Hiring & Compensation Practices in Real Estate

Instructor: Ellen Knecht

Ellen is a Realtor with many years of experience. She has a Bachelors Degree in Communication and Public Relations and a Masters Degree in Diplomacy and Conflict Resolution.

In this lesson, you'll learn about recruitment and hiring practices in real estate offices and examine common forms of compensation for real estate professionals.

Hiring Practices

Once upon a time it was enough to let any real estate professional join your team because the larger your team, the more potential for income for your company. In today's competitive market, most real estate offices are more strategic when choosing who to recruit and hire.

Recruitment

Many brokerages seek to recruit experienced agents with a proven track record of sales. This often involves looking for professionals who are top producers at competing companies and finding ways to lure them to your own firm.

Presenting a unique value proposition, which is the value your company can deliver to agents who choose to join your team, is a common way to attract experienced agents. Your value proposition may involve attractive compensation packages, a strong company culture, mentoring and training programs, or a positive work environment. When developing a value proposition, you should consider how you can best meet an agent's needs and solve their problems.

Of course, recruitment does not need to be limited to people already in the business. Many real estate offices choose to recruit up-and-coming agents as well as seasoned agents who are looking to make a move to a new office. People who are motivated, energetic, ready to go the extra mile and follow your direction will likely provide you a great return on your investment. Individuals who are new to the business need to be trained, and it may take a while for the investment to be profitable, but having the opportunity to mold someone and watch them grow can be very rewarding.

Training

Real estate professionals should be licensed before handling transactions. Licensing is mandatory for work, but often does little to prepare agents to handle day-to-day tasks. This is why many companies offer in-house training for new agents as part of the hiring process. Training is often focused on contract writing, working with buyers and sellers, listing presentations, marketing, and negotiations.

Real estate professionals need ongoing continuing education in order to keep their license. Providing this training can offer huge appeal for professionals who are considering joining your company. Ongoing training can also be used to increase productivity, efficiency, and output.

Compensation

Real estate offices typically use one of the following compensation models:

  • Traditional commission sharing model
  • Office fee model
  • Salaried agent model

Traditional Commission Sharing Model

Most real estate offices use a traditional commission sharing model that compensates agents through commissions. A sales commission is typically calculated as a percentage of the sale price. For example, a 5% commission on a $200,000 home sale is $10,000 in total commission.

Sales commissions go to the brokerage that the agent works for and are then split between the agent and the broker. This is known as a commission split. Newer agents are often given smaller percentages of the split, while top producers are commonly given larger splits. For example, after an agent gains experience or makes a certain number of sales, their split may change from 50% to 60% and increase as sales increase.

Less frequently, a real estate team will split the commission between themselves. For example, one member of the team may handle all listings, another all buyers, and a third the paperwork and transactional items. At the end of the transaction, the commission could then be split three ways.

Office Fee Model

The office fee model pays an agent higher commissions from sales (sometimes up to 100%) in exchange for monthly fees for desk space, tech access, and other services. For example, agents may pay desk fees, which compensate a company for overhead expenses such as office space, or tech fees, which cover the cost of phone or internet service. Under this model, agents may be responsible for their own advertising and marketing. In other cases, the agent may pay advertising fees to the company.

The office fee model can be particularly appealing to high volume real estate professionals because commissions are significantly higher when they don't have to be shared with the firm, and the fees are set, which means agents pay the same amount regardless of how many properties they sell.

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