Employment Model: Employed vs. Independent Contractor

Key Takeaways

  • No traditional brokerage is legally allowed to enforce quality control for independent contractors; whether independent contractors choose to follow a standard of client service or a code of ethics is completely up to them. The enforceability of these standards is nonexistent. 

  • As a paid employee, lead agents and real estate associates will be subject to managerial standards of conduct and practice, training and education and a high expectation placed on the level of service provided to clients. 
  • As paid employees, agents and team members can achieve benefits including job security, paid time off, insurance and tangibles such as paid company mobile phone service or a company car. 
  • A paid employment model under a hybrid brokerage will allow the real estate industry to regulate the level of agent education, on the job training, communication, service and consumer satisfaction in a way that is not possible through the outdated traditional brokerage model employing independent contractors.

 

“The knowledge and competency gap from the most to the least is very large, due to the low barriers to entry, low continuing education requirements, and the lure of quickly making big dollars. For decades the industry has held the opinion that it’s a profession, however the reality is that those outside the industry don’t hold the same opinion. Most professions (doctors, lawyers, accountants, and engineers) require thousands of hours of study, beginning with a bachelor’s degree … But to become a licensed real estate agent requires an average of only 70 hours with the lowest state requirement being 13 hours.”  (NAR: The D.A.N.G.E.R. Report)

Under the current business model, no real estate brokerage is legally allowed to enforce quality control for independent contractors. In order for the level of knowledge and professionalism to rise, the Independent Contractor model must be replaced with an Employed Agent model in which agents are held to an enforceable higher standard of excellence.

Hybrid brokerage TRELORA is an example of the specialization model of employment. Specialist positions include paid employees in service to Buyers or Sellers (not both), and a differentiation between paid employees who work in the Field and those who work in the Office.

The system of training and accountability in place allows employees to master their specific skill set; there is no crossover of roles. There is a clear career path in place which allows employees to aim for professionalism and excellence, rather than trying to do a little of everything. A clear expectation of the standard of service offered to consumers at each stage of the transaction, and the ability to enforce it, help ensure a consistent experience for the consumer. Much like you wouldn’t want your heart surgeon to keep the overhead lights running in the operating room during a delicate operation, this system of specialization isn’t asking a real estate pricing specialist to conduct contract negotiations; a team of specialists is trained to expertly handle individual facets of the transaction. 

Under this form of hybrid brokerage, the company assumes full responsibility for quality control; the personnel in question are not independent contractors, therefore the organization is able to enforce these standards. The “accidental Realtor” phenomenon is eliminated.

This model holds benefits for agents as well; as paid employees, licensed agents and other personnel achieve job security and may qualify for health insurance, paid time off, a planned schedule and tangible benefits like a company laptop, mobile phone or car. The expenses of a traditional agent such as signage, continuing education and licensure become company expenses.

The average Realtor in the US closes 11 transactions annually. Based on the median sales price of Denver area homes, that equals an annual gross commission (in Denver) of about $90,000. Subtract the cost of doing business, including: Errors and Omissions insurance (the real estate version of malpractice insurance), office/desk fees (including commission share with the office), signage, fuel costs and continuing education; in the end analysis, 50-60% of a typical agent’s gross commission income covers the variety of expenses currently associated with conducting business as an independent contractor. There is a better way.