It’s almost a given that a real estate agent will work at several different brokerages during their career. In fact, the median tenure for agents with their current brokerage is just four years. But, whether you’re a new or seasoned agent looking for a brokerage where you can hang your hat, or you’re simply trying to renegotiate your commission with your current brokerage, there are some important, money-related questions you’ll need to ask your broker.
Getting Creative with Commissions
The real estate landscape has shifted considerably over the past few years, and so has the myriad of commission structures available to agents. The traditional split model—in which the agents simply splits the transaction side commission with the broker according to a fixed percentage—is still utilized by many brokerages, but we’re seeing new alternatives pop up.
Let’s look at some of the newer and common structures outside of straight splits:
#1. The Desk Fee Model
Agents on a desk fee model often see a high commission split but are charged additional fees based upon whether the agent maintains a desk in the office, uses a community workstation or works from home. Typical fees can include fixed monthly fees for technology, marketing, and admin help; desk rental fees; and (if the brokerage is part of a franchise) a franchise fee.
#2. The Cap Model
Under a cap program, each office sets a number that the agent must reach before they get a high split. For example: if an agent’s previous year’s gross is $100,000 they might have an 80-20 split until they reach a pre-determined cap. If the agent’s gross is $50,000 to $100,000, they may start on a 70-30 split until they reach a pre-determined cap. Once an agent hits their cap, they may receive an even higher split for the remainder of the year.
#3. The Transactional Fee Model
With a transactional fee model, agents can expect to pay a certain amount for each of their closed deals. If the brokerage is part of a franchise, a franchise fee could also be applied, in a per-transaction way (rather than a percentage). Of course, agents could also have other fees like advertising, insurance, technology, etc.
#4. The Salaried Employee Model
Some newer brokerages are testing out an employee-based model where agents are not contractors working on a commission at all. Instead, they are salaried employees who may receive a commission or bonus based on sales.
Which Model is Right for You?
If you are considering changes brokerages, perhaps the most important step is to interview managing brokers to ensure you’re aware of their commission structure.
Here are a few questions to ask:
- What is your most common commission structure? Can this be changed over time?
- Do you charge any additional fees? (franchise, technology, advertising, etc.)
- Will I be competing with the managing broker for leads and business?
- What kind of training is provided to me? How is it paid for?
- How does the company provide lead generation? (At what cost?)
- What kind of marketing does the brokerage do for agents and listings? (What marketing expenses can I anticipate?)
Of course, finding the model that’s best for you will depend on a number of factors. Often, top producers and top teams find the cap and desk fee models especially attractive, since the fees become a smaller percentage overall as their gross commission income (GCI) increases. If you’re doing a large volume of transactions for a relatively low sales price, the transaction model is not a good choice — and vice versa.
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