Real estate agents and associate brokers are usually hired as independent contractors and are paid in the form of a commission split based on the individual agent’s gross commission earned when closing real estate transactions. All real estate agents in a local market are competing for the same business and they all have the same opportunity to earn a gross commission on every real estate transaction that closes. The main advantage of being a listing agent is that you will get paid if and when the particular property you have listed sells and most of the time listing agents have an exclusive right to sell a particular property. Listing agents also have the opportunity to act as a dual agent (in states where it is legal to do so). As a buyer’s agent, you will only get paid when and if your buyer client buys a property using your services.
Often times, listing brokers offer a commission split to a buyer’s agent who brings in a buyer for their listing. When the transaction closes the listing agent is paid a commission from the seller and then the listing agent’s broker pays the buyer agent’s broker a commission. Sometimes it is half of the listing agent’s commission and sometimes it is less than half. It just depends on what the listing agent is offering.
However, after the two brokers get paid their commissions, the listing agent and buyer’s agent (assuming they are not the principal brokers) do not get to keep the entire gross commission!
Each agent has a compensation arrangement with their respective brokers called a commission split. The broker’s cut is taken out of the gross commission and the agent is paid a net commission on the sale.
According to a recent 2011 real estate compensation report by Inman News, approximately 94% of agents are on a percentage based commission split compensation arragement with their brokers and surprisingly half of all real estate agents are currently working with a commission split of less than 60% of gross commission! So for every dollar in gross commission they earn, they are only getting to keep 60% of the commission as compensation.
There are brokers out there offering 80% or better commission splits to agents. This makes me wonder why are so many agents willing to do the same amount of work for less money with one broker than if they were simply associated with another broker? Why not put more in your pocket after the deal closes?
If you are searching for a new broker to associate with, consider the commission split arrangements they are offering and strongly consider brokers offering 80% or higher commission splits. This will have a direct impact on your profitability as a real estate agent putting more money in your pocket for every deal you close. You should also consider any monthly or yearly recurring fees that the broker charge and take those fees into consideration as well along with the commission split.