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Methods of Compensating Real Estate Agents – Commissions and Splits

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This article gives a great  overview of real estate commission plans. More evidence that our commission plan is undoubtedly the best in the industry.

You can read the article below or click here for the original, enjoy:

The Broker/Agent Traditional Commission Split Model:

The vast majority of real estate agents are compensated by a broker via sharing the gross commission amount that the broker collects. Here’s an example:
1. Gross commission amount of a transaction = $12,000.
2. Broker/Agent split of 50% broker/50% agent = $6000 to the agent.
3. The percentage split is an amount agreed to by the broker and the agent and usually reflects the amount of services and support the broker provides. It can also reflect the volume of business the agent brings in.

The 100% Commission Model:

In this compensation model, the agent gets the entire commission. This model can pay 100% to the agent because the agent is paying a “desk fee” or monthly office fee. This can be a significant amount/month, but experienced producers prefer it because their costs are capped while their income is not.
Example from above would be $12,000 to agent, but office fee could be $1000/month or more.
New agents generally are not interested in this model because of the fixed cost they must pay monthly.As of 2013, this model has almost disappeared, with even REMAX taking on new agents with less than a 100% commission.

Referral Fees from One Brokerage to Another and Agent Split:

Referrals come “off the top” before commission is split. The referral is a negotiated percentage paid to another company for sending a client, either as a seller or a buyer. Here’s an example of a typical buyer referral:
1. Brokerage A refers a buyer to Brokerage B in another state.
2. Using the $12,000 gross commission from above, and an agreed referral fee of 25% would give Co. A $3000, and Co. B agent and broker would split the remaining $9000.

Percentage Paid to Franchise for Business:

Some of the major franchises charge a percentage fee “off the top” of each commission to their franchisees. This fee would come off the top of whatever amount the Broker receives before splitting with the agent. Using a 7% franchise fee as an example:
1. $12,000 gross commission from deal would pay franchise $840, while broker and agent would split the remaining $11,160.
2. On the referral deal from above, the franchise percentage would come off of the $9000. Agent and broker split $8370.

Other Compensation Models:

With differing models appearing regularly for how brokerages charge their listing and buyer clients, there are many other ways an agent might be compensated….even by a salary.
For a new agent, the split negotiated with the broker should be carefully considered based on the services and anticipated prospect leads that will be received. Sometimes a 45% agent share can be better than a 60% share with little business coming from the broker.
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100% Commission Real Estate in the 1980’s?

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This is quite hilarious, apparently 100 percent commission real estate is a relatively old concept.

This article, dated September 16, 1985, talk about the 100% commission trend in Florida

It’s surprising to see he charged $400 a month plus a transaction fee. Even in 2013 dollars that is way pricier than what current going rates are. 

You can find the original here or just read below:

Brokerage Trend: 100% Commissions Wall Street Company Switches To New Concept

September 16, 1985|By Jack Snyder of The Sentinel Staff

If real estate broker Jim Weinberg is right, the 100 percent real estate commission concept is going to be the coming thing in the residential real estate sales industry.

Weinberg has just converted his Wall Street Company residential brokerage from the conventional commission split structure to the 100 percent commission approach.

That means sales associates working out of Weinberg’s offices will get all of the commission they make on a sale. Previously, the associate got anywhere from 50 percent to 75 percent of the commission,depending on how much business the sales agent was producing.

In return for getting the entire commission, sales associates will now pay a $400 per month desk rental fee plus a small transaction fee on each sale. The associate also pays personal expenses such as long distance telephone calls, car expense and advertising. Associates in conventional brokerages pay a certain amount of their personal expenses now — car expense, for example.

Weinberg provides receptionist-secretarial help, access to the Realtor board computer, plat books, a full-time noncompetitive sales manager, training and a relocation system.

”It’s a win-win situation for both the broker and the agent,” Weinberg said.

The 100 percent commission concept surfaced several years ago, but has grown slowly in this market. A couple of years ago there was just one office — 100 Percent Realty — in the Orlando area utilizing the concept.

But the REMAX 100 percent franchise system moved into the area about a year ago and ”has done quite well,” Weinberg said.

Under the old commission system, for every 20 sales agents a broker had, four might be top producers, four might be so-so and the rest might be coming and going, he said.

Weinberg said all four Wall Street Company offices — Lake Mary, Maitland, Altamonte Springs and Winter Park — will be converted to the new system.

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