Compensation plans: 5 questions to ask before talking fees

BY NICK MALOUFF

Whether you are a new agent looking for the first place to hang your license or an experienced agent contemplating a move, compensation plans are an important part of the decision-making process. In addition to commission splits and caps, compensation plans also include the fees agents pay to brokerages.

In my experience, the first question most potential agents ask is: “What are your fees?” It’s a good question, but I believe there are better ones to ask and more valuable ways to evaluate a potential brokerage before discussing fees.

Business plans

This one is more of a soul searcher, but let’s start at the beginning. Real estate agents are self-employed, which means their money-making activities are self-directed. For many agents, that direction is laid out in a business plan.

Having a business plan is an important step in evaluating compensation plans. Without understanding your financial goals, it’s difficult to evaluate the various financial investments you make in your career — such as brokerage fees — to achieve that plan.

Business plans should be built around your strengths. If you haven’t asked yourself “What are my strengths?” this is a great time to do it.

Support

So that leads to the first question I recommend asking a potential broker: How will you help me meet the goals I have outlined in my business plan?

Full-service brokerages have dedicated staff available to help agents refine their business plan and build in the expenses needed to achieve targets. Most also provide training to help develop skills and schedule personalized accountability coaching to help agents execute their plan.

In contrast, limited-service brokerages don’t have the personnel to provide this level of support and instead rely on mass-produced training programs and videos.

When evaluating the type of support a brokerage provides, agents can ask:

• What is the staff-to-agent ratio for support services at your firm?
• How many on-site people do you have for agent support services?

Knowing this number can help determine if a brokerage views its relationships with agents as a partnership or as a transaction manager.

Productivity

The next question an agent should ask a potential broker relates to productivity. Getting an idea of how many deals agents do, broken down by experience level, should give an indication of how well the brokerage is developing its agent roster. Ask:

• What is your average per-person productivity?
• What about at my experience level?
• How does that relate to the market overall?

As I said at the start, if you have a production goal in mind — units, volume or take-home pay — you can have a good conversation about productivity, and more importantly, you can have an “apples-to-apples” look at what different brokerages can provide to get you there.

Collaboration

Being in business for yourself doesn’t mean you have to go it alone. Brokerages that foster a culture of collegiality understand that together we can do more. Look for an environment in which people are willing to share what they know. Ask:

• How would you describe your company culture?
• Do you have a mentor program?
• You can also ask to speak to a few agents to get their points of view.

Fees

By now, you should have gathered a great deal of information about the brokerage, and you can ask your final question, which is, yes, about fees. At this point, you will have a sense of the level of support the brokerage is providing, and you can determine if you believe it’s worth the investment in the fee structure.

Newer agents should expect to pay more in fees because they typically need more support. That said, experienced agents still need a brokerage that will help them sustain and grow their business, but because they need less support, their fees might be lower.

At either level, compensation plans should have variations that reflect the level of support provided as well as offer rewards for higher productivity.

At the end of the day, fees should not be viewed as a number but as a value. If the return on your investment is deemed high, then the fees have a potentially high value. With any business, what you put into it directly relates to what you get out of it.

Nick Malouff is the President and CEO of Better Homes and Gardens Real Estate BloomTree Realty in Prescott, Arizona. Connect with him on LinkedIn. 

Article Originally appeared at inman.com on 9/29/2020