As consumers raise concerns about the value of agents, brokers reconsider how and what they’re being paid
When Chris Poore joined Brown Harris Stevens over four years ago, he said “it was time to move to a new firm with new energy in order to level up my business.”
But Poore barely lasted two years, and later claimed the company “failed to hold up its end of the bargain” in generating the bountiful referral business he had been promised, according to a lawsuit he filed against the brokerage.
BHS CEO Bess Freedman claimed the reverse was true — that BHS had “held up its end of the bargain” but it was Poore who had not, and that by leaving before his three-year vesting period, he owed over $440,000 in bonuses, commissions and other expenses.
The skirmish continued. Poore argued the brokerage actually owed him money after BHS garnished his commission on a $4.9 million deal based on a contract he alleges he never saw. It’s a “two-way street,” Freedman hit back. Both broker and brokerage had to hold up the relationship.
Not every payment dispute ends up in court, but Poore is not the only agent questioning the fairness of that relationship, especially as the industry grapples with how agents get paid following rule changes, lawsuit settlements and a slow housing market. The upheaval threatens
to drive fees down and could push some brokers away from real estate.
With the industry’s future under a microscope, consumers are raising concerns about the value of agents — prompting brokers to examine their roles, their brokerages and the process of getting paid.
The problem with independent contractors
Brokers are considered independent contractors, or 1099 workers under the tax code, which means they’re not employees. They eschew the usual benefits of employment, such as a salary, 401K and health insurance, for the freedom to make their own schedules, choose their own deals and structure their business in the ways they see fit.
Without a regular salary, agents’ income is based solely on closing deals, a process that can take months or even years, plus the lag time between crossing the finish line with a sale and depositing an actual check. For brokers just getting started, industry conventional wisdom says to count on going without any earnings for six months to a year.
“I didn’t have health insurance,” Compass’ Eugene Litvak said about his start in the business. “I met this girl, and she fell in love with me kind of hard, kind of quick, and at that time she was giving me $10 a day so I could eat some pizza.” (The investment from his future wife paid off, as the two eventually traded a rent-stabilized apartment for a luxury condo at the Edge in Williamsburg after Litvak’s business took off.)
But the trade-off is one that many agents are eager to make. After years as an accountant, Serhant’s Abigail Palanca jumped into real estate, drawn in by the flexibility and entrepreneurial spirit underpinning the industry in New York City.
“I was really so over the corporate lifestyle,” Palanca said. As an agent, “No two days are ever alike. The sky is the limit, but you have to be willing to make sacrifices.”
For Palanca, one of the biggest sacrifices was health insurance. In her previous role, the mother of seven was the insurance provider for her family, and she lost her coverage after her career move.
“It’s this institutionalized and entrenched loop that keeps everyone either at their firm or in the same circle of firms. And they’re all just kind of stuck.” Aaron Allen, Keller Williams
To cover the gap, Palanca increased her life insurance annually during her first few years as an agent. Each time she re-upped her plan, the company would send a representative to complete a full physical. If the firm felt comfortable enough to expand her plan, she figured she was healthy enough to survive another year.
“I’m very well insured now. I’m worth more dead than I am alive most likely,” Palanca said, adding that her family now has a reliable, affordable health plan. “You have to be creative when you’re getting into this field.”
The law prevents brokerages from offering agents traditional employment perks like healthcare and legal advice if they want to maintain their status as independent contractors, said Briggs Elwell, co-founder of RLTYco, a company aimed at filling gaps with services like commission advances and tax consultations.
“There’s a lot of legality around what support a contractor and employer can provide each other,” Elwell said. “There’s a bit of a gray area in regards to how far that relationship can go.”
Though the downside is clear, working as an independent contractor means broker employment isn’t always tied to production, said Daniel Kennedy, an attorney who co-founded RLTYco with Elwell. Brokerages want their agents to make as much money as possible because their revenue as a firm depends on it, but agents can remain with a company even if their deal volume falls.
“We don’t often see brokerages get rid of someone just because they had one bad year,” Kennedy said. “Whereas, if you were a salesman in a W2 role, you may well be shown the door.”
As 1099 workers, agents fall under the same category as freelance writers or photographers, who pick and choose assignments and are subject to limited oversight from the companies or individuals they work with as long as the work is completed in line with the terms of the contract.
“The difference between independent contractors and employees really comes down to control,” Kennedy said.
Elwell added that “contractors are supposed to be free to come, free to go.”
Fights over the fine print
But unlike rideshare and delivery drivers, agents can only hang their license with one firm at a time. Even more restrictive is that those firms have made it increasingly difficult for agents to leave with policies like clawbacks.
“As an independent contractor, you should be able to work wherever you want,” said Compass’ Vickey Barron. “Why should you be penalized? You did the work. You earned the money. Why do they get to keep it?”
Brokerages have long recouped some portion of commissions on pending deals, but the practice of clawing back incentives, commissions and marketing expenses has grown in intensity.
“There’s more competition for talent, there’s more competition for listings, and most brokerages have taken a hit over the last couple years,” said Molly Townsend, a real estate coach and former executive at The Agency and Douglas Elliman. “They may not have money to pay an incoming clawback bill, but they’re certainly not going to let go of the opportunity to collect money on their agents going out.”
Compass made a splash with aggressive recompensation tactics when it came on the scene, recruiting star agents with low splits and lucrative incentives, only to ask for an equally jaw-dropping amount of money back when those agents tried to leave before an applicable vesting period. (Compass stopped offering certain sign-on perks in 2022.)
Now, those terms are part and parcel of how most brokerages operate.
Often, the terms are spelled out in some digital file tucked away on an internal shared drive that agents rarely see — exactly what Poore alleged happened to him when he joined Brown Harris Stevens.
Poore’s independent-agent agreement stated that his commissions were based on a “Broker’s Manual” which may be updated from “time to time,” which was the firm’s justification for requesting repayment from Poore and giving him just 40 percent of the commission on a deal. But Poore claims he “never received a copy of the policy manual and had no knowledge of its terms,” so therefore, he wasn’t bound by it.
Poore said he repeatedly declined to sign updated versions of his IAA because it never annexed his offer letter or included the policy manual.
In this instance, the court bought Poore’s argument that BHS’ “vague and shifting references to ‘manuals’ and ‘policies’” were insufficient to prove that he should have known about the clawbacks.
“The information that [Poore] was supposed to review was not available to him at the time of his entering into the contract,” a judge wrote in his ruling in favor of Poore, pointing out that he did not even know about the existence of the policy manual.
In most cases, brokerages pay to make new recruits whole again — which only incentivizes companies to turn around and claw back from their next departing agent to cover the costs of any future hires.
“It’s this institutionalized and entrenched loop that keeps everyone either at their firm or in the same circle of firms,” Keller Williams’ Aaron Allen said. “And they’re all just kind of stuck.” The eye-for-an-eye mentality has only been exacerbated by a multiyear market downturn that shrank brokerage profits (or turned them into losses), leaving companies desperate to retain the top talent they wooed over during the boom times.
That dynamic has laid bare the relationship between agents and their brokerages.
“The saddest part of this is I thought you were a good friend and honest person but you’ve proved differently,” Poore wrote Freedman in an email.
Looking to the future
For Poore, filing a lawsuit against his former brokerage — a daunting move even for top agents — appears to have worked out for the better. Poore won summary judgment on two claims he brought against BHS and could be entitled to double the damages under New York’s labor laws, according to his attorney Michael Rakower.
One of Poore’s arguments could have “far-reaching consequences” for the industry, Rakower said, pointing to BHS’ failure to include the policy manual in the agreement Poore initially signed with the brokerage.
“They can’t just sneak it in,” Rakower said.
The judge sided with Poore but the case isn’t a done deal, as the court hasn’t determined damages. He’s also still facing counterclaims from BHS, though Rakower brushed off any concerns about the brokerage’s case.
A spokesperson for BHS declined to comment on the pending litigation.
Most agents can’t afford to take on a costly lawsuit, both in terms of expenses and the potential reputational hit associated with publicly rebuking a former employer. But the sentiment that agents tend to give more than they get has pushed brokerages to try and articulate their value. Compass, which in recent months brought over big names like Holly Parker in New York City, Tracy Tutor on the West Coast and Jennifer Leahy in Connecticut, released a consumer-facing app that it claims “showcases the agent’s value well beyond just facilitating transactions.”
It has also been harping on its private exclusives, listings that are only available to Compass agents. The database could be a leg up for the firm’s agents at a time when every brokerage is vying for its own niche to capitalize on, like Serhant with social media marketing and BHS with its 150-year-old name.
The brokerage brand isn’t as alluring to some agents as it used to be, especially as firms like Side allow agents with enough volume to try their luck on their own. BHS’ Scott Harris recently left the firm after more than two decades to start his own brokerage called Magnetic, backed by Guy Gal’s white-label company.
“It seems like if you’re on your own, you’re probably making more money than if you’re hanging your license with Compass or Corcoran, assuming you’re a large producer,” said Allen. Allen left Compass for Keller Williams, which takes a commission split up to a certain point before an agent takes home 100 percent of their gross commission.
Though clawbacks are now ubiquitous in markets like New York, some firms are starting to shun the practice. The Agency’s franchise in East Hampton, headed by former “Million Dollar Listing” star Tyler Whitman and top broker Dana Trotter, ditched clawbacks as they recruited new agents to their fledgling office.
“I really want to bring back the free agent,” Whitman told The Real Deal last year. “If somebody is not happy, I want them to have the freedom to go be happy and not feel like they’re financially imprisoned with me, and vice versa.”
But real change could take an armistice from the city’s largest residential players, who have also been battered economically in recent years, according to real estate coach Townsend.
“In my dream of all dreams, I want ‘The Big Four’ to come together and sign a treaty,” she said.
