These days, it seems our world changes in the blink of an eye.
Innovations in technologies and business models that once evolved over years now impact industries within months — and real estate is no different. On one hand, that's a good thing. Technological advancements allow us to get more done for our clients in less time. On the other hand, keeping up with the latest innovations, regulations, and market conditions is no easy feat. It takes a deliberate commitment to practicing real estate on a daily basis.
So it's hard for me to see how agents who only close deals every few months can keep up. How are sellers handling multiple offers? Are buyers waiving inspections? Does writing an offer with an escalation clause make sense? Are agents able to use electronic signatures? Do they know how to handle low appraisals? Properly replying to these questions requires a deep understanding of current conditions.
So what's the answer? It might sound controversial, but I believe that quotas can play a pivotal role in elevating competencies, incomes, and perceptions of the industry as a whole.
Practice Makes Perfect
For agents, quotas provide additional motivation to keep skills sharp when it comes to laws, paperwork, and technology. In return, high-competency agents ensure consistent, quality client experiences — and they earn increased income in the process. For the industry overall, establishing production quotas offers three distinct benefits:
- Recognized expertise: Today’s homebuyers and sellers see agents as much more than salespeople. Clients look to dedicated, professional agents as an expert resource to help them navigate unfamiliar — and often complex — transactions. In addition to increased competency gained through experience, meeting a quota offers a credible benchmark for clients and elevates expectations of our industry.
- Improved accuracy: The more deals agents are involved in, the better they become at anticipating and solving problems. Agents who meet a quota build skills that equip them to navigate market conditions, negotiate deals, and write better offers. An error in a contract comes with hefty consequences. Agents who aren’t involved in at least six transactions a year should be required to have their contracts reviewed for errors and omissions by their designated broker. The end goal is fewer mistakes.
- Increased professionalism: It’s far too easy to get a real estate license, which results in many agents who do little or no business in a year. Quotas would help to weed out the less-than-serious agents and increase the credibility of the industry.
Determining the Right Quota
While a quota should be based on a reasonable number of closings in the local market, it cannot be "one size fits all." A graduated scale enables real estate companies to account for different factors, including the level of experience.
New agents need time to get up to speed. After factoring in time to learn the business and gain real-world experience, a new agent in a normal market should close between 10 and 18 transactions in the first 14 months and 24 transactions over the first two years.
Throughout the 24-month period, the employing broker should review every document and contract. In fact, the state of Washington requires new agents to have every contract they write reviewed by a managing broker within 48 hours of it being presented.
The quota for experienced agents should be in the range of 18 to 24 transactions in a calendar year. The formula for determining this quota is based solely on the bottom line. Real estate agents are running their own business, and that business should be profitable.
In the rest of the business world, companies that don’t make money eventually close down. By contrast, real estate companies enable low-producing agents to move to firms that charge lower monthly fees, along with a fee for each transaction. This transaction-based model results in firms having high agent counts and low production averages.
Instead of more agents and low expectations for production, real estate company owners need to rethink their business model. A combination of careful hiring and quotas can help agents build a profitable, successful business. Agents who are unable to meet the quotas should be coached out of the business.
The only thing constant in our world is change. The real estate market is inherently dynamic, so a quota structure makes more sense than ever. Strategically designed benchmarks can help cultivate, motivate, and educate the right talent to take our industry into the future.
Jeff Thompson is managing partner at Windermere Group One. WGO is a member of Windermere Real Estate, a real estate network comprised of 300 offices and more than 6,000 agents throughout the western United States. Jeff is truly passionate about helping build companies by building their people. He leverages his 25-plus years of experience in real estate to coach other managers and brokers. Jeff credits much of his success to hard work and a willingness to partner with good people.