Alternative real estate compensation models: tipping and pay by the hour

Adriaan Grové
Jan 14, 2020 · 5 min read

updated: 4 April 2020

Justifying their commission is something every agent will run into with a seller at some point. At the same time, consumers face a lot of risk using a random agent. I was wondering about compensation models for real estate, and came up with these alternatives:

1. The case for tipping

In a service industry we tip people for the work performed and generally, a bit higher the more awesome the service we’ve experienced. Real estate is a service industry. So why can’t tipping work in this space?

This is the question James from Homebloq asked in the following article, have a read:

I guess tipping can work as long as the base operational costs are covered and maybe shown to the seller, but it still requires a lot of faith in your seller..and your own skills.

2. The case for hourly fees

While set fees are nothing new (e.g. Purple Bricks, Eazi models) it still takes averages selling times into account as per traditional commissions: if your home sells in 1 day or 10 days, that fee stays the same. If your home sells in 2 days you are paying the price for an overpriced home that took 90 days to sell (including a couple of tanks of petrol for the agent on that deal). This is why the fixed fee model is so hard to nail, you need a lot of volume to compensate for all the expenses.

The New York times touches on the idea of hourly compensation for agents:

Which leads to the question: if estate agents are paid by the hour like other professions (e.g. doctor), would this lead to overall better time and cost management for everyone involved in the transaction? As an added bonus, more serious sellers & buyers that will understand the concept of time = money? Personally, if I know I’m dealing with a highly qualified professional agent who has a brilliant track record, this model would certainly interest me. Running Entegral, this model of time=money is something most business owners understand.

I think this is where the ‘technology enabled agent’ can have an advantage: use tech tools to streamline the process, optimise costs and save time, which allows for flexibility in adjusting your hourly rate. A track record would be important here to show sellers how much time you typically spend on the average home sale.

3. The case for itemised billing

Fuel, car maintenance, (high) portal fees, flyers, phone bills, data costs, desk fees, registration fees, training costs…. it just all adds up, and why negotiating on their commissions, is tough for most agents and brokers. This is elevated in a franchise environment with royalty fees added on top.

Maybe the sweet spot lies in a combination of hourly and fixed fees, rolled up into an itemised bill that can be shown to your client? The advantage of such a model is transparency. Show me a consumer who wouldn’t love transparency when dealing with such a high value sale? Agents can showcase previous itemised billing statements for home sales to give consumers a feel of what to expect. Maybe consumers would then opt to eliminate some particularly high costs — e.g. portals that charge too much.

4. The case for a pure performance based fee

Brendon from the Real Estate Company suggested a pure performance based model, which I think is quite innovative — here is his idea:

5. Last but not least, fixed salaries

Most real estate agents work as independent contractors for their real estate agencies. For a few companies like Redin, the model is very different: their agents are employees, so they enjoy benefits like healthcare, paid leave, parental leave and income protection. Redfin agents do more transaction sides compared to the rest of the industry, so a more optimized business model.

For the time being, the traditional commission model that favours high splits to attract top agents is still the way to go. Time is also the variable in all these models and where the iBuyer model is taking advantage: guaranteeing the home sale closing date and price, and why I believe this model will grow leaps and bounds.

Would love to hear your thoughts, leave your comments here or head over to The Real Deal forum thread to discuss.

If you are a South African or Namibian estate agent, head over to Entegral to check out our range of products that puts you in full control of your data and allows for highly customized real estate websites for the next generation of real estate agencies.

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