Posted on Jun 02, 2021
Real estate marketers are constantly telling us that the agent works for the vendor, and will get the vendor the best price. The cynical might well correct that advertising hype by saying that the reality is that the agent works for themselves. Most agents work on a sales commission basis, with the conventional commission structure being based on a tiered commission with the first tranche of the selling price paid at a higher percentage commission than the balance. If indeed sales agents are incentivized by commission to do a better job for the vendor, then why are marginal additions to the sale price rewarded by a lesser commission than the first, and easier to achieve, portion?
Common sense would have it that marginal gains, which are usually the most difficult to achieve, should be rewarded by a higher commission rate.
Surely doing the easy part deserves the least commission, and achieving the hardest part deserves the most. Unfortunately the current structure confuses what should be a straightforward issue. Agents naturally maximise vendor’s price expectation in order to obtain sales agencies. Then they have to expend energy beating down that vendor’s expectation (commonly called conditioning) once they win the agency and go to market.
The energy that goes into conditioning clients would be better placed if channeled into the process of utilising sales and analytical skills and technology to achieve the best result. Perhaps incentivizing of agents using commissions would be more effective if higher commissions were paid for the marginal increments. Which would of course have the added benefit of reducing the temptation to unrealistically exaggerate expectations.
Perhaps it is time that some agencies broke ranks and had a re-think about how their commissions are structured ?