Long known for its salaried compensation for agents, Redfin is trying a new pay model in two of the nation’s largest housing markets to help boost its market share.
Under Redfin Max, a new pay plan being rolled out in Los Angeles and San Francisco, Redfin agents earn commission splits of up to 75% for transactions they generate on their own, according to a company announcement on Wednesday.
The agents in these two metros will remain W-2 employees who still receive benefits, including health care, 401(k) matching, mileage, dues, technology tools, team support and all listing marketing expenses, including photography, staging, yard signs and other collateral materials.
While Redfin agents can receive up to a 75% commission for transactions they generate from their own book of business, they’ll also receive up to a 40% commission for client leads they get through Redfin’s website.
The firm had hinted at some possible changes during its second quarter 2023 earnings call with investors in early August.
“We have spent years trying to crack the code in San Francisco and Los Angeles in regard to our performance and taking market share,” Jason Aleem, Redfin’s senior vice president of real estate operations, said. “We tried a lot of different things and what it came down to was that we needed to upgrade some of our talent and better retain a lot of our existing top talent.”
Aleem said this desire led Redfin to restructure its compensation plan in these two markets.
According to Redfin CEO Glenn Kelman, the other aim of this change is to create million-dollar agents.
“We can afford to pay top agents more, because those agents are already so profitable, generating high-margin revenues from Redfin-sourced sales,” Kelman wrote in a blog post on the firm’s website. “The more top producers we recruit, the more profitable we’ll be.”
The Redfin Max payment plan comes at an interesting time in the industry, which is currently grappling with major potential changes to agent compensation thanks to two class-action buyer broker compensation antitrust lawsuits.
Despite this, Aleem said Redfin feels good about its adoption of the new pay model.
“We truly think this compensation plan as the best of both worlds,” Aleem said. “It is this collision of the tradition model with commission splits and what we have learned agents value at Redfin.”
Although the plan is still new, Aleem said the general reception has been positive.
“They’ve got people signing up left and right,” Aleem said. “So, we really think we struck the right chord here.”
The new pay plan is set to go into effect in Los Angeles and San Francisco Jan. 1, 2024. In all other markets, Redfin’s agents will continue to operate under the existing compensation plan — earning a base salary and bonuses for every closed transaction.
However, Aleem is optimistic that the firm will eventually expand the new pay model to other markets.
“We’ve run our plan a certain way for a really long time and we know that works really well, so we want to make sure we understand all the pros and cons of this compensation plan and how it works inside our system before we push too far,” Aleem said. “We do believe in this plan, but we want to be methodical about it and not go too fast.”