below 1 | 1–5 | 5+ |
| Monthly money worries | 30.22% | 30.32% | 23.79% |
| Covering business expenses | 21.49 | 18.41 | 15.52 |
| Covering own marketing, etc. | 21.72 | 15.71 | 18.59 |
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