Why are brokers bad?
Melontherightcoast is this week’s “stray question” commenter. When discussing why agents do a poor job, mel asked about commissions. Yesterday, I wrote on agent commissions; mel mentioned broker office commission splits.
Another thought is that maybe what needs to be done away with is the real estate companies that take such a large cut of an agent's commission.
Here is a quick summary of broker-agent business practice:
An agent is the person you work with. That agent can either have a salesperson’s license or a broker’s license. The person running the office is the broker.
Brokers take a cut on everything an agent does. In exchange, the broker keeps the office going, provides leads and advertising, does ongoing supervision and is the legally responsible party to the seller or buyer client. Offices that have franchise advertising and support may be individually owned and operated, or can have corporate ownership with a managing broker. In those cases, the office also pays for the franchise services; this comes out of the agent’s commissions, one way or the other.
The broker-agent split varies from office to office and frequently is different from agents to agent within an office. Beginning agents pay a huge split to the broker who is supervising and training them. More experienced agents pay less. Some agents pay a desk fee, plus a lower commission.
Every time I was malcontent as an agent, I would go interviewing around. I was offered splits as low as 40 percent for my first three transactions every year, going up in increments to 55 percent. I was offered a split as high as 90 percent of all transactions with a $1000 monthly desk fee. Some brokers pay for MLS fees, classes, phones, advertising and lockboxes; some pay for nothing. In general, agents expect to net about one percent of what they collect at closing -- between what their brokers get and what they need to have to stay in business.
That’s the rub that mel was asking about. Would the real estate industry be better off without brokers taking so much off the top to keep the offices running? Somehow, I doubt it. There are a lot of very bright and dedicated agents working career-long under a broker. They must be getting their money’s worth.
There are also a lot of agents who hate sharing their commission. They get a broker’s license and open up their own shops. Some of them are not sufficiently experienced to do a consistently good job without supervision. Earning more per transaction does not motivate them to do a better job. Some of them are poster-children for the behavior I was whining about when mel chimed in.
So, I don’t agree with mel that the problem is the commission system or the broker fee system. The brokers system stinks, I agree. It makes the profit top-heavy and it doesn’t benefit the consumer. But I don’t think it is the underlying problem.
(I had to swallow hard before I wrote this): I agree with our Mr. Wang that the central reason that there are bad agents is that it is too easy to get a real estate license. People who come into the business are not prepared for how hard it is to make a living on commission. As I said before, they stink up the business as they fail out of it.
A salesperson’s license gives someone the right to train to be an agent. Where there are bright enough people and good enough training, good agents flourish. Where there is limited training and limited learning, bad agents arise. Training and supervision is the job of brokers. Some do it well.
What do you think? Is the problem the cost of broker supervision, or the lack of it?
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