To salary or not to salary

The question of how best to compensate real estate agents has become a more heated debate in recent years. New startup companies are starting to challenge the status quo with technology-based platforms that look to diminish or even outright eliminate the role of agents in the home-buying process. In this context, whether it to pay agents a salary or by commission has become a major philosophical and practical question.

In a recent discussion at Inman Connect, Court Cunningham, CEO and co-founder of Orchard, broached this very topic. Cunningham takes the former position, arguing that agent commissions have the potential to drive up the cost of homes and hurt the homebuyer. Buyers, Cunningham maintained, should be by brokerages as their chief consumer, not agents.

Mike Perigrina, CFO of Homie, another technology-based real estate brokerage, agreed also emphasizing the benefits for consumers of cutting down on high commissions. Both Homie and Orchard pay their agents salaries and market themselves heavily on their corresponding low commissions.

This is a continuation of an earlier debate between Keller Williams CEO, Josh Team, and Redfin CEO, Glen Kelman. On the one hand, Team argued for commissions on the grounds that they allow for a higher level of personal investment and accordingly better outcomes for both agents and homebuyers. Kelman, on the other hand, argued that Redfin and other similar salary-based models cut down on overhead without sacrificing anything in terms of quality of service.

Besides adding to this broader debate between salaried and commissioned agents, tech-based companies like Orchard and Homie aspire to work even greater change in the interview with their online platforms. Back in 2019, Redfin launched Redfin Direct, allowing homebuyers to bid on homes with just a few clicks and with absolutely no agent all online.

On a smaller scale, startups Orchard and Homie offer similar services, while also bundling in such services as home assessments. All three companies market themselves heavily based on how much money they save homebuyers. Homie even has a live update of the savings they’ve facilitated on their website.

Nevertheless, the success of such online, agent-less platforms remains to be seen. According to research by the NAR from November, 2020, 88% of homebuyers and 89% of home sellers used the services of a real estate agent. The percentages of sales for-sale-by-owner were down to 8%, a near historic low.

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