Editor’s note: This article is reposted with permission by The Real Deal. Click here to view the original article.
By MELISSA DEHNCKE-MCGILL
NEW YORK — While the real estate community is inundated with statistics about sales activity and prices when it comes to the condo and co-op market, there’s one stat that’s rarely bandied about in public: commission fluctuations. In this month’s Q-and-A, The Real Deal talked to brokers and firm principals about how take-home pay and commissions have changed since the market went into freefall in September 2008.
As one source described it, the time that has elapsed since Lehman Brothers collapsed can generally be divided into three chunks: the total market freeze, which lasted until March 2009; the slight uptick, which lasted until August 2009 and came with slightly higher commissions for harder-to-sell apartments; and finally the major increase in deals that has dominated since August, with slightly lower commission rates as apartments have become somewhat easier to sell.
Total earnings for brokers in the city have dropped anywhere from 25 to 50 percent during the bust compared to the market peak, brokers say.
But in the last few months, they’ve been on the rise. In fact, some brokers even said they are now making roughly the same as what they were during the heady days, though they are working harder for every dollar and are dealing with obstacles like requests from buyers and sellers for commission concessions.
Several sources said they’ve been asked to knock down their commission by a percentage point or two in order to bridge the gap between the buyer’s and seller’s price. But, in other cases, particularly at new developments, higher commissions are being offered, sometimes as much as 4 percent, in the hopes that they’ll bring in buyers.
For more on the new types of commission splits that some firms are using and on new development versus resale commissions, we turn to our panel of experts: …CONTINUED
Andrew Barrocas, chief operating officer, TDG/The Real Estate Group NY:
How does your take-home pay and the take-home pay of brokers in general in the city compare to three months ago, six months ago and a year ago?
Because the average sales amount is less, the commission is obviously less. There are certain sellers who look to negotiate and try to save a point or two on the brokerage commission when selling. From a co-broke perspective, it betters the chances of (brokers) bringing their buyers to your property when it’s at a full 3 percent commission as opposed to 2 to 2.5 percent, which we are seeing a lot of listings being sent out at.
How much is your pay and the take-home pay of brokers in the city down from the peak of the market?
Approximately 20 percent. I don’t think it’s all a reflection of the sales numbers coming down. It’s also the influx of smaller apartments. We’ve done a lot more transactions on smaller apartments than in past years.
How often do you co-broke now versus before the downturn?
There are more direct deals happening now than before. There were always agents during the peak of the market that didn’t co-broke because they had buyers coming directly to them. … (Now), I have seen more direct buyers coming to the properties because they have more resources at their fingertips.
(They are also) of the mindset that they are going to get a better deal if they don’t come with another broker or if there is not another broker involved. It is typically a false assumption that they make because a full commission is being paid (anyway).
What do you think of the standard 6 percent commission model overall? Do you like it or do you think it should be changed?
Like any other industry, you get what you pay for. There are agencies that are what I consider to be discount brokers. That’s the way they represent themselves and that’s the way they are perceived. I don’t see anything wrong with 6 percent if the agent is capable of adding value.
What are commissions like at new development projects? How are they changing and how do they differ from resale commissions?
It depends on what stage of the development they are in. And a lot times it depends on the (commission) structure that the marketing company came up with. There are companies that come in and undercut the industry because they think that’s the best approach. I personally don’t. I would recommend to a developer to pay at minimum the same amount that resales in the area are paying. And, in order to incentivize (brokers), I would offer more.
I speak to my developers about not increasing my commission, but increasing the commission of the buyer’s broker, which doesn’t make me more money, but it does better the chance of getting the apartment sold.
What do you think of the 100 percent commission model, where brokers keep all of the commission, but pay a flat transaction fee to the brokerage?
I think if it was a model that was beneficial, the top agents in the city would be there.
Can you give us an example of a commission situation that you’ve experienced or heard about that illustrates what’s going on in the market?
A seller will turn around and say, ‘We are X amount of dollars away (from a deal with the buyer). Would you as the broker be willing to take that portion off your commission?’ My answer is ‘No.’ I think a lot of agents are so excited to get listings that they are willing to take them and work for less. The top agents in the industry aren’t afraid to walk away from a listing if it doesn’t make sense.
Are you treating the money you’re making differently now than you did when the market was strong? If so, how?
Absolutely. Across the board, regardless of whether you’re making more or less money, everyone is looking at what they are spending and looking to reduce it. We are making a lot more money today than we did last year, (but) we are watching the expenditures more carefully, negotiating with all our vendors and looking to save money, because a dollar saved is like $3 earned. …CONTINUED
Michael Signet, executive director of sales, Bond New York:
How does your take-home pay and the take-home pay of brokers in the city compare to three months ago, six months ago and a year ago?
I would break the Great Recession into three stages so far. September 2008 to March 2009: almost no sales activity whatsoever. April 2009 to August 2009: few deals, but larger commissions. And August 2009 to today: smaller commissions and a huge increase in volume. Our agents are actually making approximately the same amount as in the past. (But) they are working harder to achieve those numbers.
What are the biggest challenges to making money as a broker in New York today and how have the challenges changed since the start of the downturn?
Financing … without question. There are plenty of buyers ready to go and plenty of sellers that have brought their price down to a realistic number. We get accepted offers all day long. Once that happens, though, is when the fun begins. Lenders are looking at the borrower and the building under a microscope and at times it feels like they are searching for reasons not to loan. The process of getting from signed contracts to closing has gotten so much longer.
What are the biggest surprises about brokers’ commission and pay in this market?
That even during the worst part of the recession our agents were making money. Some sales agents spent more time focusing on rentals, which have been very busy throughout.
How much pressure do you and other brokers feel now because of the tough market?
There tends to be a seesaw effect whenever prices change. Volume and the average commission size are usually inversely proportionate. Prices going down doesn’t create pressure, it creates motivated sellers and relatively good deals for buyers. Prices going up means it’s time to sell. Every change is an opportunity to be embraced, and this market downturn has been no exception.
Have you worked out any new kinds of commission splits with your firm or heard of any others that brokers have used?
We use a scale as is customary amongst major firms. It awards agents higher splits based on annual GCI (gross commission income).
Are sellers paying less or more than 6 percent in this market (3 percent for each side of the deal)?
Our company’s average commission rate for residential sales in 2009 was 2.96 percent. In 2008 it was 2.55 percent, so the commission rate by Bond numbers increased 16 percent from ’08 to ’09. In 2010 so far it’s 2.86 percent.
What are commissions like at new development projects? How are they changing and how do they differ from resale commissions?
It really depends on the building and what percentage of that building has been sold. Those developers who want to incentivize the brokerage community will pay 4 percent and sometimes more. Most buildings are still offering 3 percent.
What do you think of the 100 percent commission model?
In the long term it’s the same bottom-line numbers expressed in a different language. I have noticed that there are essentially two types of agents attracted to this (100 percent commission) setup. The majority are those who are what I consider part-time agents. They do a few deals a year and can have a place to hang their license.
The second group is a much smaller group of agents who have experience running their own brokerage and are accustomed to performing the various roles and being responsible for the various expenses above and beyond being an agent. …CONTINUED
Phyllis Pezenik, managing director, DJK Residential:
How much is your pay and the take-home pay of brokers in general down from the peak of the market?
In general, I would say it’s off by anywhere from 25 to 50 percent. It also varies depending on whether the broker is doing sales or rentals. While it’s not the take-home pay of the boom years, more money is coming in, albeit slowly. The agents are working harder and longer hours, and those who are really putting in the time are beginning to see an increase in profits each month.
What have been the biggest surprises about commission and pay for brokers in this market?
When even the brokers with a stable of clients were struggling.
What are some other trends you’re seeing in connection with commission and pay in today’s market?
The brokers holding firm at the 6 percent commission rate. When you are making less, there is no room for any givebacks to get the deal done.
What do you think of the standard 6 percent commission model overall? Do you like it or do you think it should be changed?
If I had my druthers, I would like to see commissions at a 6.5 percent minimum.
Are you treating the money you make differently now than you were when the market was really strong? If so, how?
Yes. The word "budget" has always been in our vocabulary, but since it is so difficult to time the next deal, money from one deal has to carry further for longer. …CONTINUED
Klara Madlin, president, Klara Madlin Real Estate:
How does your take-home pay and the take-home pay of brokers in the city compare to three months ago, six months ago and a year ago?
A year ago it was terrible, we were absolutely dead. But we started seeing a pick-up this summer. I would say we’ve gone up by 30 percent in commissions since the beginning of the year. I haven’t researched it, but that is my impression.
Even though sales activity has picked up lately, prices are still down at least 20 percent from the peak. How does that add to the pressure you and other brokers feel?
We are always under pressure to do deals. The price is not the factor as much as volume. It’s more difficult doing business right now because we really have to qualify our people, make sure they are going to get financing and we are not just spinning our wheels.
Are sellers paying less or more than 6 percent in this market?
Some pay less and some pay more. Everyone wants to pay less, but I have had some (sellers offer) incentives. For example, someone who needs to move and will pay more if it is sold within X amount of time. I have seen a little bit of that.
What are commissions like at new development projects? How are they changing and how do they differ from resale commissions?
Actually they used to be less than resale commissions and now they are giving incentives that are either the same or sometimes even more. … They might give a broker higher commissions if (an apartment) is in contract by a certain date. They are under pressure from the banks to get things in contract.
Are you treating the money you make differently now than you were when the market was really strong?
I think we are all watching our bottom line a lot more in what we can afford for advertising, rent and how we can cut back. We saw a couple of companies go under. …CONTINUED
David Maundrell, president, aptsandlofts.com:
What are the biggest surprises about commission and pay for brokers in this market?
Lately we’re seeing an increasing amount of buyers asking what our commission is and requesting to leverage it in order to bridge a gap between a buyer’s offer and the seller’s counteroffer. The practice of sellers asking to help bridge a gap is common and, because I represent them, I’ll work with a seller in certain circumstances. However, a buyer asking how much we are making just shows how cutthroat the market can be today and how buyers feel they hold the upper hand.
Have you worked out any new kinds of commission splits with your firm or heard of any others that brokers have used?
(We) use a sliding scale system that was implemented in September 2009. The sole purpose of the change was to inspire our agents to work harder and, in turn, reap the benefits of their dedication.
Are sellers paying less or more than 6 percent in this market?
Every agent and company has different approaches in listing commissions. While our base commission has basically stayed the same, we are working to persuade sellers to offer high co-broker commissions to help encourage other brokers to show our inventory. We are even adjusting co-broker commissions on new development contracts signed years ago and on developments that are just coming to market.
Are you treating the money you make differently now than you were when the market was really strong?
I’m treating it differently from both the business and personal side. I’m trying to make my company even more efficient and ensuring that valuable dollars aren’t wasted on nonimperative items.
For example, last week we implemented a policy where all interoffice forms are to be printed in black and white. Only certain proposals, specific marketing items and key office documents can be printed in color. It’s a small adjustment, but it will save a little money.
I refuse to throw darts at a board for advertising also. If it’s not an outlet that can create a verifiable lead in some form, we are not interested in using it as part of our marketing campaigns.
Personally, since I am working so much harder today than I was in years past, I tend to splurge a little on certain things because I feel I deserve it. A round of drinks for my office after a successful grand opening of a new development, an unannounced gift for my 3-year-old daughter or a nice night out with my wife are perfect ways to spend my hard-earned money. …CONTINUED
Richard Hamilton, senior vice president, Halstead Property:
What are the biggest surprises in connection with commission and pay for brokers that you’ve seen in this market?
Some owners think you should take a lower percentage. They miss that it takes longer, costs more to market and the selling prices are not as high, so they want to pay a lower percent for more work.
What do you think of the 100 percent commission model?
I think it encourages bad marketing and poor support levels. None of the better agents in New York City work at those firms. …CONTINUED
Stacey Max, executive vice president/sales manager, Bellmarc Realty:
How does your take-home pay and the take-home pay of brokers in general compare to three months ago, six months ago and a year ago?
The volume of deals has really been increasing since the last quarter of 2009 and agents’ income has increased respectively. A year ago, deals had almost completely stopped; no one was making much money.
Are you treating the money you make differently now than you were when the market was really strong?
When I first started in the business, my manager told me that the best way to manage your money in a job like ours is to keep your living expenses low. I thought that was good advice and I still live that way. There are some people in the business who spend their money as they make it, and I think that those agents are having a harder time adjusting.
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