Bonuses and incentives in the real estate industry – understanding win/win/win formulas

Jo-Anne Oliveri
Jo-Anne Oliveri | 4 min. read

Published on October 17, 2011

Salary incentive and bonus plans have to work for both parties. But, even more importantly, real estate agency principals need to understand what they are aiming to achieve in offering incentives to the team.

The vast majority of bonus and incentive plans don’t achieve their aim of increasing business profits. Why? Because they focus solely on management numbers. However, increased management numbers don’t equate to increased income and profits. On the contrary, they result in increased overheads, overall net losses in management, and low team morale. Clearly, the focus is all wrong! The good news is that there is a solution and it is as simple as understanding math.

It is common practice to remunerate property managers or business development managers (a title I do not agree with) for new management once the property has been leased as their incentive to build and grow management numbers. This bonus is usually equivalent to a full week’s rent on the new management, depending on your area of practice. This means that the business is not earning any income on this management other than the management fee until the property is actually re-rented (at which point a new rent fee is usually charged to the property owner under normal circumstances). Sadly, a large proportion of managements never make it to being re-rented, as incentives are not focused around retention of business. Consequently, managements are often lost within the first 12 months as clients feel frustrated when they realize promises have not been kept.

To put it simply, an eight percent management fee on a property achieving $250 per week rent would earn the agency $1,040 for a 12-month period. Taking into consideration set-up costs, marketing costs and ongoing overheads, this management would not produce a profit for the agency. Not to mention the very disillusioned client who would now be telling everyone to never use your agency. And, as we all know, bad news travels fast with the power of Facebook, Twitter, YouTube and the like. Now more than ever businesses cannot afford unhappy clients!

More often than not, short-term gains do not equate to long-term gains. Instead, short-term gains negatively impact the business operations, sales, agency’s reputation and overall team morale. Deteriorating team morale quite often festers for long periods of time further damaging, diminishing, deteriorating, disintegrating, defaming, disrupting, denigrating, degrading, depreciating and any other destructive ‘d’ words you can think of that have the ability to destroy your business and brand’s reputation – something for you to deliberately deliberate on for a while.

So, business owners take heed! To build profitable businesses with solid reputations of trust, integrity and professionalism you must:

  1. Understand your market area (such as average rents and market potential).
  2. Create a realistic business plan.
  3. Know what each individual team member aims to achieve on a personal level.

This allows you to understand your own market potential. Understanding your own market potential means you know average rents in the area, if there are a high proportion of investment properties against property owners leasing their home while on transfer, property turnover and so on. The formula for incentive can then be based on what the average weekly rent is for your particular market area, rather than on new business only. This ensures a win/win/win formula.

Yes I have added in an extra win there. Why? Because there are three parties that need to win from this business plan. The property manager, the business owner and the property owner. By creating a winning bonus and incentive plan, the tenants also benefit. They then become (at the very least) agency advocates and quite likely future property owners.

Do you understand your market? Do you know all the statistics, vital information, and critical numbers? Understand your own market potential now so next week’s insight into creating your own bonus and incentive plans can be put into action straight away!

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Jo-Anne Oliveri

Jo-Anne Oliveri is Managing Director of ireviloution intelligence in East Brisbane, Australia, which empowers principals and property management teams creating and operating business by design.

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