As we know, the traditional model of British estate agency is based on a hierarchical employment system - usually, owner/director, manager, listing agents, negotiators, sales progressors and administrators. These are usually paid a salary, with mostly client-facing agents also paid a commission per sale, either individual or pooled, possibly with the occasional company-wide bonus when things are going well. Commissions are sometimes target-based and/or tiered.
Results-based targets are not unreasonable, but they can be tricky if they are based on, say, completions rather than market share, because if the market does well, so does the lister/neg so the firm pays out on the back of the market, and not necessarily the proactivity of the agent.
Conversely, if the market performs poorly, the lister/neg is penalised through no fault of their own, which is not great when they have their own bills to pay. Additionally, the burden of salaries to an agency, as a fixed cost, can be huge, especially during the tougher times that inevitably present themselves during various economic cycles.
The ratio of salary to commission can actually be counterproductive. Let’s say an agency pays 10% -15% of sales revenues, which make up a third of the agent’s income, the remaining two thirds being made up by salary. Firstly, it could be a year or two of paying a salary, plus NI/Pension contribution, holiday/sick pay etc, before realising that the agent is not really delivering and you have to let them go. Costly! Secondly, such a low commission split (often off the back of a pathetic <1.2% client fee) simply doesn’t offer agents an incentive to do especially well. In fact, the salary can actually keep them “almost comfortable”. This is hardly attractive to the type of ambitious, successful and self-motivated agent you would hope to recruit. They simply can’t make serious money in that environment – so they end up leaving and opening up in competition with you (possibly as a personal agent themselves!)
The top performers
But what if you didn’t have any salary, NI, PAYE, Pension, Holiday/Sick pay responsibilities, but instead only paid commission as a direct cost per sale? Like an internal “no sale- no fee!” You’d never have to worry about the cost of recruiting that extra lister or negotiator. In fact, you could recruit as many agents as you like - but you’d only have to pay them if/when they perform! Great if they do, but no real problem if they don’t.
And it gets better - which agents would you attract? The top performers! Those who have already proven themselves in the area. Those who feel assured that jumping ship to a self-employed commission-only model would not be so much of a risk, but a reasonably assured opportunity. And because they get to keep a substantial percentage (say 50-80%) of the fee you receive from a client, they have a serious incentive to deliver, so you get the very best out of these top performers. And guess what? Until they joined you, these superstars probably worked for one of your competitors. So your market share begins to rise noticeably as your competitors’ falls. Double whammy!
In such an environment, where your agents are self-employed but acting under your brand, (and probably, but not necessarily, based in your office), you can now focus more fully on building a business – possibly even one that takes over the whole town and beyond. You have effectively become a “brokerage”. This means that you can also go on holiday without any worries about the cats playing while you are away. You have lower costs but greater opportunity.
It might even be that your agents themselves want to develop their own businesses by recruiting agents of their own, from whom you could receive an indirect revenue stream.
Your own steam
But for many agency owners currently in the process of switching to this model (and there are more than you might expect), one of the greatest attractions is legacy. Unless you have a large lettings portfolio, most sales agencies are not especially valuable in their own right, despite your years of grafting. This is because you are not only “as good as your last sale”, but the business might be reliant on your own day-to-day personal involvement too. Without you, where does the value lie? But a brokerage very much stands on its own two feet, with or without you! So by switching your business to a self-employed brokerage model, you don’t need to sell it when you want to retire (although you could). This is because the business can potentially continue to deliver the same revenue to you in retirement as it did beforehand, but with minimal involvement on your part.
You could of course just move to this model under your own steam today, which could make sense. However, before doing so, do consider the benefits of doing so under one of the established pioneers in this specialist area, eXp, The Property Experts and TAUK, especially as there is not necessarily any requirement to change the brand you have worked so hard to develop. There are considerable economies of scale, referrals and growth opportunities for the agency owner who wishes to be “less agent” and more “businessperson”!
I’m familiar with the relative merits of each of the main “personal agent” businesses in the industry, so if you’d like a confidential chat before approaching any of them, please feel free to contact me. Richard@Rawlings.info
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