Abstract

Real Estate Professionals' Customer Orientation and Sales Performance

by Kenneth E. Bass, Frederic J. Hebert, and Joseph Tomkiewicz

Abstract

A sample of real estate professionals was used to evaluate possible A sample of real estate professionals was used to evaluate possible relationships between sales orientation and customer orientation and salespersons' performance. Results of the study confirmed a statistically significant relationship between these variables. Salespersons who were sales oriented earned more in gross commissions than those who were customer oriented.

The residential real estate market is an important segment of the United States economy. This sector, typically the hardest hit in economic downturns, reached an all time high in sales in 2001 with 6.15 million units sold. The median price for an existing home was $151,400 in December 2001, up 8.4 percent from a year earlier (Barta, 2002). In 2000, 5,113,000 existing homes and 877,000 new homes were sold in the United States (U.S. Department of Housing and Urban Development, 2001). The purchase of a home is usually the most expensive investment that a family or individual makes. A substantial part of the cost of real estate transactions can be traced to the fees paid to real estate sales professionals. About 108,800 such individuals are employed as real estate agents in the United States (U.S. Department of Labor, 2002).

The real estate market is a rather unique sales environment in that three or four parties are directly involved in real estate transactions. Three-party transactions include the seller of real property, an agent who is a provider of services (the seller agent), and a buyer. The seller typically contracts with an agent (brokers and salespersons) to sell real property and pay a brokerage fee upon consummation of the sale. Under such an arrangement, real estate salespersons are agents of the real estate firm and subagents of the seller (Colwell & Trefzger, 1994). Though laws vary among states, such agents' primary fiduciary responsibility is to the seller.

A buyer agent is introduced into the transaction in the four-party model. There has been a striking rise in the use of such buyer representatives in recent years (Elder, Zumpano, & Baryla, 2000). The real estate agent who works with the purchaser is a legal agent of the buyer (Moore 1999). While licensed real estate agents can act as buyer agents, some states permit brokers to be hired for an additional fee to act exclusively on behalf of the buyer (Bajtelsmit & Worzula, 1997). Such real estate agents who act solely as buyer brokers were not included in the present research.

The purpose of the present investigation was to increase the understanding of a possible antecedent of real estate sales agents’ performance that may be related to sales success in the residential real estate environment. Specifically, this research investigated the relationship between salespersons’ sales orientation and customer orientation and their performance as measured by gross commissions earned. Customer orientation is a practice that may be adopted by individual salespersons (Saxe & Weitz, 1982). Such individuals adopt practices that increase long-term customer satisfaction (Dunlap, Dotson, & Chambers, 1988; Noble, Sinha, & Kumar, 2002). Those who are highly customer oriented could be expected to pursue actions that reflect the best interests of their customers rather than their own. Thus, such persons could be expected to forego actions that would likely result in an immediate sale rather than completing a transaction that might not be in the best interest of their customers. In contrast, those who are sales oriented could be expected to show little regard for customers’ needs and to use techniques such as high-pressure selling in order to close an immediate sale (Saxe & Weitz, 1982).

There is a dearth of empirical research examining the possible relationship between customer orientation and sales performance in the real estate industry. Such a relationship, if found, could be valuable to real estate firms as well as individual real estate salespersons.

In the following sections we define the variables in this research and briefly discuss the previous empirical research related to these variables. We next propose relationships among the variables, and then conclude this section with the research question.

The marketing concept has been a cornerstone of marketing theory for many years. This concept calls for an organization to focus on its customers, determine their needs, and then fill those needs more effectively than competitors (Houston, 1986). Customer-oriented selling is compatible with the marketing concept. Saxe and Weitz (1982) defined customer-oriented selling as "the practice of the marketing concept at the level of the individual salesperson and customer" (p. 343). In contrast, the selling concept calls for an organization to increase demand for its products. By embracing a selling orientation, a salesperson attempts to increase sales volume by using techniques such as high pressure selling with little regard for the needs of the customer.

The market orientation of a firm is determined by the extent to which the firm adopts the marketing concept as a business philosophy (Saxe & Weitz, 1982; Keillor, Parker, & Pettijohn. 1999). Though a market orientation has been recommended as an appropriate universal strategy for business firms (Gengler, Howard, & Zolner, 1995), not all firms have adopted the marketing concept (Kotler, 1980; Noble, Sinha, & Kumar, 2002). Some researchers have suggested that a firm consider its external environment in making a choice between a market-oriented and a sales-oriented strategy (Kohli & Jaworski, 1990; Narver & Slater, 1990). Once one of these strategies is selected and established by a firm, that firm can be expected to likewise influence its sales force to embrace and practice the adopted philosophy in their selling efforts (Siguaw, Brown & Widing, 1994).

A firm may use a number of practices to influence the degree of customer orientation practiced by its sales force. For example, a high degree of customer orientation may be established and maintained through sales force training and by rewarding customer-oriented behaviors such as helping customers assess their needs and offering products that will satisfy those needs. On the other hand, an organization can establish and reinforce a selling orientation by rewarding behaviors such as high-pressure selling with little regard for building long-term customer relationships (Saxe & Weitz, 1984).

A firm may reasonably expect that salespeople will adopt a customer orientation consistent with the firm's degree of market orientation. However, a salesperson's customer orientation may diverge from the market orientation of the firm. Some individuals may naturally act in a more customer-oriented manner than others and are more easily able to learn to do so (Siguaw, Brown & Widing, 1994).

Saxe and Weitz (1982) developed and validated a scale, the Sales Orientation-Customer Orientation (SOCO) scale, in order to measure sales orientation and customer orientation of salespeople. (The SOCO scale was developed and validated in an industrial sales situation.) Since that time, a number of empirical studies have been conducted which investigated sales-oriented and customer-oriented behaviors. For example, Kelley (1992) found that salespersons' perceptions of the organizational climate impact on their customer orientation. In another study, Dunlap, Dotson, and Chambers (1988) surveyed residential real estate brokers and customers and found conflicting perceptions among customers and brokers regarding the extent to which the brokers were customer-oriented. Brokers rated themselves to be significantly more customer-oriented when the broker results were compared with the rating of the customers who were surveyed. O'Hara, Boles, and Johnston (1991) investigated a set of personal variables as antecedents to customer orientation. These researchers found that organizational commitment was related to selling style, but other personal variables such as job tenure and gender were found to be situation dependent. In a more recent study of industrial salespeople, Siguaw et al. (1994) found that salespersons' customer orientation was significantly influenced by the market orientation of the firm. Findings of studies examining possible relations between the sales orientation-marketing orientation of salespersons and their performance have been mixed. For instance, Narver, Jacobson, and Slater (1999) found that market orientation was significantly related to sales growth. Another study by Noble, Sinha, and Kumar, 2002 found that customer orientation was not related to sales.

Saxe and Weitz (1982) noted that salespeople would be more likely to adopt a customer orientation in their selling when repeat sales are an important source of business. Much of the empirical research into salespersons’ customer orientation-sales orientation has been conducted in industrial settings. However, the industry structure as well as the salesperson’s reward structure is substantially different in the real estate market. Industrial salespeople are usually compensated through a system that may involve salary, commissions, and bonuses. Real estate salespeople are usually compensated through a fixed percentage of the value of the real estate sold. Repeat sales are less of a concern in this market than in the industrial market. It seems reasonable, therefore, to expect real estate salespersons to adopt a sales orientation in order to make immediate sales that yield their only form of compensation. The research question is this: Do real estate salespersons who adopt a sales orientation earn more in gross commissions than those who adopt a customer orientation?

The objective of this exploratory study was to determine if a relationship might exist between real estate salespersons’ sales orientation-customer orientation and their selling success as measured by gross commissions for sales.

Sample and Data Collection

The sample employed in this study was 119 individual agents who were engaged in residential real estate sales in a medium size city in the Mid-Atlantic region. Data were gathered at a meeting of a professional real estate association. Those in attendance were assured of anonymity and confidentiality, their cooperation solicited, and were asked to complete a questionnaire consisting of the SOCO scale and a section designed to gather gross sales commissions as well as classification data.

Real estate sales associates represented about 71 percent of the sample, while brokers represented about 29 percent. Respondents ranged in age from 24 to 68 years, with a mean age of approximately 47 years. Of the 119 respondents, 37 percent were male and 63 percent were female. All of the subjects were engaged in real estate sales.

Measures

Sales Orientation/Customer Orientation: Saxe and Weitz (1982) developed and validated a scale to measure sales orientation and customer orientation (SOCO) of salespersons. The SOCO scale is composed of 24 items that relate to specific behaviors that salespersons might employ when reacting with customers. Higher SOCO scores indicate higher customer orientation, while lower scores indicate higher sales orientation. Saxe and Weitz reported high levels of internal consistency and reliability and presented evidence of convergent and discriminant validity.

Instructions for the SOCO scale asked individuals to describe ways in which they might act with a customer. Participants recorded their responses on a nine-point scale for each of the 24 items on the scale (Saxe & Weitz, 1982). A SOCO score for each respondent was derived by computing the mean across the 24 items of the scale.

Salespersons’ Performance: Gross commissions on residential real estate sales were chosen as the most reliable indicator of salespersons’ performance..

The results showed a statistically significant correlations (p<.01) between SOCO scores and gross commissions earned. (See Table 1 below.) The mean SOCO score was 5.2 on a 9-point scale (9=high customer orientation), indicating that respondents appeared to be somewhat customer-oriented. Individual mean scores across the 24 items on the SOCO scale ranged from 2.9 to 6.5, with a standard deviation of 0.46. The SOCO mean scores in this study were somewhat lower than those reported by Saxe and Weitz (1982): means of 7.6 and 7.7 for two samples.

Table 1

In order to test whether SOCO scores were related to gross commissions, a chi-square test was performed. SOCO scores and gross commissions were dichotomized at the median. Thus, four groups were identified: those above the median SOCO score (122); those below the median; those above the median commission ($30,000); and those below the median commission. Those who did not report their commissions were excluded, as were two figures that were judged to be untypical: $100 and $1,000,000. The chi-square test was significant: p<0.002. Thus, agents who were sales-oriented earned significantly more in sales commissions than those who were customer-oriented. (See Table 2.)

Chi-Square Statistic: 9.785

An analysis of variance was performed comparing commissions between male and female respondents. There was no significant difference in commissions earned based on sex.

One additional test was conducted to ascertain whether differences existed between those who identified themselves as sales associates and those who indicated their job title as broker. Using the total SOCO score, we found that those who identified themselves as sales associates scored an average of 124.0 (S.D.: 8.4) and those who indicated their job title as broker scored an average of 123.9 (S.D.: 12.6). An analysis of variance showed no significant difference between the two groups (p≤0.93). Under these circumstances, it was decided that any differences that might exist between sales associates and brokers were inconsequential for this study.

Discussion

The objective of this research was to determine whether or not an individual differences factor was related to performance of real estate agents. More specifically, the research question called for an evaluation of possible relationships between individuals' sales orientation/customer orientation and performance measured as commissions for sales. Results of this research indicate a statistically significant negative relationship between customer orientation and commission earnings. Thus, agents who scored higher on sales orientation earned more in commissions than those who were more customer oriented.

These findings may seem contradictory when examined in light of the literature regarding salespersons’ sales orientation/customer orientation in that some researchers recommend a market and customer orientation in all industry types (e.g., Narver & Slater, 1990). However, such findings must be interpreted in the context of the sales situation. Saxe and Weitz (1982) developed and validated the SOCO scale using a variety of industrial and retail salespersons. In traditional industrial selling situations, the salesperson tends to be more dependent on repeat sales. However, in the real estate selling situation, the salesperson may be less concerned about long-term relationships and more focused on making an immediate sale. It is also possible that sales agents may be customer-oriented when interacting with the seller of real estate and more sales-oriented when dealing with a buyer. Further, differences in compensation systems in industrial or retail settings may encourage customer orientation, but compensation in the real estate environment may encourage efforts to make a quick sale and thereby reap a commission on the sale.

The results of this study suggest that SOCO scores could be a useful predictor of individuals’ success in real estate sales. Therefore, the SOCO scale, a paper and pencil test, could be a useful selection tool in recruiting salespeople. The hiring firm could consider applicant's' sales orientation as a supplement to the selection process, rather than as the sole device employed. Individual salespersons might use this information to better fit their behavior with the needs of the marketplace.

Finally, important limitations of the findings of the current study exist. First, this study was cross-sectional in nature. It is possible that individuals who are sales-oriented might pursue short term gains while those who are customer-oriented may pursue longer term goals. A second limitation is that that the measure of income was self-reported. Possible misrepresentations of income could distort the findings of the study. Third, the sample was drawn from a limited geographic area. These limitations suggest that results of this study should be generalized only with the utmost care. Further research is needed to overcome these limitations.

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	Below Median SOCO Score	Above Median SOCO Score	Totals
Below Median Commission	11	30	41
Above Median Commission	24	15	39