According to Washington D.C. broker Ike Broaddus, a principal with Century 21 New Millennium, putting agents on salary isn't as scary as it looks. His company's been doing it for years.

While e-brokers and traditional franchises experiment with discount brokerage with leads followed up by salaried agents, Broaddus and his team have developed a salaried brokerage prototype that offers full service at full price commissions. He says his company can charge that because they are more efficient and do a better job for the customer.

Century 21 New Millenium is a real estate firm with 11 locations with 230 agents and is part of New Millennium holding company which also operates a mortgage and title division with 7 loan officers. It is the 7th largest Century 21 franchise, and is ranked 120 in Real Trends Top 500 brokerages.

"We operate differently," explains Broaddus. "We were looking to find efficiencies and to find a way consumers and agents could get more out of our company. We started a salaried office two years ago."

New Millennium's plan was to experiment with a different business model which would include a salaried staff and a transaction support staff. The Kingstown office in Alexandria, Virginia was chosen because it was outside the "Beltway" in a large planned development.

The office is designed to handle business all over northern Virginia, with some agents located as far as 50 miles from the office. Running the office are 25 employees - one branch manager, two team leaders, an administrative office manager, one transaction coordinator, one customer service representative, one team assistant, two rental specialists, and 16 buyer and listing specialists.

Agents are divided and compensated by seven categories of duties and expertise beginning with team assistants, buyer or listing specialists, rental specialists, and the highest paid plateau - team leader.

"Ten years ago, we hired our first salaried agent, and we started building our transaction system seven years ago," says Broaddus. "We have had salaried agents off and on ever since."

How well did the original salaried agents integrate with the independent contractors? "Not very well," admits Broaddus. "They got more attention because of the risk we were taking but we weren't seeing a difference in productivity and as times would improve, we had one employee who was hired in 1991 switch back and forth from salary to commission and back to salary four or five times until 1998.

"That's when we realized that the difference would be greater if we had them specialize," he says. "We didn't have anyone to show us the model and there wasn’t a mentor, so we have had to keep tweaking it over the years. I don’t pretend that we have it figured out, but we have only had to make minor adjustments since we added the team leaders and altered our bonus plan."

Kingstown sales agents get a base salary, and employee benefits including health insurance, 401K plan, cell phone, industry membership dues, a car allowance, performance bonuses, and profit-sharing. After six months, they graduate to a company car - a champagne colored Chevy Blazer outfitted with leather seats and with the company's Web site emblazoned on the side.

What do they have to do to be so well rewarded? Outsell the independents. According to Broaddus, the higher employee costs pose a greater risk to profitability, so agents must prove their mettle in short order. If a new salaried agent hasn't closed two units (sides) in his or her first month, employment is terminated.

"Our independent contractors average 14 units per person annually, which is better than the industry average around here of about 7 to 8 units per year," says Broaddus, "but the salaried agents are doing even better, averaging 24 units a year."

The salaried agents have also raised New Millennium's market share. "We are selling four times as many houses per the norm in our area," says Broaddus.

But the numbers aren't as hard to reach as they may sound. The salaried agent only works a certain part of the real estate transaction, with plenty of transaction management support from other team members. On operating efficiencies, for the same cost structure in terms of office support, Kingstown is able to do more transactions per person than the independent contractor offices, says Broaddus.

"We learned that when we make a hiring mistake, we need to solve it quickly," says Broaddus. "Not everybody is made for this." Yet, out of 27 people hired, Kingstown has only had to terminate three so far.

"We don't have a lot of agents at lower end of spectrum, we have the expectation that they take it seriously or they can work somewhere else. Our independent agents have to strive for 18 units per year, and each manager has the discretion to decide if someone is making the effort in their respective offices. Agents have to have a business plan, and they meet with the manager and the manager will hold them to the plan they have committed to work, and that plan has a minimum. We feel if someone is happy doing five deals a year, that they won't be effective for their clients or our clients' interests."

Broaddus feels he has found the answer to an industry-wide problem of agent productivity which is such a serious problem that he feels it is discouraging new people from getting into the industry.

Broaddus says the problem lies in the learning curve - too much to learn too soon."The problem with independents is they come into the business and if they haven't been licensed before they have to learn sales, management, rentals listings, presentations for buyers and sellers, mortgage and closings, and the scripts for all those things," explains Broaddus. "And there is the transaction management process as well. We expect them to learn all of that and to go represent people in all those areas with a couple of weeks of training.

New NAR research supports his theory. Most agents make $18,000 a year for their first five years in the business, while veterans can earn over $100,000, says NAR. Only 60 percent of agents work full-time, with those working part-time earning $9,000 per year.

"That's why this industry has such a high failure rate," says Broaddus.

With the salaried model, agents only need to learn their portion of the transaction process, and they have a chance to succeed before progressing to the next level.

Published: June 18, 2001

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