Operating as an independent contractor in a real estate business is a viable career alternative for salespeople who want to work for themselves but don’t want the full responsibility of being a principal of a real estate office.
It’s midway between the options of a straight principal / salesperson relationship and owning a real estate business and has clear advantages and benefits for both office principal and contractor.
The concept involves an independent contractor who operates their own separate company and sits under the umbrella brand of a standalone office. The physical premises to operate from, equipment, software, consumables and most back end services are provided by the office principal’s business, owned by the principal.
In return the contractor covers the costs they incur. This can be done in a number of ways, including a “desk fee” which is a regular fixed fee, a straight “user-pays” arrangement, or by an agreed commission split which takes into account the likely costs.
The contractor has almost complete flexibility and independence within the model - they can decide their own targets for performance as well as when and how they want to operate. They can also employ people themselves and grow their own business within the business to the design and size they choose.
First let’s look at this option from the perspective of the principal. Allowing people to operate as independent contractors means they consume less of the business’ resources, the key one being the office principal’s time and focus. The office principal is freed to focus on other things while the contractor gets on with their own business.
Overall business risk is minimised; an independent contractor requires a full real estate licence and their own professional indemnity insurance. Clearly this doesn’t mean the way they operate is irrelevant - if an independent contractor operates in a less than ethical way, the brand would certainly suffer even though the office principal is unlikely to be financially penalised.
Possibly one of the biggest advantages to the office principal is that the costs of having the contractor in the business are almost guaranteed to be covered - the contractor pays their own way. Unlike a normal salesperson relationship, the office principal should not be exposed to financial loss if the contractor fails to perform.
Realistically, it’s similar to a franchise arrangement in that the contractor is effectively sub-licensing the principal’s brand while at the same time increasing the brand profile.
From the perspective of the independent contractor, they effectively get to be their own boss. Many people who choose this model are highly motivated individuals, focused on achievement and maximising their return for their efforts, without wanting to be bogged down by the details of full business ownership. How many hours they put in and how they spend those hours becomes a personal responsibility. How many properties they list and sell is almost completely up to them. They get real choices and independence within the confines of the office principal’s business.
In terms of the actual operation, it’s a little like using a serviced office - a contractor doesn’t have do things like sign leases, pay phone bills, organise cleaning or all of the details that make up a business operation. Contractors get to leverage off the office principal’s resources, including branding, training and size. They literally just have to turn up in order to list and sell, only paying for what they use in one of the ways detailed earlier.
The amount of commission that ends up in the contractor’s pocket is higher than a salesperson would get, and on top of that, there are significant tax benefits available to independent contractors. The company can employ others and many contractors take the opportunity to employ spouses or family members, reducing their personal tax liability. The company can legally deduct expenses employees can’t.
Contracting isn’t for everyone, but as with any option in life and in real estate, it’s a case of horses for courses. Where the profile of a successful independent contractor fits, it has the potential to be a lucrative and satisfying choice for both the individual and office principal.
