The Science Behind Real Estate Commission Structures

Real estate professionals work off commission and, unfortunately, it can be somewhat confusing, especially for those newer to the industry. However, it is important to understand how different commission splits and structures work. It is, after all, what pays your bills. The commission on a transaction is typically shared by a number of different people. There are real estate agents who are represented by a broker who works on the buyer’s side, and there are real estate agents represented by a broker who works on the seller’s side. Everyone in the transaction gets a piece of the pie. The transaction goes through the respective broker, who then distributes to the agents working on their behalf. There is no standard or typical commission that is charged to the seller. The splits and fees between a broker and real estate agent vary widely. For the sake of example, let’s break this down with a 60/40 split and 6 percent commission. Let’s say a home sells for $350,000 and there is a 6 percent commission ($21,000) paid by the seller. If the commission is split in half for the buyer’s agent and the seller’s agent, then 3 percent ($10,500) will go to each party. From there, 60 percent of that $10,500 will go to the buyer’s agent ($6,300) and 40 percent ($4,200) will go to the brokerage representing the buyer’s agent. The exact same thing happens on the seller’s side. This type of split can be beneficial for agents who might be newer to the industry and will benefit from being a part of a brokerage that provides not only leads, but also mentorship and education, which is typically factored into the 40 percent the broker takes. Plenty of brokerages and agents have been very successful using this model and other versions like it, such as the 70/30 or the 80/20 splits. It is important to research each brokerage and determine what they offer in exchange for the percentage they will take with every transaction.

What about the 100-percent commission model?

First established in 1965 and launched in 1973 by RE/MAX founder Dave Liniger, the concept was simple: attract the most successful agents that would be more profitable on a fixed monthly fee and taking home 100 percent of the commission. Today, there is a new generation of 100-percent models, and with the help of the technological revolution, many of them are incredibly successful. As Pat Kelly, president of Brokerage Operations at Realty ONE Group explains, “Today, more than ever, REALTORS® are empowered to run their own business. Choosing how to best serve their clients, and how to market and advertise a property, are just a few of the decisions they make on a daily basis. Many REALTORS® are opting for a 100-percent brokerage so they can better invest in serving their client needs.” Realty ONE Group is a perfect example of a well-oiled, 100-percent commission machine. The real estate professionals within Realty ONE Group pay a fixed monthly fee in exchange for different avenues of education, mentorship, marketing collateral and technological tools, all designed to enhance their personal business. The proof is in the pudding with the unbelievable expansion we have seen. Realty ONE Group currently has 134 offices in 33 different states with over 10,000 real estate professionals. It’s pretty clear that this version of the 100-percent commission model is not only enticing for agents, but also working. It’s absolutely crucial to do the research and determine what commission model and brokerage will work best for your career. Find a brokerage that will help you grow your personal brand and your business.


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