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If you’re a real estate agent and not a licensed broker, meaning you must affiliate with a licensed broker to legally practice real estate as opposed to working entirely for yourself, the commission split offered by your brokerage is the single biggest factor in determining how much money you make a You may have heard that brokers are “not happy.” But according to an interview with financial institution Citi, most brokers are quite happy. In fact, they’re making more money than ever.
According to the Citi Fiduciary report on agent fees for 2015, the average percentage of commission for brokers was 79.4 percent compared to 75 percent in 2010. That’s an increase from 10 years ago when it was 75 percent but still below the 81 percent of 2012 and 80 percent in 2007.
The report also noted that over $23 billion was earned from agent fees by brokerages in 2016 and will reach $27 billion by year 2026 if trends continue. It’s been estimated that more than half of all agents earn at least $100K a year (or more) , so there is no reason why you shouldn’t be able to make this much money as well!
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Commission Split Definitions
A real estate broker is a professional real estate agent who is licensed to do business in the state where he or she practices real estate. Some states require all brokers to be licensed and some do not. A broker is only required to be licensed if he or she has 15,000 square feet of office space and sells more than $1 million in property annually.
The commission split that your brokerage offers in the city you practice in dictates how much you earn on each sale. And it can vary depending on the surrounding exchange rate, real estate activity, and other factors.
So when a buyer contacts you with an offer for their house, how much will they pay? The first thing they need to know is how many points they are going to pay per dollar of value of the house as compared to what someone else selling that same home would make if they were selling it themselves (also known as “the commission rate”).
A buyer might pay 5 points for a $100,000 home and 10 points for a $200,000 home. An agent might get 5 points for every dollar over $150,000 sold when compared against what another agent makes selling homes above those figures (called “the commission rate”).
The second thing buyers need to know is whether or not their seller will take any discounts. If your seller doesn’t, don’t bother offering one yourself because it won’t help them sell the house any faster than they already are. If your seller grants a discount of 1%, you’ll make 12% less than if your seller didn’t offer one at all (called “the rebate rate”).
Many buyers prefer buying homes they’re familiar with because it’s easier to get used to them (called “the familiarity factor”). But this can also be an obstacle you need to overcome when determining how much you should charge your client. If your client doesn’t live near the house he or she wants to buy then that’s another reason why some clients choose not to negotiate purchase price before closing (called an escrow).
While we believe most agents can get close enough for clients without negotiating anything beyond a few thousand dollars on average, there are times and circumstances where dealing with sellers has been unavoidable — so we have provided this information as guidelines rather than hard rules:
1) Your client must be able to purchase within 60 days from their closing date or have another buyer offer within 90 days from closing date . This means that if your client is purchasing
The Purpose of Commission Splits
As a real estate agent, you represent some of the most important people in your client’s lives. Not only do you represent them legally, but you are also responsible for making sure that they get their home or apartment priced correctly and make the right decisions.
This doesn’t come easy, and most agents have to make sacrifices on commissions.
However, many agents take advantage of opportunities to earn more money. Much like mortgages and car loans, commission splits can vary significantly depending on when the property is sold. When a property is listed and offers are made, the commission splits are usually lower. But when a property is sold at a later date, usually after closing, the split can be much higher than when it was originally listed. You may even see a commission split as high as 90 percent for properties sold at closing or shortly thereafter.
For example, if an agent earns $50 per sale and has two 15 percent commissions over 10 sales each month (that’s $1,500 per month), she will earn $250 per month on those two sales alone. If she had just one sale this month (and sold it for $1150) she’d now be making $200 per month in commission on those two sales alone — essentially doubling her income!
But how does this affect your bottom line? The answer is simple: On average, a broker makes about 70 percent of what they would have earned if they were working independently as opposed to earning 80 percent of their net income from real estate and having 10 percent of it taken by commissions instead (in this case).
As you can see from that example above, some agents make way more than others simply because they have been given more opportunities to sell their homes or apartments at different times during the year and therefore made more money. But there’s another reason why some agents make more money than their peers:
Because they’re not doing any work with the property alone — all they’re doing is collecting commission monster checks every month! This works out better for brokerages because there are many other aspects of selling real estate besides selling a home or apartment; there’s also marketing; servicing clients; dealing with tenants; etc., so it’s not fair for you to get paid less for all that work!
But why should I care about this? Why should I care about how much I make as an agent? Well first off because it could influence how I run my business or how much money I’m able to pay my
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What Percentages Mean
100 percent commission broker is a term used in real estate marketing to describe the percentage you receive for gross sales. The 100 percent commission real estate broker rate is a fixed percentage of gross sales as determined by your brokerage.
You’re not solely responsible for all the commissions you earn. You’re actually paying your broker a fee that covers their expenses and a little bit that goes to you as an agent, which is what is known as “commission splits”. If you don’t make all the commission money that is being offered, your broker will take some of it in order to cover their expenses.
That’s where your broker takes their cut, which they do to help offset expenses like advertising and marketing costs. That’s why it can be so important to know how much of your commission comes from each sale; it will help you decide whether or not you should use the service or if you should work with someone else.
If there are multiple agents working for the same brokerage, then all of them can have 100% commissions and the broker has no incentive to offer a higher percentage than any other agent will be offered; however, if there are only one or two agents working for the same brokerage, then they are competing at having a high percentage to try and get more business from potential clients.
The Impact of Commission Splits on Your Bottom Line
Commission splits are often perceived to be a way to stay in business. But they are not. Sure, you will make less money if you set your commission at a low percentage of the selling price, but that only matters if you’re buying property and not selling it.
If you’re a real estate agent and not a licensed broker, meaning you must affiliate with a licensed broker to legally practice real estate as opposed to working entirely for yourself, the commission split offered by your brokerage is the single biggest factor in determining how much money you make a year. The average commission share can range from 60 percent (the lowest) to 90 percent (the highest).
When commissions were first instituted in 1994, brokers did all they could to accommodate them by lowering quotas and dividing the extra money among themselves rather than paying it out as commissions. By 2000, however, brokers had stopped trying to get around commissions altogether because they took so much extra money that they couldn’t afford not to pay them.
The reason why brokers do so well is because many of them don’t know how much money they needed to bring in. Many agents have been making their living for years without knowing what it was or even where it was coming from. What happens when agents start paying attention?
There aren’t any more commissions just through the sheer volume of sales made; sales have become an efficient source of income instead of being the primary one used for profit-making purposes.
The bottom line is that brokers owe their success solely on their own hard work over time — because if brokers didn’t do what they did well enough over time, no one would hire them anymore.
The Psychology of Commission Splits
It’s as important as your car to drive safely. It’s as important to make sure your children are not trapped behind you. It’s equally important for you to be aware of the hazards in the road ahead of you. It’s equally important for you to find a way out of that situation. And one of those ways is by applying the brakes, steering the car where necessary, and not letting your ego get in the way.
The psychology of commission splits is something we have yet to fully understand, but it has become very clear over time that commission splits are a major contributing factor on how we make money during our careers in real estate and beyond (see “The Motivation & Psychology Behind Payday Loans & Mortgage Lending”).
A recent article titled, “How Payday Loan Brokers Are Making Big Money Off You,” discusses this subject in great detail. The article provides several compelling examples of how commission splits determine how much money a lender will offer a broker and whether or not this money will ultimately be passed on to the client (or lender).
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