The art of talent-scouting

The success of a broker who employs sales agents and broker-associates largely depends on the quality of employees retained at the brokerage. As an employing broker, how you recruit for your brokerage office depends on your business model.

Some brokers hire as many licensees as they can fit into their office, making employment a numbers game meant to inundate the real estate market with the brokerage’s talent. A broker using this strategy is sometimes called a media broker.

Alternatively, brokers may recruit only agents and broker-associates with track records that exceed typical production standards. This model relies on employing relatively few well-qualified employees.

Still others focus on a niche market employing only licensees who practice in that sector — specialization is the name of the game.

But the first step to hiring agents/broker-associates is setting a recruitment goal. Consider where you are going to find talent, and how you will solicit it.

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To set recruitment goals, you need to decide:

  • how many agents or broker-associates you want to hire;
  • the personal qualities you are looking for in your staff;
  • how much time and staff you will commit to training and supervising new hires; and
  • what type of employees you’re looking to solicit, such as:
    • pre-licensed prospects;
    • inactive licensees;
    • newly licensed agents; or
    • broker-associates;
    • experienced agents.

Alternatively, you could be looking for unlicensed staff such as finders or administrative assistants. [See RPI Form 115]

Particularly as the coronavirus epidemic slows the entry of new agents into the field, hiring an unlicensed finder may be a practical way to solicit and locate buyers and sellers for a brokerage. Finders also do not require California Association of Realtors (CAR) membership, saving the payment of some $700 in dues.

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Prospective hires have varying needs and skill levels. Thus, these factors will often influence one another. The time you are willing to commit to necessary training and supervision, for example, will likely determine where you focus your recruitment efforts — and the ultimate success of these efforts.

Pre-screening potential hires

Once you’ve located a potential hire, you need to vet them to gauge their individual potential. Before calling for an interview, gather fundamental information about the prospect to determine whether a face-to-face interview is worth your time and energy.

To gather information, a broker will give prospective hires the Agent Interview Sheet. The prospect prepares and submits it to the broker, providing the broker with factual information about the prospective employee. Before conducting a personal interview, the broker reviews the information contained in the interview sheet. [See RPI Form 500]

The form asks the prospect to enter information about their background, education and real estate-related activities. When they fill it out and return it, their conduct indicates they are legitimately interested in being hired at your brokerage, as opposed to casually probing the job market. [See RPI Form 500]

The Agent Interview Sheet collects personal information on the prospect’s:

  • real estate license status and background, including:
  • professional affiliations [See RPI Form 500 §2];
  • educational levels attained [See RPI Form 500 §3];
  • real estate activity, including:
    • real estate, mortgage or business opportunities the prospect has an interest in [See RPI Form 500 §4.1];
    • a description of the types of real estate services previously rendered by the prospect [See RPI Form 500 §4.2];
    • the identity of former brokers who employed the prospect, and the duration of those employments [See RPI Form 500 §4.3];
    • a description of the real estate clientele the prospect has previously and presently worked with; and
    • the reason the prospect wants to be employed with your brokerage;
  • personal contacts of the prospect and the identification of unrelated individuals who may serve as a character reference for the prospect [See RPI Form 500 §5]; and
  • conditions of employment, including:
    • the prospect’s commitment to pay dues and fees to professional organizations designated by you [See RPI Form 500 §6];
    • whether the prospect will be employed on a full-time or part-time basis [See RPI Form 500 §6.2];
    • the prospect’s commitment to abide by the provisions of the attached employment agreement, if hired [See RPI Form 505 and 506];
    • the requirement that the broker be named as an additional insured by the prospect’s auto-insurance carrier; and
    • when the prospect will be available to start work for you.

In the interview, discuss the information the prospect entered on this sheet in conjunction with the terms of employment set forth in the Broker-Agent Employee Agreement with your prospective hire. [See RPI Form 505 and 506]

Eventually, you also need to discuss the prospective hire’s personal finances and how their income under your employ fits into their cost-of-living expectations. This discussion is critical to their long-term employment at your office. Also critical is a discussion of expectations for sales goals to be met in the first year of employment. [See RPI Form 504]

Ask questions that will help you determine whether their characteristics are in line with the objectives you have set for the type of agent or broker-associate you’re looking for. Specifically, ask why they think they will be a good fit in your real estate brokerage operation.

The discussion allows both you and your prospective hire to make an informed decision about whether they will thrive at your brokerage.

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Realistic financial expectations for prospective agents

After pre-screening prospective hires using the Agent Interview Sheet, as well as conducting a formal interview, you and the prospect will establish sales goals for the first year of employment.

Potential hires often have unrealistic expectations about their production and earnings as an agent with a brokerage firm, particularly if they are new to the industry. Written expectations will enable them to more clearly anticipate their income when representing your company. This high degree of personalized data incentivizes the prospect to hire on with your brokerage versus seeking employment elsewhere — where the likely income they will generate may not be honestly discussed.

A potential hire needs to understand what their anticipated annual gross earning, expenses and net income will likely be during their first year as an agent employed under your license. Without an upfront analysis, a licensee will only be guesstimating their annual net earnings.

Employing brokers use the Agent’s Income Data Sheet published by RPI to present and analyze a potential hire’s income and expenses. Further, it is used to estimate the prospect’s entry or change-of-office costs and their anticipated annual gross income and expenses. [See RPI Form 504]

Costs and expenses a potential hire can expect to incur in their first year of employment as a real estate agent include:

  • gross fees they will receive from you as their broker [See RPI Form 504 §2];
  • transaction deductions taken by you from their gross fees [See RPI Form 504 §3];
  • office expense contributions they need to pay from their gross fees (equipment rentals, membership fees, library/subscription charges, etc.) [See RPI Form 504 §4];
  • business expenses they will incur acting as an agent (auto, licensing fees and education, travel, insurance, etc.) [See RPI Form 504 §5]; and
  • other marketing and sales expenses not covered by you as their employing broker. [See RPI Form 504 §6]

You will enter the likely gross fees the prospect will receive and fee split charges on the worksheet as part of the interview process. [See RPI Form 504 §§1 and 2]

Ultimately, the sales goal set between you and the potential hire is reflected in the amount of after-tax income the prospect seeks. [See RPI Form 504 §11]

A well of information

You, as the broker, are best able to anticipate the income and expenses a potential hire will incur. The broker — not the prospect — is best able to draw a conclusion about a prospect’s future with your brokerage.

Your primary objective when hiring an agent is to increase the gross broker fees received by the office without a disproportionate increase in operating expenses. Your full, upfront disclosure of a prospect’s likely income and expenses creates realistic expectations of income for both you and the prospect.

Prior to an interview with a prospective agent, a proactive broker prepares an income data sheet by estimating the expenses a new hire will most likely incur. Also, the broker estimates the initial cash investment a potential hire needs to make to cover one-time, nonrecurring expenditures. Further, a potential hire needs to budget for cash reserves to cover personal carrying costs for a period of time necessary to produce closings and generate fees sufficient to sustain their standard of living. [See RPI Form 504 §10]

Once you establish the operating expenses, nonrecurring costs and carrying costs — based on other licensees you employ — there remains the difficult task of anticipating a potential hire’s gross fees from sales likely to close during the first year of employment.

Only you can estimate future fees

A new hire will not be able to accurately estimate the gross fees they will initially generate in your brokerage. Here, your first-hand experience is necessary.

To estimate future fees, you may project a range of gross broker fee amounts, varying from the earnings generated by a high producer to those of a low producer during their first year.

Until the potential hire has been on the job with your brokerage, you will not know at what level they can produce income. However, you can give the prospect a range of income earned from weaker to stronger producers informed by the experience of working with your existing staff.

The various gross broker fee projections — ranging from low, medium to high — may be entered on separate copies of the income and expense worksheet. Thus, you may transparently calculate the prospect’s after-tax income based on various levels of sales. [See RPI Form 504 §8]

An agent’s use of the data sheet

A newly licensed agent can also independently use the data sheet for similar analytical and financial-planning purposes.

Before they look for an employing broker, an agent needs to set their own goal for the annual income they want to earn to support their desired standard of living.

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The volume of real estate sales they close during their first year in the business is essentially a numbers game. New agents will soon discover only a fraction of all sales efforts come to fruition in the form of a closed sale and corresponding fees earned. To be successful, licensees need an innate curiosity and the enthusiasm for estimating and forecasting income and expenses — otherwise they are likely in the wrong line of work.

Agents discouraged or daunted by the exercise of completing the worksheet are not prime candidates for employment in your office. If this type of activity proves too difficult, they will likely be challenged by the worksheets, forms and disclosures they will deal with as a part of their standard professional obligations.

Setting realistic goals is the result of forethought and analysis. Agents looking to be employed at a brokerage will supplement their own analysis with first-hand input from the prospective employing broker who employs similar staff. Goals are quantifiable personal objectives, and better not left to evolve after an agent starts work. Once set, goals are what a licensee expects of themselves and of their employing broker, setting the tone of all that is to come.

To figure out how much they will likely earn in a particular aspect of real estate transactions – sales, type of property (SFRs, commercial, apartments), leasing or mortgage originations – potential hires often ask:

  • What is the dollar range of the sales (leases and mortgages) I will work with?
  • How many sales (leases or mortgages) will I likely close in my first year?
  • What cash reserves will I need before my first transactions close?
  • What business equipment and supplies will I need to provide?
  • Is the model of my car sufficient for showing properties?

All this data, and more, is contained in the income sheet.

To eliminate financial misunderstandings, brokers review the contents of the Agent’s Income Data Sheet with prospective hires. Prospects who understand and demonstrate an awareness of the anticipated costs and expenses they will incur during their first year of employment are more likely to succeed as employees. [See RPI Form 504]

Editor’s note — An experienced licensee also uses the income worksheet on their current operating conditions when either seeking to renegotiate their current employment arrangement with an existing broker, or before moving to another broker’s office. [See RPI Form 504]

Armed with the data on the worksheet, a licensee is able to intelligently renegotiate fee splits and the allocation of expenses with their present employing broker, or competitively shop for another broker.

This article was originally posted July 2017, and has been updated.