by Jim Palmer Jr. – Real Estate Marketplace N.W. Inc.
Having been in the real estate business for over two decades, I’m still amazed at the number of folks who really don’t understand how the business works. I’m talking about the relationship that a real estate broker has with their company and how they get paid. I understand how folks could be confused since it is a unique arrangement, mostly dictated by Washington State Law and really much different than any other industry’s business models.
All Realtor® and non-Realtor® real estate practitioners in Washington State are called Brokers. By law they must affiliate with a licensed real estate company who employs a Designated Broker who is ultimately responsible for the legal actions of each Broker (even though these Brokers can be audited separately by the Department of Licensing). The Designated Brokers license requires a much higher level of education and expertise since they supervise Brokers. The Broker is not an employee of the company, but instead functions as an independent contractor. Even though they sign a legal contract with the real estate company whom they are affiliated with and agree to abide by certain company policies and procedures, the company does not pay them a wage or dictate any work hours.
Each of these independent contractors operate their own personal real estate business under the general umbrella of the affiliated company, creating their own personal business plan and model and executing their own branding and marketing strategies. They pay for their own business expenses such as paper, car expenses, advertising etc. They don’t receive a wage and only receive compensation when they have earned commissions from a closed transaction or been otherwise compensated for performing real estate related services. The company in essence, only rents them the space to run their own separate business, providing a physical facility, some moral support, business ideas and legal guidance. The “rent” arrangement is typically that these Brokers pay a small percentage of each commission earned to the company. The Company benefits by receiving “rents” from each Broker and by the inadvertent recognition caused by the company signage on listed properties ( State law dictates that the company name must be conspicuously placed on each yard sign and on any advertising done by the independent contractor). The Broker benefits by having the opportunity to create a business with less monthly overheard and less initial capitol.
Most real estate companies and Designated Brokers are careful to associate only with those independent contractors who will continually mirror the standards and ideals that are the company’s core values.