Week 1: How Compensation Affects Behavior

This last summer I worked in a real estate team’s office and it was very interesting to see how compensation affected the effort of different agents. A very highly motivating form of compensation in real estate is commission. Each principal Broker gets to decide how they split the commission with the agent on their team. The more commission they receive on the sale or purchase of the house, the more enticed they are to work harder. Real estate is an extremely self-sufficient job and you have to work for what you want. So this summer I saw many agents accept a listing from clients with a house worth more than others. This is directly correlated with their thought of the commission they can earn off of listing the house. One agent in particular would cherry pick listing appointments at the highest CMA (competitive market analysis). While this is not ethical it was a real world example of how he was driven towards earning the most compensation for his time. I saw commission as an extremely effective compensation strategy in the real world as well as ways that it made people work not as hard if they weren’t receiving as much commission as they would’ve hoped for.