Sales commissions are still the bread and butter for real estate agents compensation structures but there are additional commission models to understand.
How the Commission Model Evolved
The commission model for payment to agents and brokers has been around for a long time. In the 1970’s, commissions on real estate sales were generally 50/50 between agents and brokers because, according to Russ Cofano, chief executive officer of Collabra Technology and former president of eXp Realty, “…the general philosophy was that the brokerage company owned the business and client relationships, and the agent was sort of secondary in that.”
This 1970’s 50/50 commission split model was followed by the RE/MAX concept that drove more commission dollars to real estate agents. Keller Williams later picked up on the agent-leaning model towards doing commission splits with caps on how much an agent would have to pay the brokerage firm.
“Ultimately, said Cofano,” there was a philosophical shift in which the agent was seen as controlling the business. And whoever controls the business is going to get the lion’s share of the commission.”
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Today’s Commission Models
Today, the vast majority of agents continue to earn their dollars from commission splits though there are as many varieties of “splits” as there are different real estate firms.
RE/MAX as a company “recommends” that 95% of the commission goes to the agent and 5% goes to the brokerage. The catch is that RE/MAX is a franchisor… individual RE/MAX franchises are free to customize their commission splits any way they choose.
eXp Realty offers every agent an 80% commission split with 20% going to the company. However, eXp caps the amount the brokerage can collect from the agent within one year at $16,000. Once the agent hits that $16,000 limit going to eXp, the agent then collects 100% of the commission.
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Spyglass Realty in Austin TX uses a “graduated split model.” Agents doing up to $3M in volume earn a 75 (to the agent)/ 25 (to the brokerage) split. The split goes to 80/20 when the agent’s volume hits $4M. When the agent’s volume hits $5M, the agent earns 90% of the commission. McQuaid & Company in Naples FL also operates on a similar tiered commission split system but no details were given about the specifics.
Cofano said that, overall, most agents earn a minimum of a 60/40 split except the agents who work with teams. Those agents share their split with their team leader in addition to their brokerage. For example, an agents may earn 80% of their commission while their brokerage earns 20% and may also share half of their 80% commission with their team leader.
According to Inman’s study on commission split compensation models, nearly two-thirds of agents keep more than 70% of their commissions; 20% of agents work with 70/30 splits; 3% earn 50/50 splits. Most agent respondents to this Inman survey reported being satisfied with their commission split compensation.
Non-Commission Income Models
Some publicly traded brokerages, such as Compass and eXp Realty, offer stocks to agents as agent hit different signposts. eXp offers agents $2200 in company stock when they sign up with the brokerage. Additionally, agents get various stock awards for hitting their commission cap of $16,000 and beyond and also for recruiting other agents into the company. eXp agents have the option of taking some of their commission earnings in the form of company stock.
The issue with company stock offerings, of course, is volatility. Company stock is great for agents when the stock is up but not so great when the stock is down.
Keller Williams and eXp also offer their respective agents profit-sharing options that enable agents to participate in the brokerage firm’s overall level of success.
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Agents can also earn their compensation through salary models at such firms as Redfin. Cofano, however, does not see the salary compensation model as displacing the commission model. Why? Cofano said, “That’s because in order to do salary, you have to have scale. And you have to be really, really good at lead generation.”
Thanks to Inman.
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