“What Kind of Person Would Work as a Redfin Agent?”

I’ve spent the past four years of my life explaining Redfin. If you read this blog, you already know that we’re a real estate broker focused on customer service instead of sales, one that uses technology to make every step of the process totally transparent.

By my own count, I’ve said this nearly 10,000 times, to all sorts of people: a priest, a construction-site sign-flipper, several hairdressers, a 12-year-old, the inventor of pediatric vitamin-D supplements, an NBA point guard, a used-car salesman. And yet I’ve only gotten two reactions. One is: “Don’t you just hate real estate agents?” To which I say: “WE ARE REAL ESTATE AGENTS.”

The other is: “What kind of real estate agent would work for you?”

Well, for starters there are agents who need to feel part of something bigger than themselves, who want to change the whole real estate game in consumers’ favor. Most agents like focusing on service, not sales. They love doing deals rather than prospecting for clients. They feel good about being paid to do the right thing. They love working on teams. They want to develop new skills and advance their careers.

Forget the Marketing Hoo-Ha… What About the Money?
To which everyone says: “Yeah. Whatever. What about the money?” Well, let’s talk about the money. By our calculation, Redfin agents are in the 90th percentile of agent pay.

Using data available to any broker, we measured the gross commissions earned by each agent who completed a deal in King County, Washington between May 12, 2009 and May 11, 2010. Whenever commission data were unavailable for a transaction, we assumed that the commission was 3% for the buyer’s agent and 3% for the seller’s agent, an assumption that tends to over-estimate traditional agents’ pay.

And still, the annual gross commission for agents at the 50th percentile of pay was $29,820. Agents at the 75th percentile got $75,018. You don’t crack $100,000 until the 82nd percentile. If you group agents by the gross commissions they earned last year, you find that 1,817 agents earned between $25,001 – $50,000 in gross commissions, whereas only 83 traditional agents were in the $150,001 – $175,000 bracket, which is roughly equivalent to what we paid a Redfin agent:

This graph of different gross-commission brackets and the number of agents in those brackets is known in certain mathematical circles as an Arpat Distribution. It reveals a stark reality. First, that there are just too many agents: 5,624 agents completed a transaction in King County last year, which doesn’t even count the thousands of actively licensed agents who closed no deals whatsoever; in April, the county recorded 1,944 home sales, barely one for every three agents. In distressed markets like Phoenix, Las Vegas, Florida and many parts of California, the ratios are typically much worse.

Second, the difference between the haves and the have-nots is greater than in any other industry; a few highly visible agents earn enough money to live on the lake, engendering occasional popular resentment. Most of the rest endure a gentle form of unemployment. And what most consumers don’t consider are the annual expenses any decent agent has to bear:

Brokerage fees: $10,000
New agents pay as much as half their gross commissions to their broker. The top dogs pay a fixed amount, in what is known as a desk fee. It is possible to pay less, but the great majority of successful agents pay $15,000 or even $20,000 per year to their broker. $10,000 is a conservative number.

Health insurance: $10,500
Some agents who sell real estate on the side get health insurance through their partners or another job. But the bread-winners have to buy their own insurance, for themselves and their families. Redfin is on a group plan that costs less per member than an individual plan, and still we pay $10,500 per employee.

Marketing: $10,000
The rule of thumb is that a successful agent invests 20% of gross commissions into marketing himself and his listings. For an agent earning $100,000+ per year in gross commissions, $10,000 is certainly a conservative number.

Social Security & Medicare Taxes: $6,500
Redfin pays the employer’s share of our agents’ Social Security and Medicare taxes, whereas a traditional agent has to pay the entire amount. How much does Redfin pay? 7.65% of the first $106,800 in pay, then 1.45% of the amount in excess of $106,800. Our average contribution to a Redfin agent’s pay is more than $8,000. $6,500 is a conservative assumption.

Transportation: $3,600
Most agents report $8,000 per year in transportation expenses to the IRS. $300 per month – five tanks of gas — is a conservative estimate of the true cost.

Cell service: $1,200
Agents spend their lives on BlackBerry, emailing or calling ten hours a day. $100 a month in fees is conservative. Redfin pays more than $200 per agent, or $2,400 per year, though this includes a cellular modem for connecting a laptop to the Internet from anywhere.

Equipment: PC, mobile device, printer: $1,000
Every few years, an agent gets a new computer or mobile device. To start out you need a printer. $1,000 per year seems fair.

Dues, education: $783
Agents pay a fee to the local Multiple Listing Service, to the state that licenses them, to training institutes for continuing education.

IT, accounting, software: $1,000
The top dogs have an assistant or transaction coordinator but most folks need help fixing their computer or figuring out their taxes at the end of the year. Agents working as independent contractors and filing tax form 1099 at the end of the year usually hire an accountant. Some pay for Top Producer or other lead-tracking systems.

All told, any reasonably successful agent is shelling out $44,583 per year in commissions splits and costs. The number could easily be higher.

Type of Expense Traditional Agent, Annual Costs Redfin Agent, Annual Costs
Brokerage fee $10,000 Not applicable
Health insurance $10,500 Paid for
Marketing $10,000 Paid for
Social Security, Medicare Taxes $6,500 Paid for
Transportation $3,600 Reimbursed
Cell service $1,200 Paid for
Equipment $1,000 Paid for
Dues, education $783 Reimbursed
IT $1,000 Paid for
Total $44,583 $0

Now let’s compare that to the pay of a Redfin agent. For the agents representing our clients, Redfin handles all expenses. Each agent gets a support staff to schedule home tours and coordinate closing documents; each also gets health benefits and vacation as well as the best online tools in the industry.

How Redfin Pays Its Agents
We don’t pay our agents a commission, but do offer a bonus based on client satisfaction. To calculate the bonus, we survey clients about the likelihood of their recommending our service. Paying based on the survey response, and then publishing that response, has an overwhelming effect on agent behavior, most of it very good.

In King County, Redfin has had five agents handling deals for us over the same time period that we considered when analyzing traditional agents gross commissions: May 2009 to May 2010. All of them lead a team. The average pay of those agents has been $113,266, or the equivalent of $157,849 if you include the value of our benefits.

Agents in more expensive markets tend to earn more; agents in less expensive markets tend to earn less. Even within a market, agents may earn less over time: the team has worked very hard over the past year, so less frantic years may result in lower pay. Some may be promoted to manage larger areas as we grow, earning more. But the basic conclusion seems indisputable: Redfin agents perform very well, and Redfin pays those agents very well.

Redfin Pay: The 90th Percentile
Comparing Redfin pay to what a traditional agent earns once you subtract costs from gross commissions, you find that Redfin agents place in the 90th percentile. If you only compare Redfin to agents earning $25,000 or more in gross commissions – to avoid comparisons to part-timers — Redfin agents are still in the 83rd percentile. In fact, in the graph displayed above, we excluded everyone earning less than $25,000.

So the answer to the question about what kind of agent would work at Redfin is simple: an agent who likes putting customers first, not commissions. An agent who cares about a project larger than herself. An agent who wants a career that can grow to include new skills, technologies and management responsibility. And yes, one who makes more money than the vast majority of her peers.

The Bottom Line Is Not Just the Bottom Line
Our goal is to be the best career choice in the real estate industry, so we can hire the best agents. For some, the 90th or the 83rd percentile will be their income limit; for others it will be lower. We will always pay well enough to hire the best people, but for the best people, money is never enough: what Redfin also offers is a way to expand the circle of people our folks influence and the fulfillment they take from their work.

(Many thanks to Dave Billings, Arthur Patterson, Adam Wiener and Scott Nagel for pitching in on this post. We tried to be conservative and fair, but if some of our assumptions are wrong, please let us know)

Discussion

  • Marc

    Congrats to your 6 figure stars and tip of the hat for the great benefits package you offer. How about the rest of the folks on those agents' teams, how much do you pay them? The transaction coordinators, the field agents, and so on?

  • RE agent

    Are your tops earners simply riding on the low paid contractors who do all of the grunt work? The agents who do your home tours are not employees and don't receive these fabulous benefits you speak of

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    Great real estate blog. I do appreciate this. Thanks

  • meks

    That seems like a pretty good salary.

    I do get the feeling that they put in a lot more total hours than other RE agents. My assumption is based on the number of transactions (how does this compare with other agents?) and the fact that the paperwork and negotiations are the difficult part of an RE agent's job.

  • Anthony

    Great post, Glenn. I admire your value set, mission and what you and the folks at Redfin are doing. Once the working Agent understands who you are, they too will come to realize Redfin might be on to something. Great technology, great service provided by great people – brilliant.

    Keep on pushing on, Cheers!

  • Scott Nagel – Redfin

    We don't feel comfy providing exact numbers, in part because we haven't yet calculated the averages, in part because this seems beside the point. The point of this post was not to provide a comprehensive survey of what our CEO earns, what our receptionist earns, what our search team lead earns. It was to address a persistent concern raised by our customers about what we pay the agent who negotiates their deals, so customers could feel sure we have high-quality agents taking responsibility for their success.

    We compare the pay of our coordinators to those in similar positions in the industry, and try to be just as competitive as we have been with agent pay, though of course we do not have MLS data to use as a comparison. I doubt any brokerage consistently pays a coordinator more.

    As for the field agents who guide customers on tour, their work is very valuable to the company, and they are paid well. It is hard work, but it isn't grunt work, as these folks are ambassadors for the company who are paid to focus only on providing unbiased, expert advice about the homes they're showing. The field agents are paid for every tour they provide and their only incentive is to make sure our customers had a great tour. None of a field agent’s pay is based on whether a client purchases a home or not. Both the field agents and our customers love the no-pressure environment this creates.

    We have had several agents ask to return to a role as a field agent, despite their having the experience we require of a lead agent. Their reasons for this are easy enough to understand: they like being out in the field, they like the unhurried conversations that occur on a home tour, and they like having complete control over their schedule. In general, we have many more folks apply to become field agents than agents.

    The amount field agents earn depends on how much they want to open their schedule to work. For this past March, field agent pay ranged from $125 to just over $6,000.

  • http://ERAHouston.com/ Thomas A B Johnson

    Redfin only earns when the transaction closes, and agents are paid bonus (commission) on a satisfactory closing. The contractor non-employees are paid as work is performed. It seems like this cash-flow exercise has Redfin burning through its seed corn at a fairly rapid clip, unless of course, everyone is paid at closing and then, how is this different? The cash only flows when there is a closing. With no incentive on anyone to close deals, the seed corn will be spent. When the seed corn runs out, there will be a need to close deals to keep the lights on, agent health insurance premiums paid, IT dept salaries paid etc. Sooner or later you run out of other people's money.

  • http://twitter.com/kenbrush Ken Brush

    I guess you missed the article: http://techcrunch.com/2010/04/25/redfin-hits-30

    Quoted from there: “Kelman announced in the video that Redfin is now on a $30 million revenue run rate, up from $15 million last summer (and at that point they were profitable.”

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  • Sharlene Yaqui

    This was great information. I have a question relating to field agents and their opportunity to grow into agents. Would they be able to close any deals as field agents to get the experience requirement of ten closed deals in order to become an agent to receive these wonderful and unique benefits? Does Redfin have any room for new agents without any experience to advance the company?

  • Jeremy

    I would find it interesting to see how an agent at Redfin is paid based on their volume compared to a traditional agent with comparable volume. For example, previous blog on here state Redfin agents are consistently the top agents in their market. If this is the case, that would mean that a traditional agent would be making near the high end of this graph — so what, say over 500k/year, or over a million in high end markets like San Francisco or the likes. So, for the amount of work to produce these numbers, I am not sure it is fair to say they are getting paid well (at the 90th percentile) when they produce in the 99th percentile, and as we all know, the top agents are the ones who are making the big bucks. It appears your agents are just at the higher end of the mid levels but are being expected to produce like a top agent. Even taking half a top producing agents income away (to account for the rebate you give back), your top agents seemingly only make a 1/5 of a similarly producing tradtional agent. Hmm….not sure this post is as truthful as it first seems.

  • Frack77

    Would Redfin hire someone without a real estate license and if not, would they hire a newly licensed agent? Seems someone asked this question earlier but no one answered?
    Thanks!

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  • REritr

    I just found your post after having responded to a Craigslist employment ad for Redfin. I began researching this concept and it really agrees with me. I have a considerable background in real estate (I actually hold a broker's license in CA), but most of my sales record hearkens back to some wonderful new home sales days — where people came to us and then we did a bang-up job of showing them our homes, helping then make important decisions, holding their hands through escrow and the build, and then making them a part of the neighborhood. I have not been able to replicate the kind of service I was able to provide as an on-site agent for a homebuilder ever since. Why? Traditional resale real estate doesn't lend itself to it. In new home sales, I knew that if I worked hard for my builder and treated the people who came through the door like gold, I would never have to worry about getting paid. And isn't that the best way to work? Do what you love and the money will come. Help people and it all comes back to you. I love this concept and hope the local recruiter who scans my resume calls me right away so I can get started SOON!!

    • Robert

      Did they?

  • Pasadena1953

    As a conventional broker, I find that when a redfin agent sells a property we do all the work. The escrow process is a nightmare, with redfin not doing the work they are getting paid for and supposed to do.

    • http://blog.redfin.com/ GlennKelman

      Hi Pasadena1953, please let me know about the transaction or transactions in which this happened, so we can follow-up with the agent. You deserve better, and we should do better. Usually we do.

  • altershmalter

    From the dollars breakdown, I would assume that Redfin agents are employees with W-4/W-2 status.  Does that mean they are subject to employer-employee contractual relationship, i.e., set hours of work, office time, mandatory meetings and training sessions, specific vacation time, etc.?  That sounds like working for Home Depot but in real estate.  Most of the brokers I know tell me that freedom to set their own schedule and goals as independent business people is one of the top reasons for choosing real estate as a career.  In my personal dealings with agents, I have found that those who are experienced, honest and experts in their field have saved me much more than 1.5% by negotiating a lower-than-list price, working out inspection credits and knowing how to navigate the complicated world of financing (what a mess that has become).  The Redfinners I have encountered, except for one or 2, have generally been inexperienced “writer uppers.”  For me, that doesn't cut it in the reality of today's market.  Before you decide on a broker, interview a few and ask for references; even though no one will give you a nightmare client as a reference, if you ask a few questions about the transactions, you can get a good feel for who can best serve you.

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  • http://www.facebook.com/gabriel.k.anderson Gabriel Anderson

    Would be interesting to see this graph on a national basis.  I've heard many times that the 80/20 (or I guess 90/10) principle hold true for real estate agents.

    Is this data available for the country?  Maybe from NAR?  Would be interesting to see.

    Great post… Thanks!

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