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How Do Real Estate Teams Split Commission – Today, I’m breaking down the different types of real estate commission splits you can expect to see, and which ones are right for you.
Diving into a career as a real estate agent means learning all about the various aspects and terms associated with the job. In addition to establishing your license, marketing campaigns, and websites, you’ll need to learn about certain parts of the job so that you enter contracts from a well-informed perspective. Real estate commission splits are something that many people don’t know much about before starting their career but they make a significant difference in how much you make as an agent. Let’s dive into all things commission so you know what to expect from your brokerage and help you decide which agency is the best fit for you.
How Do Real Estate Teams Split Commission
Marketing, selling yourself, and establishing yourself as the local expert in all things real estate is just the first part of the sales funnel. Once you get into the business of selling properties, you will be able to use all your real estate skills to satisfy your clients. However, many real estate agents who are just starting their careers don’t necessarily know the ins and outs of how commissions work. Knowing how you get paid after a sale is important. It will also help you narrow down your search for the brokerage that is the best fit for you.
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The commission split determines how much sales agents can earn from selling a home. Commissions are often split between individual companies and agents working on sales together. There are several different ways to figure out this percentage. We’ll dive into a breakdown of the different types of commissions to help you understand how you’ll get your money after landing a sale.
Nice-sized commissions help real estate agents earn a lot of money quickly. Knowing how commissions work is a big part of this. So what exactly is a commission? A commission is a pre-agreed amount that is paid to the agents involved after the home is sold. The sales percentage will be established well before the final forms are signed.
Real estate commissions can vary depending on the broker you work with and the location you’re selling, but in general, you can expect a 5%-6% commission. That doesn’t mean you’ll make that percentage on the sale. That amount is split between the brokerage and a percentage of that amount will go to the buyer and seller agents. This is where knowledge about commission splitting comes into play.
A typical commission split is a 60/40 split. Here’s an example of a traditional 60/40 commission split:
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While a 60/40 commission split is the most traditional type, there are other types that you may encounter in your time as a real estate agent. You will find that some of these work better for you and others benefit from the brokerage you work with. Let’s dive into some of the different types of real estate commissions you may experience in your career. This is especially helpful for those who are just starting out so they know what to expect in terms of payment after the home is sold depending on the type of split your brokerage uses.
Watch this video for a quick guide to breaking down the different types of real estate commissions, then read below for a more in-depth explanation.
When you first start out as a real estate agent, chances are you will encounter many brokers who use a fixed commission type of payment. In this type of commission, the commission percentage is fixed before any transaction is made and remains fixed. Commission percentages and splits become part of the contract and are established well before the sale and final forms are signed.
This is a common, popular option for splitting commissions and guarantees that all parties involved know what their income will be before they start. This is what you will encounter when you are looking for a potential brokerage to work with. Typically, such a split would be 60/40. This type of segmentation is often done by companies that prioritize training for their agents. A large sum of money collected by the agency usually goes towards training equipment, lead generation and marketing. If you are just starting out and in a position where training tools, lead generation and marketing can benefit you, this is a very attractive commission deal.
Understanding Commission Splits For Real Estate Agents
Graduated splits, also known as tiered splits, allow agents to earn increased commissions based on their sales volume. When you first start your career, this may not be as guaranteed or as big as a fixed commission split but once you have a few years of experience under your belt, it can be very lucrative. Once you gain traction as an expert in your field, a tiered commission style can be very beneficial.
Graduated splits can vary significantly depending on the company, so make sure you understand the brokerage’s rules before agreeing to work with them going forward. For example, your brokerage may withdraw your commission amount every calendar year. That means you may have worked up to an 80/20 split in December, but you’ll be back to your initial split of 50/50 in January. These are all very important details because you don’t want your hard work to be unfairly compensated.
Some brokerages may also offer a commission cap. A commission cap is a limit that gives an agent 100% commission once it’s done. These caps may come with transaction fees so be sure to carefully understand your brokerage’s rules. Since these commission splits are performance-based, high-earning agents may be able to profit from this type of split. However, less experienced agents may struggle to keep up. As you narrow down your search for a real estate brokerage, be sure to check all the commission details for the split to make sure it’s something you can handle and recoup.
One of the most attractive types of commissions is high split or no commission. These types of models give agents the most incentive to make sales and large commission checks. It is important to note that this commission split can come with significant risks for an unprepared agent. A high split commission may offer the agent an 80/20 or 85/15 split, while a split commission will not offer the agent 100% of earnings. These models also often have relatively low annual caps, making it easy to start making more money quickly.
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You may be asking “How does a brokerage make its money?”. Most commission splits are designed to allow them to participate in the brokerage to make money while also providing services such as training and lead generation as well as marketing. Brokerages that offer high splits or no split commissions still make money. They only do that through administrative fees. Various fees may be incurred as part of this type of commission including:
Guidance and additional assistance from the brokerage may also come with additional fees. Brokerages that offer this type of commission are for experienced agents. If you are starting out as a real estate agent then these are not the best options for you. They typically do not provide the support or training for new agents that is integral during the early parts of your career in real estate. This type of trade has the potential to be very profitable. However, it can also be very confusing, especially for inexperienced agents. Non-incremental commission agreements and high earning potential right out of the gate make this an attractive plan for some agents. If you think you have the skills, experience and knowledge to understand the terms and conditions of this type of commission split, it can be a great way to make money fast. However, if you are not sure how you will perform in this type of environment, it may be best to look to a fixed commission brokerage.
This is one of the less common models out there. Unless you find a brokerage that works with this commission split type, you won’t encounter this often or at all. Under this model, companies will pay their agents a flat salary instead of letting them work without commission. Often times, these agents will be given a bonus or additional commission for the sales they make. These companies may also offer benefits such as insurance and paid time off. They also usually offer incentives to sell more. This also allows them to have fairly comprehensive training and mentoring programs.
A salaried model can be a great solution for a new agent who is unsure of themselves or looking for a more traditional employment model. This way you can hone and develop your marketing and real estate skills, while being guaranteed a steady paycheck. Once you grow a
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