Sands Agents Given Option to Pay Only Brokerage Fees

It should come as no surprise that the business of selling real estate is undergoing some rather uncomfortable changes.

There are currently only about 800 residential sales a month in the San Fernando Valley, not enough to keep its 7,700 real estate agents busy. Most agents just aren’t producing enough business, making the few that are producing well a valuable commodity.

All this may help explain why Fred Sands Realtors announced this winter that it would be offering agents the option of keeping 100% of their commissions and instead pay Sands for its brokerage services. The rationale for this new commission structure is that so-called 100% companies have been doing very well by just collecting fees from their agents. And, offering 100% commissions is also a good way to retain really top producers.

The changes happening at Sands and other local brokerage firms aren’t just a matter of internal affairs at these companies. They’re yet another reminder of how important it is for prospective sellers to ask lots of questions when interviewing prospective agents. Agents have all sorts of arrangements these days with their brokerage firms, and the nature of these relationships can make a big difference when it comes to selling a home.

Usually 6% of the sale price of a property is a commission: half goes to the brokerage that lists the property for sale, half to the brokerage that actually finds a buyer.

Most Sands agents will continue to pay between 25% and 50% of their commissions to Sands. These standard commission arrangements make up the bulk of most agent-broker relationships. The brokerage usually provides the agent with a desk, phone, secretarial services, plus advertising and promotion. Not every agent, however, is afforded the same budget for all these items, and some get more support from their companies than others.

Under the 100% commission plan, agents get to be entrepreneurs at the brokerage. The agent pays for all services rendered by the brokerage, and advertising is paid for by the agent. Sellers need to be sure that the agent has pockets deep enough to keep marketing a home when months may go by without an offer.

At Sands, the 100% commission option “has no effect on buyers and sellers,” insisted Judy Christy, vice president and regional manager for the Valley. None of the agents at her Studio City office have even decided to accept this option.

“It can be an expensive proposition for an agent,” said Christy. Sands charges from about $237 to $775 per month for a desk, plus added fees for everything else.

“It would be very wise for a potential seller to inquire what their agent’s arrangement is,” advised Roger Ewing, regional director and partner at The Prudential California Realty in Calabasas. “Sellers should ask whether they have resources of one agent, or of a whole company.” Sellers should also find out if the advertising budget goes to promoting properties for sale, or merely PR campaigns for individual agents.

Affiliates of The Prudential offer their agents a standard 50% to 76% cut of the usual 6% home sales commission. “Our agents like to be under the umbrella of a full-service company,” Ewing said. The really elite agents don’t get to keep all their commissions, he said, but the brokerage helps find them personal assistants and often pays their salaries. Top producers are also given more generous advertising and perks.

“We don’t offer a 100% concept. The end result is that you get less client service,” Ewing said. “We have set budgets for marketing and advertising,” he added. “Left to their own devices, agents who pay for their own advertising will cut back when they have to.”

Another broker who has his doubts about 100% commissions is Steve Owen, the 1991 president of the San Fernando Valley Board of Realtors. This month, he closed his Century 21 franchise in Mission Hills and became a broker associate at R.R. Gable Inc. in Northridge.

Owen gave up on his office because “nobody was making any money,” he said. Only two agents out of 16 managed to close an escrow in the last six months. Owen offered his agents up to 90% commission, but that wasn’t enough to generate business.

Brokerage companies that offer 100% often end up attracting two very different types of agents, Owen said. Top producers like not having to split commissions. And, non-producing agents like being able to pay a minimal monthly fee for their desk without getting hassled about the fact that they’re not generating business. “It can lead to a real lack of supervision,” he said. “I don’t believe the client gets good service.”

Brokerage firms that offer 100% commissions to their agents are nothing new. The concept has been around since the mid-1970s, and several companies swear by it. For example, nearly all the agents at S.J. Heritage Inc. in Northridge and Tarzana are on the 100% plan.

“There’s no doubt that in a good market, conventional split commission brokerages will make more money than we do,” said John Maquar, president of S.J. Heritage.

But in this market, he said, getting agents to pay for all their overhead is the way to go. Some agents pay as little as $95 a month. At S.J. Heritage most agents pay about $155 a month for a desk, receptionist and some secretarial support. S.J. Heritage also earns money by arranging for advertising and through its escrow and mortgage operations.

To keep things professional, S.J. Heritage only accepts seasoned agents who can actually make a go of it with minimal support from the brokerage. The brokerage also does have a few agents who do give up some of their commissions in exchange for a more structured environment. On 90 days notice, however, they can become part of the 100% club.

As for Sands, he decided to keep the fixed monthly costs relatively high so that only successful brokers will go for 100% commissions.

“It’s too expensive for someone making no money,” Christy said. Besides, she said, “we fire people if they don’t generate business.”