REALTOR® Magazine Online: Common Commission Options

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Hiring Personnel
Structuring Compensation

Offering a competitive commission is a key to hiring and keeping top performers

Assessing Personnel Needs

Advanced-Beyond Job Descriptions: Job Matching for Real Estate Sales

Recruitment Planning

Advanced: What Top Performers Want from You

Recruiting Salespeople

Advanced: Tips for Recruiting the Seasoned Professional

Recruiting Support Personnel

Advanced: The Family and Medical Leave Act

The Interviewing Process

Advanced: Behavioral Interviewing

Tips for Selecting a Psychological Test

Structuring Compensation

Advanced: Compensation Tips for Management Personnel

Common Commission Options

According to the 2003 NATIONAL ASSOCIATION OFREALTORS® Member Profile, 73 percent of REALTORS® work on a split commission basis and 20 percent work on a 100 percent commission.

Split Commissions. Often expressed as a percentage (50/50 or 60/40), split commissions give both the company and the salesperson a portion of the monies earned when a property is sold. Generally, as salespeople earn more, their share of the commission split rises.

Pros

Your gains can be greater when salespeople are successful.
Your sales force has unlimited earning potential.
Most sales associates are accustomed to, and thus more comfortable with, this option.

Cons

You may not make much money if the market is slow, or salespeople don't produce.
Desk costs are generally low, so you don't have a set level of guaranteed income to cover costs.
You must often absorb some office costs, such as stationary or technology, without directly recouping costs from salespeople.

TIP: Base splits on productivity, not longevity. —David Cocks, Compensation Master Corp.,in Management Trends and Issues, Vol. 15, No. 6, December 2000

100 percent commissions.The salesperson pays the company a higher desk cost and usually pays for most or all business expenses.

Pros

You have a high potential for earning profits if the salespeople are successful.
Such a program is often particularly attractive to experienced, high-production salespeople.
You are guaranteed a more predictable monthly income from predetermined desk costs.
Your advertising costs and services are probably lower since salespeople bear more of these expenses.

Cons

The program is not well suited to inexperienced salespeople.
You have less control over salespeople, which makes it more difficult to run your business.
The sales force is likely to place their own interest over those of the company.

Salary or salary plus commission. Although still representing less than 5 percent of all real estate salespeople, salaried positions give brokers more control over salespersons' activities.

Pros

Such a plan is good for recruiting inexperienced salespeople, who need an income while learning the business.
You can supervise and direct salespeople more closely, making it easier to operate the company as a team.
The ability to exercise more supervision may help reduce errors.
Having a salary may help an experienced salesperson in a slump from leaving the business.

Cons

Commissioned salespeople have an incentive to work harder and thus earn more.
You have fixed salary costs even if salespeople are not producing.
You will be responsible for paying portions of Social Security and other withholding taxes when associates work as employees.
This plan would probably appeal more to low producers than to top performers.

TIP: Consider offering several compensation plans so that sales associates can chose the one that best fits their personalities and abilities. —David Cocks, Compensation Master Corp., in Real Estate Broker's Insider, Alexander Communications, May 1999

TIP: Salaried commission plans often work well for brokerages offering limited service options.

5 Salary Variations to Consider >

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