Redfin Max to offer LA, SF agents a richer commission split 

Redfin announced today that it is making a major change to its pay plan for agents in San Francisco and Los Angeles — two of the priciest housing markets in the country. Starting January 1, agents in those markets will move away from Redfin's base salary and bonus model to a more typical commission structure that rewards agents who bring in their own business.

Dubbed Redfin Max, the new model works like this: Agents who work on their own deals and clients can earn up to 75% of the commission split, while they would get a 40% split on deals with customer leads provided by Redfin. These "lead agents," as Redfin calls them, will remain W-2 employees and have typical full-time benefits such as healthcare, a 401(k), and employee stock purchase plan.

Real Estate News had the opportunity to talk with Jason Aleem, Redfin's senior vice president of real estate operations, about the new overhaul of its pay plan, which he believes would not only remove the ceiling from earning potential, but also bolster Redfin's profitability and reputation within the industry.

This interview has been edited for length and clarity.

When did Redfin start thinking about changing the pay plan?

It's been bubbling beneath the surface for at least six months as we've thought about growing our business in Los Angeles and San Francisco. And it kind of came down to wanting to have the best agents in those markets, and that meant having a plan that allowed us to retain our top talent and recruit top talent.

Despite slowing sales, competition remains fierce among brokerages for top talent. How will this help Redfin stand out?

We're actually going to give more to agents right now. We really think it's the best of both worlds to have the upside of building your own sphere of business and entrepreneurial approach, and along with all that, we can provide our "business in a box" model, our team concept, our mission, and all the opportunities we can give you every single month. When we put those things together, it can be a really really powerful combination that can put the customer in the driver's seat with a rockstar agent on their side.

Why start with Los Angeles and San Francisco?

We've been working on those markets for a long time. What it came down to is we needed to figure out how to increase our close rate and our success in those markets. We've got the top of the heap of our agents crushing it all the time, but we needed more of those agents. Those are two amazing markets. For Redfin to be what we want to be, we need to do really well there and take market share. That meant up-leveling our talent and retaining our existing top-tier talent.

Does this mean salaries will be phased out? And will lead agents remain full-time, W-2 employees?

Agents are getting health care, paid time off, and the "business in a box" support system of people who can help with showings, people who do your transaction coordinating on the backend, and people who help you build your business. All of those things still exist. And we still believe that that W-2 model allows us to hold a certain level of accountability that you just don't get with a 1099 model. We will eliminate the base salary and the event pay. We used to pay for every single event that most people did (such as tours) — that's going to be gone. 

The way I think about it is removing the ceiling from compensation. In these markets, we want to be able to set up agents to be million-dollar producers. We think some of our internal agents can work toward that number and achieve it, and we think we'll be able to hire talent that can hit that million-dollar-a-year mark, where before our comp didn't really allow for that. You'd have to do something miraculous to get there. Now, you'll be able to get there. 

With this change, is Redfin conceding that a commission split model works better?

We feel like we're embracing the future, and when we say "the best of both worlds," we truly believe that — we're combining the traditional model of high splits for business that you generate on your own with all of the contacts that we generate off of Redfin.com. So if you can put both of those things together, that's the best of both worlds.

We have the consistency of all the support, of the mission, of the team, of the benefits and all those good things, and you can close those web contacts at a really high rate, but you're also able to do well on the circle of business that you create for yourself. And that was the missing piece, that over time, our agents are dealing with a really large book of business and want to be rewarded for that. So I know some people might look at it that way, but there's still elements of both that will coexist in this new comp plan.

More brokerages are talking about buyer agreements. How does that fit into Redfin's model?

We actually have started to test that in certain markets: Going out and having a buy-side agent really try to earn the business or having a listing agent take a buyer's agency agreement with them to a consult just in case you're going to represent them on the buy side as well. It all fits under the umbrella of "gloves off."  We're in a fight to make sure that we grow this business the way that we want to. If buyer agency agreements are what customers want, and it makes for a better relationship, then we'll do that.

Note: Reporter AJ LaTrace briefly held a real estate license in Illinois and worked for six weeks as a Redfin lead agent.