A commission split is the percentage that real estate brokers and agents receive when they aid a seller or a buyer close on a house or property. Usually, a real estate commission split can be anywhere from a 50/50 to 70/30 split. This greatly depends on the type of market you are working in and the brokerage you work for.
In a Real Estate Commission Split, Who Shares?
All transactions will run through a broker. Then after a commission split is negotiated, the real estate agent is given their earned portion. The amount of the commission is agreed upon using a percentage of the total gross income, an example being the amount before taxes or any other type of deduction.
In a normal transaction, there are two real estate agents working for the buyer and seller. Each of the agents represents a broker. During the closing of the house or property, the commission money that is in the transaction is split up between the brokers. They will then split their portion of the money with the agents who have been working with them, based on the commission split agreement from their brokerage.
The 2 Types of Commission Splits
1. Fixed Real Estate Commission Splits
Fixed commission splits take place when a portion of the commission that is given to the agent and the broker stays fixed, or constant, never changes with production goals or sales. A usual split is 60/40, but a fixed split can come in any amount. Like most things, there is always a good and a bad. The good thing about a fixed commission split is that it is highly predictable and you have lower risk. The only bad thing is that you have less of an earning potential.
2. Graduated Real Estate Commission Splits
A graduated commission split offers more money to real estate agents as they keep on producing more. For example, a real estate agent starts at 50/50, progresses to 60/40 because they have met their goal, and then reaches more goals and progresses to 80/20.Depending on the potential to earn in your area, the ability to keep more earnings can be an incentive to close on more deals.
Structure Mechanics of a Commission Fee
Even though it is common for the broker and agent method in a brokerage to share a transaction commission, it actually operates like a multi-level structure. Traditionally in a real estate business, the seller would be contracted with the agent or broker to list their property for a certain percentage of the selling price. The broker, who works for a listing brokerage, sponsors the agent. Then, the brokerage lists the property in the Multiple Listing Service, also known as MLS.
The brokerage will offer to share their sales commission with any MLS broker member who can bring a buyer to complete the purchase. This is one kind of split.
The second type of split occurs when the broker in each company is involved in any transaction, meaning any involved agents also need to be compensated. Each of the brokers, the seller, and the buyer would split their share of the commission with the buyer and seller agents as a split, per their written independent contractor agreement.
Split Caps on Graduated Real Estate Commission
The graduated commission split system is used in some agencies to set a cap on the revenue amount they can gather for company commissions. After a particular commission revenue amount is met, the agent is then allowed to keep the rest. A transaction fee usually established by most companies once the cap is reached.
The transaction fee is charged by the company because there are remaining company costs from every closing. This happens even if you are receiving a decent amount of commission money. The transaction fee is typically a small fee that will cover the administrative costs of the company that is pursued with closings.
Rollback Policies
A rollback policy resets the commission split to an ordinary level at the beginning of every calendar year. Rollback policies are standard features, even though graduated real estate commission splits are very common these days.
In a rollback policy, every real estate agent rolls back at the start of every year to the graduated commission split amount that they began with, which usually is a 50/50 or a 60/40 split. Most real estate agencies greatly benefit from this because the real estate agents are motivated to produce as quickly as possible. When they do produce quickly enough, the brokerage is assured that the real estate agents are covering their own operating costs, while also taking in a profit.
Since the peak season of real estate is late in the spring or early in the summer, a rollback at the start of the year works well. When there is a higher volume of sales, a real estate agent can make up a reduced commission.
When calculating your fixed or graduated real estate commission split, it is important to make sure that any franchise fees that the brokers usually pay are taken after the agent or broker split happens from the side of the broker.
Real Estate Income Models Explained
To help you further understand how commission splits work, here are some examples of real estate income models.
Traditional Model
The traditional model consists of a 50/50 split when the real estate agent and the broker split their original commission in half. Even splits usually occur when a broker provides office space, marketing resources, client leads, and any other needed materials that will help the agent find opportunities for work.
Salaried Model
The salaried model is not as common as the traditional model. With this model, a broker pays a real estate agent a salary, but with the opportunity to earn a commission from helping their clients buy or sell properties.
Office Fee Model
The office fee model is also referred to as the 100 percent commission split model. This model is when the real estate agent gets all of the commission from the sale or purchase of the property and the real estate broker receives nothing from the commission. To compensate for this, real estate agents will pay brokers a monthly fee.
Consultant Model
The consultant model occurs when a brokerage firm refers a client to another brokerage firm in the same area where they are planning to purchase a property. When this happens, the brokerage firm that the client gets referred to receives most of the commission, since they help the client find and purchase their new home in their area. Since the first brokerage firm was responsible for referring the client to them, the other brokerage firm gives them a portion of the commission because they are thankful for their help.
How Our Commission Split Works
At Christian Saunders Real Estate, we have a 80/20 split with a $20,000 cap. This means that 80 percent of the commission goes to the realtor and 20 percent goes to the broker until you cap out at $20,000. Once you are capped out, the realtor gains all of the profit.
There is a fundamental difference on how our company looks at things and how other companies look at things. We care more about our agents' wants, needs, and demands rather than how to make a profit. We are loyal, diligent, and put our best effort in all that we do. We form our company on that principle.
Conclusion
Now that you have a better understanding of how our commission split works, we would love to have you on our team. At Christian Saunders Real Estate, we are looking to expand our company with diligent real estate agents like you. Click here to learn how to become a part of our growing company.
