To be the best brokerage, you have to hire and train the best agents. This is Redfin’s goal. In our mind, the best agent is the one who gives the best service, not gets the most clients. This is why we survey the past clients of every agent who wants to work here, to ask about his or her service. We only hire one out of every 25 agents we interview.
But how much do we pay the 25th guy? If you give the best service, you should get the most money. So every year, we compare pay between the average Redfin agent and top-producing agents everywhere else. Here’s how:
- Full-timers only: We take all the agents in a market, and exclude anyone who only closed one or two deals as part-timers, dabblers, newcomers. In 2011, this was 43% of the work-force.
- Top 15%: Then we look at what an agent in the 85% percentile of the remaining full-timers earned in 2011 gross commissions before paying a desk fee or commission split to a broker like Century 21 or Coldwell Banker.
- 20% split: We assume each agent paid 20% of gross commissions to the broker and kept 80%. We call the 80% left to the agent his net commission. The last time we did this analysis, we assumed the agent kept only 70% but that was too low: top producers usually do better than that.
- Costs: Then, to calculate net pay, we subtract costs for health-care, gas, payroll tax, dues, phone bills and computer equipment. Redfin pays for all of this for our own agents. We assume that top producers do not have an assistant or a transaction coordinator, even though most do, and virtually all Redfin agents do. We assume that top producers buy mobile service and health-care at our rates, even though they can’t even come close, and we hold annual equipment costs at $1,000 even though this is less than the cost of a phone and an iPad, let alone a computer and a printer — all of which we provide to our agents.
- Compared to Redfin employees: Then we compare this to the earnings for agents who worked at Redfin for all of 2011, as reported by Redfin to the IRS. We include agents who led local teams, but not our field agents. Team leads still represent customers directly but field agents mostly work part-time to host customers on home tours and inspections when the customer’s agent is out of town or busy — a field agent doesn’t represent Redfin customers in a sale.
On Average, Redfin Pays 31% More Than the 85th Percentile of Full-Time Agents
The results show that in 2011 Redfin paid well in many markets, and fell short in one or two.
|Market||Other Agents’ Net Commissions||Other Agents’ Net Pay||Redfin Pay||Delta|
Table 1: Pay for Full-Time Agents in the 85th Percentile of 2011 Gross Commissions
To calculate a traditional agent’s net pay, we assume the agent had to bear the following annual costs:
|MLS Dues, Education||$783|
Table 2: Expenses Borne by Traditional Agents
After analyzing these data, Redfin last month significantly increased base pay for our San Francisco Bay Area agents, as this market is more expensive to live in, and traditional agents there have recently made more money. My bad, Bay Area team.
And across California, DC and elsewhere, we expect that Redfin’s customer-satisfaction bonuses will be much higher in 2012, because 2012’s bonus for a happy customer is now much higher for agents serving high-end neighborhoods. My guess is that Redfin agent pay for 2012 will significantly increase in our most lucrative markets.
Forget the 85th Percentile. What About the Typical Agent? How Much Does He Earn?
Comparing average Redfin pay to what traditional full-time agents earned in the top 15th percentile is useful, but what about traditional agents in the 50th percentile? If you take all the agents who closed at least three deals in 2011 and line them up from highest to lowest gross commissions, the agent at the 50th percentile would be right in the middle.
We aren’t calculating net pay for this guy because he barely earns enough after his commission split to offset basic tax, health-care and transportation costs. Here are his commissions after his 20% split with the broker but before any other expenses:
Table 3: Net Commissions at 50% Percentile of Agents With 3+ Deals in 2011
The truth is that it’s tough to make a good living as a full-time real estate agent.
Most agents remember their best month and multiply it by twelve to calculate their annual pay, excluding all sorts of expenses. They remember their best year and assume the next will be even better.
In reality, real estate is such a hit-driven business that the top 15% changes significantly from year to year. If Redfin had looked at the top 15% of agents in gross commissions over several years, their average earnings would have been lower, for the same reason even a great baseball player’s lifetime batting average is worse than the best batting averages in the majors for any given season.
Redfin agents on the other hand do not prospect for business and so their earnings are less hit-driven. We tend to earn the same amount of money month in and month out, and year in and year out, with increases as we become more productive and the business becomes more profitable. It’s hard work, but it’s steady too.
What About Redfin’s Top Performers?
But even though every Redfin agent gets plenty of opportunities, some really stand out. Having compared the pay for an average Redfin agent with the pay for full-time agents in the 85th percentile and the 50th percentile, let’s account for the perks and promotions earned by some of our top performers. What do we pay our top 15%?
Our best folks lead teams, which boosts their pay on average by more than $20,000. Many folks who started as agents or field agents go even further, earning promotions to manage an entire market like Maryland or Washington DC. The guy who represented our first customers in Chicago now runs the whole Midwest. A transaction coordinator in Seattle now runs a $5-million business.
As Redfin grows, these opportunities will keep cropping up.
And every six months, we also distribute options to buy Redfin stock to the top 15% of our agents and other real estate staff, as measured by their customer satisfaction and productivity. For years, Redfin gave every real estate agent stock options, but as we’ve grown to hundreds of agents, we’ve limited the options to the top performers.
We hope that one day these options will be worth tens of thousands of dollars, becoming a significant form of compensation not accounted for in the table above, and taxed at a favorable rate.
Redfin is Hiring
But it’s not all about the Benjamins is it? I hope not.
Redfin is a mission-driven company. Our first value is that you have to work for more than just a paycheck, and you have to care about more than just yourself. In the dog-eat-dog world of real estate, Redfin wants to reflect the values of our best agents, and help everyone reach his full potential.
For now, we’ll continue to look out for the most talented agents, and we won’t settle for less. Redfin is certainly hiring fast — in the first three months of this year, Redfin hired 158 employees — but our revenues and profits would be much higher if we could hire even faster. As my old freshman roommate once solemnly explained to me, “I’d be getting a lot more action if I didn’t have such high standards.”
We’ll refer more business to partners than we’d planned until we can recruit the right agents to handle the load. My expectation is that we’ll hire at least 100 more agents by year-end, and maybe more. If you’d like to throw your hat in the ring, just apply here.