The headline on the Inman Real Estate News website reads like a declaration of war: “Better Homes and Gardens Real Estate goes capped, taking on KW”
The article reveals a less explosive truth: BHG Real Estate is offering franchisees a capped fee model that allows them to pay a royalty fee capped at a fixed amount per sales associate annually. The company rolled out the option after testing it in 2018 and seeing growth in terms of franchise sales and agent count, the article states.
This national shift at BHG Real Estate has trickled down to Chattanooga to trigger a change in the company’s local franchisee: Ooltewah-based Better Homes and Gardens Signature Brokers.
No longer required to pay BHG Real Estate a royalty fee for each sale, Gina Sakich, owner of BHG Signature Brokers, is passing down the savings to her agents.
Not only is Sakich dropping the franchise fee for sales associates from 7% to 5% of their sales, she’s allowing her agents to cap on the franchise fee once they have paid her company $6,250 – the price Sakich will begin paying BHG Real Estate for each affiliated sales associate beginning Aug. 1.
In other words, after a sales associate earns about $120,000 in gross commission income, they won’t have to pay a dime for the franchise fee for the rest of the current year.
“My agents are thrilled about the cap on the franchise fee,” Sakich says. “It’s always been 7% no matter how much they sold. And when you’re making $200,000 a year, that means you’re paying your broker a lot of money.”
Sakich says BHG Real Estate’s franchise fee has made it difficult to attract top producers to her company, despite the popularity of the Better Homes and Gardens brand.
“It’s hard to convince someone to move here when they’re always going to pay the fee, and I’m competing against independent companies that don’t have one,” she explains. “That’s a lot to pay for a name when you’re making $300,000, $400,000, $500,000 a year.”
Sakich and other BHG Real Estate franchisees have boldly been saying the same thing to their people at the company. “We’ve been telling Better Homes and Gardens for three years that it’s hard to recruit top producing agents without a cap,” she adds. “They finally listened.”
The capped franchise fee will make BHG Signature Brokers more appealing to Chattanooga’s top agents, Sakich says. And she’s wasting no time spreading the word.
“I had a phone call with an agent I hope will come here. She said, ‘I have a deal with my broker where I cap out.’ And I said, ‘You don’t get your check quickly, you’re in a strip mall and you don’t have a brand like Better Homes and Gardens behind you. You’re getting what you pay for.
“’Come to our office and see what we have to offer. Where do you want to take your clients? How are you trying to portray yourself?’”
Sakich is not stopping with the franchise fee cap. Beginning Aug. 1, BHG Signature Brokers also will allow sales associates to cap their commission split with the company.
Sales associates who choose the capped fee model with BHG Signature Brokers will give the company 20% of their sales commission until they have paid $20,000 – the point at which Sakich says she believes associates will also cap with their franchise fee.
After paying $26,250 in franchise and commission fees, everything the sales associate earns for the rest of the current year will be theirs to keep.
Sakich notes all of her sales associates are excited about the commission split cap.
BHG Signature broker agent Kathryn Hill is among those who say she is enthusiastic about the new model.
As the company’s top agent, Hill sold close to $6 million worth of real estate last year. Her current commission split with BHG Signature Brokers is 90/10, meaning she keeps 90% of her commission and pays Sakich 10%. She’s also been paying the franchise fee. In 2018, this represented $150,000 in GCI (gross commission income).
Although Hill will drop to an 80/20 split under the capped model, she says she expects to make more money in the coming year, as she’ll cap sooner than she would with a 90/10 split and her entire commission after she caps will be pure GCI.
“On $6 million in sales, I’ll put an extra $5,000 in my pocket. But the cap is designed to encourage more sales, so I hope to hit $10 million in sales and put an extra $26,000 in my pocket,” she says. “The more I make, the more I’ll keep.”
Although Sakich says brokers lose money when their top agents switch to a capped commission split, they make it up by attracting more high-producing agents to their company.
“It’s a numbers game,” she explains. “I’ll benefit from the number of agents I’ll be able to recruit and their production.”
Besides, Sakich adds, she derives more joy from her sales associates thriving than from making more money as a broker. “I love to watch my agents flourish.”
The traditional commission split and capped fee model are not the only compensation structures offered in the real estate industry.
Other models include a graduated commission split (the agent’s commission increases with productivity), a transaction-based model (the agent’s fee is based on his or her number of transactions), a rent-based model (agents pay a flat fee regardless of their sales), an employee-based model (allows agents to earn a bonus) and more.
As BHG Real Estate CEO Sherry Chris told Inman News, “It’s not a one-size-fits-all market. Geographically, models are different and the way business is done is slightly different.”
But recent statistics from the National Association of Realtors do show a slight shift toward the capped model.
In 2016, 14% of Realtors nationwide were compensated with a capped commission split. That number had climbed to 16% by 2018.
The number of brokers using the capped model also grew slightly from 16% to 17% during the same time period.
NAR collects only the what, not the why, leaving industry pundits to figure out the later. Sakich says she’s making the switch to the capped model to attract high-producing agents; Doug Edrington, CEO of Berkshire Hathaway HomeServices J Douglas Properties, says offering the highest split or the lowest cap is the only card some local brokerages can play.
“When a brokerage provides no other value, they’ll negotiate with their money,” he points out.
While a high split or low cap might look attractive on the surface, Edrington says, it creates problems when the broker doesn’t actively participate in building the agent’s business. “As an agent, you’ll have to retain all your money because you’ll need to reinvest it in the resources you need,” he explains.
Sakich says the value BHG Real Estate provides beyond the minimum requirements dictated by the State of Tennessee is worth the franchise fee, citing the company’s marketing content, education and lead generation system, which are provided cost-free.
Plus, as a former sales associate who worked under the Better Homes and Gardens brand when she was with Realty Center in the late nineties, she’s sold on the name.
“Your mother subscribed to the magazine; your grandmother subscribed to the magazine,” Sakich explains. “Better Homes and Gardens opens doors for agents because it’s special.”
Beyond the benefits BHG Real Estate provides, Sakich offers free collaborative work spaces, yards signs and yard sign installation and supplies.
Edrington says local agents should search for brokers who offer value in addition to a favorable commission split or cap.
“Chattanooga is based on the 80/20 rule. Twenty percent of the brokers out there have a lot of value to offer, and they’re able to run a healthy business as a result, while 80% don’t know what to offer other than their money, which means less accountability, less training and fewer eyes on contracts.
“If I were shopping for a brokerage, I’d want to find a broker who’s willing to invest in my business and help me reach my goals beyond anyone else in the marketplace – and you can’t expect a broker like that to work for free.
“If a brokerage is willing to give you an assistant, a transaction coordinator, a marketing department that supports you, training that’s specific to you, one-on-one coaching, what is that worth to you?”
The trend toward using a 100% model in the real estate industry is nothing new to Keller Williams Realty Downtown, which has used a capped fee model and a free training curriculum to build a stable of 310 agents.
Solo agents at KW Realty Downtown cap at $17,000 with the market center and $3,000 with Austin, Texas-based Keller Williams Realty International, bringing their combined cap to $20,000. (Sales associates who are part of a team at Keller Williams have different caps.)
To date in 2019, 41 sales associates at the company have fully capped.
The increased use of the capped fee model has Sakich suggesting it’s a wave all brokers are going to have to surf to remain solvent.
“I can’t imagine a broker not having a cap,” Sakich explains. “It’s the only way to stay competitive in today’s market.”
Edrington, whose company offers a hybrid of the traditional, transactional and employee compensation models, disagrees.
“A cap makes every agent worth a specific dollar amount to his broker. His broker knows the agent is going to make him only that cap, so he’s going to invest only a certain amount of money into resources for that agent,” he says. “That’s not an environment that would excite me if I were an agent.”
Regardless, the switch at BHG Signature Brokers to a capped fee model comes as the company finalizes its expansion into the downtown Chattanooga area with the August launch of its second office.
The company will make its new home in a building located at the intersection of 33rd and St. Elmo Avenue, across the street from WDEF-TV.
Sakich has high expectations for the new branch. “We have 28 sales associates, but there’s not a large pool of agents in Ooltewah,” she says.
“Downtown, there’s a huge pool of agents and many more connections to make. Going on the calls I’ve received, the downtown office will grow fairly quickly.”
Sakich also downplays the notion suggested that BHG Signature Brokers is offering a cap on its commission split in an effort to compete against the local Keller Williams market centers.
She’s simply keeping up with the times, she says.
“We’re doing great. We did $48 million in sales in 2018 and we’re expanding,” she says. “We’re simply moving in a direction in which other companies have already moved.”