Are you thinking about opening your own real estate business?
An essential step in starting your own brokerage is deciding on a business model.
To help you through this step, we broke down the four most common real estate brokerage business models, so you can decide which best fits into your business plan.
1. Traditional – Under this model, agents are independent contractors. This means agents are self-employed, and are responsible for potential financial risks, legal liability and management duties. Brokerages using a traditional business model require agents to sign a contract and do not offer benefits such as insurance, pensions, vacations and sick days. While independent contractors do not receive benefits, they do get more flexibility in their work hours, lower costs, more input on policies and local authority. When it comes to compensation, commission is split between the agent and the brokerage.
2. Flat fee – A flat-fee business model treats its agents as employees. Unlike the traditional model, agents who work for a flat fee brokerage are offered benefits such as insurance, pensions, vacations and sick days. Rather than working for a commission, agents working for a flat-fee brokerage are given a salary, meaning they are guaranteed an income. Redfin is a well-known brokerage that treats its agents as employees with salaries.
3. A la carte – Agents working for an a la carte brokerage are affiliated with a brokerage, also known as a franchise-affiliated agent. Franchise-affiliated agents benefit from a robust referral network, large listing inventory, formal training, name-brand recognition and corporate resources. Agents working under this model are compensated per service performed.
4. 100 percent commission – Similar to the traditional model, agents who work for a brokerage that offers 100 percent commission are independent contractors. These agents are responsible for all risks and legal liability, and do not receive any benefits from their brokerage under this model. While agents take home the entire commission, they are required to pay a monthly fee to the brokerage for services used.