The Real Deal ZA
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The Real Deal ZA

The lockdown diaries, day #2 : Buying mandates and Salary vs Commission earners

Day 2 of our SA lockdown left me with quite a workout: building part of a rock garden and cycling an incredible 5km in the driveway. I see Strava activities comically filled with garden runs and some thrilling videos of jogs around the house. Some even recorded their lawn-mowing abilities.

The practice of buying mandates

I’ve been thinking that the economic impact from the Coronavirus lockdown will put many home owners under financial pressure. Those looking to sell will look for a quick, pain free sale. Who will help them best? Their stress will be elevated by:

Although this is solved in the US by the iBuyer (instant home buying), South African sellers will need to resort with the traditional process of trusted referrals or doing online research to find the best agent.

Even then it remains a gamble, especially when you get a few agents out to price your home…. It results in competition to get the mandate, and some agents will often overprice the home (sometimes fuelled by high expectations from sellers), or ‘buy the mandate’ as it’s known. The idea is that the agent can always price counsel the price down later with the owner and still make the sale. As I explained in yesterday’s blog post, real estate is a zero sum game, and winning that one mandate, means your competitor get’s nothing on his plate.

It is a big problem in the industry, resulting in homes staying on the market much longer and owners being forced to drop prices more than they really should. This was also confirmed in a poll I ran last year with agents:

I often think about this problem and what solution we can offer from a technology side. It is a frustration for many great agents I know, who will simply refuse to take a mandate they know won’t sell. For these agents, their track record and reputation is everything. How do we elevate these agents and make them the #1 choice for sellers (and in the process also remove some of the stress for home owners).

We've started to tackle this problem on our MyProperty portal with a unique ‘neighourhood expert’ feature, and will be expanded further in 2020 with some new features and hopefully some positive results to show:

Salaried estate agents vs independent contractors

It’s a stressful 3 weeks ahead for most commission earners, including estate agents. The majority of estate agents are employed as independent contractors and work on a commission only basis with varying splits, so there is little security and no UIF claims possible.

I ran a poll more than a year ago and about 1/3 of agents voted in favour of a fixed salary with benefits. The majority opted for a commission based salary as it provides them with certain lifestyle benefits (work my own hours) and a potential higher income (love chasing sales).

I’m wondering what agents would vote for right now. Few companies are able to provide agents with income security in this time of uncertainty and it is a hot topic in many Facebook groups. I know of some brokers who are helping their agents out financially, but don’t think this is the norm.

Wouldn’t estate agents want to work on lower commission splits and have some structure in place that gives them benefits like income protection and medical aid?

One company in the US, Redfin, employs agents and pay salaries including performance bonuses based on customer reviews (rather than the independent contractor model used by the rest of the industry).

Stats show Redfin agents are way more productive than their competitors in terms of sales done per agent. With a basic salary in place, Redin even decided to increase the the agents’ pay during this slowdown.

An opportunity for a South African real estate company to provide agents with a new model and more benefits?

Change is in the air

Stolen from a friends’ LinkedIn post, I thought this was very applicable, and to quote “Will the coronavirus be a catalyst for many people and organisations to stop saying “we’ve always done it this way.”?

Can you feel the change in the air tonight?



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