Brokerages Look at Salary-Based Sales

A few years ago, it would have been unthinkable for a top-producing sales associate to work on a commercial deal for anything but commission. But you can’t say that anymore.

October 1, 2000

Increasingly, brokerages are offering their associates a menu of compensation arrangements, from the traditional commission to salary plus bonus to hybrid plans that cap commission in exchange for other incentives--and associates are going for it.

If there was any doubt that alternative arrangements are making inroads into the tradition-bound commercial brokerage business, that doubt was dispelled a couple of years ago when brokerage giant CB Richard Ellis began offering its associates alternative compensation arrangements. The lion’s share of the company’s associates continue to work for commission, but about one-fifth have opted for a salary-based arrangement, according to a report in Real Estate Forum.

Other brokerages have jumped on the bandwagon, including Philadelphia-based Binswanger Realty Group, which has 160 offices worldwide; New York-based Eastdil Realty; and brokerage giant Jones Lang LaSalle.

“Our clients have changed the way they want their services delivered,” says David Binswanger, president of Binswanger Realty Group. “They’re looking for a structure that lets them get the services they want without having to pay a percentage-based commission each time.”

Binswanger started offering brokerage services under a hybrid arrangement--capped commission, with additional fees for ancillary services--as a way to generate business beyond brokering the deal. In one deal, Binswanger capped the commission but more than offset the difference in income by offering ancillary services such as construction analyses.

In another deal, his company is acting as a tenant representative on a monthly-fee basis rather than on a commission arrangement. That means lower, but more steady, income for his company.

“It’s just a matter of time before you’ll start seeing different compensation arrangements no matter what market you’re in,” says Henry Scholz, senior associate broker at Hall Associates, a commercial brokerage in Roanoke, Va. Scholz is president of the Roanoke Valley Association of REALTORS®.

Hall hasn’t formally begun offering its associates alternative compensation arrangements, though some associates may work for alternative arrangements on a case-by-case basis, Scholz says. But it’s something to think about given clients’ changing expectations.

“It may make sense in some cases to offer services on a fee basis, because clients may want you to handle only certain aspects of a transaction,” Scholz says.

“In a lot of cases, we write contracts, but just as frequently we don’t touch them,” Scholz adds. “If you don’t write the contract, it may make sense for your client to work out some other arrangement with you.”

As in residential sales, one value of the salary-plus-bonus arrangement is in recruitment. “For a new commercial practitioner, the biggest problem has always been the difficulty of putting together that first deal,” says Marc Strauss, a senior associate at Marcus & Millichap, Boca Raton, Fla. “Offering a salary enables brokers to attract MBAs who’d otherwise go to Wall Street.”

What else is driving the move toward alternative arrangements? The Internet, some practitioners say.

Practitioners are no longer always the first place property buyers go to find out what’s available on the market. With sites such as www.loopnet.com and www.commercialsource.com available for searching listings, clients are increasingly tapping brokerages for other services.

“The industry is recognizing that clients want different levels of service,” says Scholz.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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