Real Estate Commission-Split Arrangements - dummies

By Dirk Zeller

Media reports advise consumers that seller/agent commission fees are negotiable. Likewise, buyer/agent commission fees are negotiable, as well. You’re the one who determines your fees. Some agents charge higher fees because they’re worth more. They can sell to the consumer a higher level of value, so they can increase their fees.

New agents all seek a universal formula for commission splits, but none exists. Each broker establishes a unique formula, usually beginning with a split that apportions 50 percent of the commission to you and 50 percent to your broker, moving gradually upward in your favor over time as you achieve different earning levels.

The following list presents some of the most common commission options you may see in the industry:

  • The graduated split: The graduated split is the most common compensation package. You start at a 50/50 split, which is increased to 60/40 and upward incrementally as you become more productive and your earnings reach company-established levels for graduation.
  • The graduated split capped: Some companies put an annual cap on the revenue the company derives from the graduated split arrangement. After they collect the established amount of company commission income, the rest is yours. A per-transaction fee that doesn’t cap often accompanies this commission type. This is fair, in my view, because although you receive all your income beyond the cap, the company still has costs for each transaction beyond your cap.
  • The graduated split rollback: Under this increasingly popular compensation arrangement, which is structured primarily for the benefit of the company, you receive a graduated split, but at the end of each year you roll back to 50/50 or some other established allocation. With this type of rollback, the company has a better chance of making a decent net profit from all earnings. Too often, company expenses and profits are covered by too small a group of agents. By rolling splits back at the beginning of each year, companies ensure that their costs are covered by commission revenue received early in the year. It also motivates agents to increase productivity in the early months to increase their splits over the rest of the year.
  • 100 percent commission: Colloquially, this is known as the rent-a-desk arrangement. Agents on 100 percent commission pay a flat amount monthly to rent space and purchase a few services from the company. From there, they cover all their own costs and retain 100 percent of all the commissions they generate.

    You need to be well established and pretty darned successful to do well under this system. The risk is too great for beginners because of their lack of experience in creating leads and opportunities for income.