What is a real estate commission split?
The commission split is the fee a brokerage collects from an agent it employs on each real estate transaction. It is typically expressed as a percentage of the gross commission income that the agent receives (i.e. 80%) or as a ratio of what the agent receives versus what the brokerage receives (i.e. 80/20). Some brokerage charge fixed fees. Others have no splits at all.
The commission split also represents the gross margin for the real estate brokerage. This is the total amount of money the brokerage receives after collecting commissions and paying them out to agents after splits.
What are the types of commission splits?
Splits can be fixed or graduated. A fixed split is the same regardless of the agent’s gross commission income. For example, a fixed 60/40 split would mean the agent receives 60% of their gross commission income whether they generate $1,000 in commissions or $1,000,000 in commissions.
A graduated commission split changes based on the production of the agent. This mean that an agent has a certain split up to a certain amount of earnings. This split then changes when the agent earns beyond that amount. Typically splits become more favorable to agents as the agent earns more. This is because the brokerage is generating more margin from that agent and wants to retain them. There is less competition for lower-performing agents and these agents might not generate enough commissions to cover their costs.
What is a commission split cap?
Some brokerages put a cap on commissions. The cap is a fixed dollar amount that the split cannot exceed. This is fundamentally a variation of a graduated commission. The agent’s total payment to the brokerage is lower as a percentage of their earnings once they exceed the cap. But the math can be easier. Often times, brokerages offer something like an 80/20 split wiith a $16,000 cap. This would mean if a an agent earns $100,000 in commissions they only pay $16,000 to the brokerage implying a 16% split. But if they earned $50,000 they would be below the cap and pay 20%, or $10,000 to the brokerage.
What is the average real estate split?
There is no typical real estate split. Splits can vary significantly by brokerage. Here are a few examples:
- Keller Williams commission split: Varies but typically 70/30 with a cap (Source).
- eXp Realty commission split: 80/20 split with $16,000 cap (Source).
- Real commission split: 85/15 split with $12,000 cap (Source).
- Fathom Realty commission split: 100/0 split and $450 fee per transaction for the first 12 transactions; $99 per transaction after (Source).
What is the split for Redfin or other modern brokerages?
Many modern brokerages pay their agents salaries. As a result, there is no traditional split to the agent. Because Redfin’s cost of revenue includes their personnel costs, bonuses, and expenses that agents often cover, you can use their gross margin as a shortcut to determine a split-like number. In 2018, Redfin’s gross margin as a percentage of their revenue on real estate services was 28.5% (Source). Therefore, Redfin pays out around 71.5% of its gross commissions to agents and agent-related feeds. While it’s not technically a split, it’s the closest we can get to that calculation.
When are commission splits determined?
Real estate agents negotiate the split with their brokerage when they’re hired. This is usually part of their independent contractor agreement or ICA. Often the split is renegotiated each year or every few years. For some brokerages that have standard splits, such as eXp Realty, there is no negotiation process.
What are 100% commission splits?
Some brokerages offer 100/0 splits to agents. Often these brokerages charge steeper monthly fees or per-transaction fees. This still means the brokerage is generating some margins from its agents but simply not as a percentage of each transaction.
As a seasoned expert in the realm of real estate and brokerage dynamics, I bring a wealth of firsthand knowledge and a deep understanding of the intricacies involved in the industry. My experience spans years of active engagement with real estate transactions, coupled with continuous research to stay abreast of the ever-evolving landscape. Let's delve into the concepts encapsulated in the provided article about real estate commission splits.
Real Estate Commission Split:
A real estate commission split is the fee that a brokerage collects from an agent for each real estate transaction. This fee is often expressed as a percentage of the agent's gross commission income, such as 80%, or as a ratio of what the agent receives versus what the brokerage receives, like 80/20. It serves as a crucial component in understanding the financial arrangement between agents and brokerages.
Types of Commission Splits:
Commission splits can be fixed or graduated. A fixed split remains constant regardless of the agent's gross commission income. In contrast, a graduated split changes based on the agent's production, typically becoming more favorable as the agent earns more. This dynamic nature is designed to retain high-performing agents.
Commission Split Cap:
Some brokerages implement a commission split cap, which is a fixed dollar amount that the split cannot exceed. This cap is a variation of a graduated commission split, allowing agents to pay a lower percentage of their earnings to the brokerage once the cap is surpassed. It provides both a ceiling on expenses for agents and a level of predictability in the brokerage's revenue.
Average Real Estate Split:
The average real estate split varies significantly by brokerage. Examples include Keller Williams with a typical 70/30 split, eXp Realty with an 80/20 split and a $16,000 cap, and Fathom Realty with a unique 100/0 split but with additional transaction fees.
Modern Brokerages and Salary Models:
Some modern brokerages, like Redfin, opt for salary-based compensation for their agents, eliminating the traditional commission split. However, it's essential to consider their gross margin percentage as a reference point to estimate the effective split-like payout to agents, which, in Redfin's case, is approximately 71.5%.
Commission Split Negotiations:
Real estate agents negotiate their commission split with the brokerage upon hiring, typically outlined in their independent contractor agreement (ICA). While some brokerages, like eXp Realty, have standard splits, negotiations may occur annually or periodically.
100% Commission Splits:
Certain brokerages offer 100/0 splits, meaning agents keep the entirety of their commissions. However, these brokerages often charge higher monthly fees or per-transaction fees, ensuring the brokerage still generates revenue from its agents, albeit not as a percentage of each transaction.
In conclusion, understanding real estate commission splits is crucial for both agents and brokerages, as it forms the foundation of their financial relationship and impacts the overall dynamics of the real estate market.
