Recruiting New Agents Is Critical for Real Estate Companies

Dear Monty: I have bought and sold several homes as a relocating employee. I have always been curious about how real estate companies establish commissions for their agents. My experiences have ranged from poor to good. Can you explain the system?

Monty's Answer: The majority of real estate companies that rank high in their local markets use a system that is over 100 years old. The vast majority of real estate agents are independent contractors. Commissions and how they are earned is an important issue. Some real estate companies' main recruiting effort is poaching agents. Other companies prefer to contract with new recruits. The way commissions are shared varies from company to company. The one common factor is all companies recruit if they want to grow. That is because all agents produce revenue, and some produce a lot more than others.

8 FACTORS THAT AFFECT AGENT PRODUCTION

No. 1: Diverse agent pool: A wide range of agent types exist, from highly motivated and customer-focused (type 1) to those who are lazy or have ulterior motives (types 3, 4 and 5). Companies need to constantly recruit to attract or find those rare type 1 agents while also maintaining a large enough pool to generate revenue. How a rookie will develop is difficult to predict. (There is detailed information on the eight types of real estate agents and their motives on my website.)

No. 2: High turnover: Many agents, especially those falling into categories 3, 4 and 6, may not last long in the industry. This necessitates ongoing recruitment to replace departing agents.

No. 3: Performance variability: Production shows a wide range of performance levels. This aligns with the diverse motivations outlined in the image. According the National Association of Realtors (NAR), the median number of annual agent units is 10 transactions.

No. 4: Commission structure: As mentioned earlier, newer agents typically receive lower commission splits. This benefits the company financially, especially when considering that many agents (types 2, 3, 4 and potentially 7 and 8) are unlikely to be generate significant revenue.

No. 5: Revenue potential: A larger number of agents, even if many are part-time (type 7) or new (type 8), allows the company to gain revenue.

No. 6: Potential for growth: While experienced agents may be skeptical of new agents, some new agents can be highly successful. Companies recruit to find these potential stars. They achieve a high percentage of the commission, but volume justifies it.

No. 7: Motive screening: Most companies try to screen, but no applicant ever admitted to being incompetent, dishonest or lazy. This is because they do not see those red flags in themselves.

No. 8: Offsetting self-interested behaviors: This is handled after they have been working with customers. Customer complaints or little to no production over time may cause a termination.

New talent to grow a balanced, productive workforce while managing the turnover is never ending. Because the company knows it cannot accurately predict which new recruits will grow and do well, struggling agents are given time to produce results by practicing on real customers. The best way for consumers to protect themselves is to interview multiple agents. Yes, it takes extra effort, but your home is likely your most significant investment. The only two options are to continue to stay put or do it yourself.

Richard Montgomery is a syndicated columnist, published author, retired real estate executive, serial entrepreneur and the founder of DearMonty.com and PropBox, Inc. He provides consumers with options to real estate issues. Follow him on Twitter (X) @dearmonty or DearMonty.com.

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