Any real estate salesperson who tells you they’ve never questioned whether or not the commission percentage they pay their broker is justified is either lying, or way too trusting. home extensions Melbourne It’s okay, everyone does it.
A savvy professional owes it to themselves to regularly reassess whether or not they are being compensated fairly given the value they add to a business — this is only natural. Unfortunately, the real estate industry is one of those places where these sorts of questions are often answered with: “Well, we have always done it this way”, and as a result, there is a certain amount of transparency lacking in the reasoning behind these decisions.
How Does The Agent-Broker Relationship Work?
What can be confusing to many, is that the real estate agent that often shows and handles the majority of the sales process when property is bought or sold, is not actually the one who is paid directly by the client.
The commission (which can be up to 6% of the total sale price) is instead paid to the broker the agent operates under. water damage Why is this case? Well, due to the law, only a licensed broker can process the commission paid by a client, who then, after taking a cut, passes on what is the left to the agent.
What Percentage Of The Commission Does The Broker Take?
Here is where things start to get less clearly defined.
The split itself is agreed upon prior to the sale by the broker and the agent, and thus the percentage itself can be just about anything. In practice, however, the average agent to broker payment ratio typically is more like 50-50, or perhaps 60-40 for a more experienced, independent sales agent.
Is This Commission Split Structure Fair To The Agent?
As previously mentioned, the sales agent is usually the face of a real estate transaction they are involved in. Many times — especially for smaller deals like apartment rentals, for example — the clients themselves may never even meet the broker who is cashing their check.
So, while the broker certainly deserves their share of the spoils, is 50% really an equitable distribution model given the sales representative often handles a disproportionate amount of the work? Like Minetta Realty, some brokerages are starting re-think the standard real estate agent commission split.
The Case For The Broker
But wait, before you throw out the baby with the bathwater, it is important to keep in mind that the legal requirement for the broker’s involvement in the real estate sales process is not without justification.
Brokers must pass a more challenging exam than agents — one which usually requires a 100+ hour course to prepare for. office fitout In addition to this exam, brokers are also required to work in the field for a certain amount of time before they can obtain their real estate license. In the state of New York, for example, “Broker license applicants must have at least two years of full time experience as an active licensed real estate salesperson, or at least three years of full time experience in the general real estate field.”
As a result of this more rigorous licensing process, brokers often have a much more sophisticated understanding of the legal and financial context surrounding real estate transactions. This expertise can be invaluable when the lawsuits start flying (not uncommon given that there can be hundreds of thousands — if not millions — of dollars at stake), or when navigating more complex financial situations. The money they are paid is most certainly earned.
Aside from expertise, brokers also typically provide a number of services and amenities that play a crucial role in enabling an agent’s success. Everything from leads, office space, CRMs, and business cards can sometimes be funded by the broker. Interestingly enough, in some scenarios the arguably most valuable asset a broker provides for the agent is something less tangible: a respected brand.
“Fancy office space and business cards are great and all, but when you start generating upwards of a hundred thousand dollars in revenue each year, even 30-40% can be quite the premium to forfeit.”
In Conclusion: Re-Evaluating The Compensation Status Quo
Regardless of your opinion on the credit due to brokers, one thing is clear: there are way too many variables at play for a one size fits all policy.
In turn, there really should be no “typical” real estate agent commission split rate.
Agents should consider their circumstances when determining how much of their pay to pass over to their broker. Some questions you can ask yourself to help figure this out are:
Do the nature of my deals require in depth financial and legal expertise?
If you are renting apartments to college students, or doing other normally friction-less transactions — like real estate referrals — then paying your broker a full 50-50% split is probably too much.
How dependent am I on my broker’s services and experience?
Even if you are involved in more high stakes, complicated property sales, there still may be cause to reconsider your current business arrangement with you broker.
After all, once you have developed your own strong personal brand, and source most of your leads through referrals and word of mouth anyway, then it may be time to ‘cut the umbilical cord’ and strike out on your own, or find a more hands off and less expensive broker to work with. Fancy office space and business cards are great and all, but when you start generating upwards of a hundred thousand dollars in revenue each year, even just 30-40% can be quite the premium to forfeit. Traditional brokerages often respond to this leverage by allowing their senior agents a more friendly compensation percentage, but even then there is commonly a ceiling around 60%, which is rare and reserved for a select group of stand out contributors.