If you’re building a real estate team, finding the right commission structure is essential. A successful compensation model supports your growth and profitability goals while encouraging team members to work hard.
The commission split you choose will also impact the fees you charge your clients. Let’s look at a few common options: 1. Fixed commission splits.
In fixed commission structures, real estate agents receive a certain percentage of the sales commission once a transaction is closed. Most of the time, real estate companies require new agents to start with a 60/40 split (agents get 60%, company takes 40%).
Some real estate companies also offer graduated or tiered commission structures that improve for agents as they hit production goals. For example, Keller Williams offers a 64/30/6 commission structure (agents get 64% of their negotiated commission, 30% to their market center and 6% to KWRI) once they hit a certain level of sales.
Some modern brokerages like Redfin pay their agents a salary rather than a traditional commission split. In that case, they may charge a monthly fee to cover things like training, marketing, and office space. These fees are often called “sign-up” or “agent-related” fees. The goal is to negotiate a commission split that works for your business and fits your current goals.
While fixed commission structures are the most popular, they may not always be the best way to motivate agents to increase their production. The simplicity of these models can sometimes make accounting operations easier for both parties, but the lack of additional incentive to produce can make it harder to retain top performing agents.
Some brokerages offer a graduated commission model that increases an agent’s share of the overall commission rate as they hit specific GCI targets or milestones. This is often a more effective way to encourage agents to produce quickly and helps improve month-to-month margins.
Brokers can also offer a hybrid model that offers both fixed and graduated commissions. This can be a good solution for brokers that want to keep their fees as low as possible while still providing the front and back office tools their agents need to succeed.
There are a few companies that offer a cap-based commission structure. For example, RE/MAX has a system that gives agents a 60/40 commission split until they reach a certain threshold of $23,000. When they hit that mark, they move to an 80/20 structure with the company.
This is a great option for newer real estate agents who want to keep their commission percentage high. However, it is important to note that these models are still dependent on the broker. In most cases, the broker still needs to be paid a fee.
For example, imagine Sally hits her cap at $18,000 in her first year of business. She is then required to pay $3,000 to KW International for the franchise fee. This can add up to tens of thousands of dollars that she loses to her broker every year.
Real estate agents are not paid salary-based like employees, but rather on a percentage of the commissions they generate for their broker. This is a popular option for new real estate agents who are still generating income and need to cover costs such as marketing, licensing fees, and equipment costs.
Brokers may also offer capped commission structures. These are similar to the graduated split model, except there is a threshold set in advance. Once reached, the agent earns a higher commission rate for the remainder of the fiscal year.
Some brokers even offer salaried models for their top producing agents. This is less common than the traditional split, but some companies are starting to see the benefits of this model for their highest producers. When negotiating with your broker, be sure to provide them with hard data that shows how changing the commission structure will benefit their business and help them reach new production goals.