How Real Estate Commission Splits Work
Kaylee specializes in real estate, B2B, and SaaS companies. You can find her expertise in sales and real estate content on Fit Small Business.
This article is part of a larger series on How to Become a Real Estate Agent.
A real estate commission split is the percentage that agents and brokers get when they help a buyer or seller close on a property. Average real estate commission splits traditionally range from 50/50 to 70/30, largely depending on the brokerage you work for and the market you are working in.
This guide will help you navigate the tricky world of real estate agent commission splits and learn more about which commission structure might work best for you.
Who Shares in a Real Estate Commission Split?
All transactions of any type run through the broker, and a real estate agent is given a negotiated commission split of that earned money. The commission amount will be an agreed upon percentage of the total gross commission, i.e., the amount prior to taxes or other deductions of any sort.
In a typical transaction, there are two real estate agents working for the buyer and the seller, and each of them represents a broker. At the closing of a property, all commission money in the transaction is first split between the brokers, who then split their portion with the agents working on their behalf based on their brokerage’s commission split agreement.
The illustration below shows how the money from the sale of a $350,000 home would be shared among agents and brokers under a typical 60/40 commission split agreement:
Whether your real estate commission split is fixed or graduated, calculating it usually starts by utilizing the basic framework shown above. Be sure to confirm that franchise fees that brokers often pay are taken after the agent/broker split occurs from the broker side.
Types of Commission Splits
Although commission splits can look very different, they all generally fit into two types: fixed commission splits and graduated commission splits. The fixed commission split is the more traditional model, while graduated splits can be capped or rolled back.
Type 1: Fixed Real Estate Commission Splits
Fixed real estate commission splits occur when the percentage of the commission that is distributed to the agent and broker remains constant (or fixed) and does not change with production goals or sales like other structures might. While a fixed split could come in a variety of amounts, a typical split is 60/40.
In a fixed real estate commission split structure, it does not matter how many homes you sell or purchase for clients or the dollar amount you bring into the company—your commission percentage remains the same.
Pros & Cons of a Fixed Commission Split
Pro | Cons |
|---|---|
Highly predictable | Less earning potential |
Lower risk |
Having a fixed real estate commission split means that you will be getting the same percentage of the commission for every transaction in the foreseeable future with that agency unless your agreement with that agency changes. While some agents truly love this predictable arrangement, higher producers can sometimes feel they are not as adequately compensated by larger commission checks as they can be with other arrangements.
An average real estate commission structure will divide the commission to pay the various parties involved in the transaction according to their agreement with their broker. While in 2019, according to the National Association of Realtors (NAR), 37% of agents received a fixed real estate commission split (under 100%), there are other structures gaining popularity that we will also be reviewing here.
Type 2: Graduated Real Estate Commission Splits
Graduated real estate commission splits offer more money to agents as they continue to produce more, e.g., an agent starting at 50/50, then hitting goals to progress to 60/40, and then further reaching goals to progress to 80/20.
To further illustrate the example given above, a traditional graduated real estate commission split might be that a broker agrees to split commissions 50/50 up to $30,000 of an agent’s share of earnings, then give them a 60/40 split from $30,000 to $40,000, and then maybe go even further to 80/20 or 90/10. Depending on the potential in your area, the ability to keep more of your earnings can be a true incentive to get out there and close deals.
Graduated Real Estate Commission Split Caps
Some agencies use the graduated real estate commission split system but set a limit, or cap, on the amount of revenue they can collect for company commissions. After they reach a certain commission revenue amount, they allow the agent to keep the rest.
Most companies that offer these caps will also establish a transaction fee that occurs at the time the cap is reached. Although you are now receiving significant commission money, the company charges a transaction fee because the company costs of every closing remain. The transaction fee is usually a minimal fee that simply covers the company administrative costs that continue with closings.
Graduated Real Estate Commission Split Rollback Policies
Although graduated real estate commission splits are common practice these days, the rollback policy—which resets the commission split to a standard level at the beginning of each calendar year—is often a standard feature.
In these arrangements, every agent “rolls back” at the beginning of every year to the initial graduated commission split amount—typically a 50/50 or 60/40 split. Most agencies benefit greatly from the graduated real estate commission split policy with rollbacks. This is because agents have an incentive to produce as soon as possible, and in doing so, the brokerage can be sure that they are covering their own operational costs and taking in a bit of profit as well.
A rollback at the beginning of the year also works also because the peak of the real estate season is just around the corner, meaning agents can make up a reduced commission thanks to a higher volume of sales potential. The more generous commission potential later in the year can help to keep them motivated throughout the more difficult periods when there is not as much inventory.
Whether your real estate commission split is fixed or graduated, calculating it usually starts by utilizing the basic framework shown above. Be sure to confirm that franchise fees that brokers often pay are taken after the agent/broker split occurs from the broker side.
How Commission Splits Are Determined
The share of the commission you receive as a real estate agent will depend largely on the brokerage you work for. Commissions range from a straightforward 64/30/6 with Keller Williams to the 100% real estate agent commission model where you pay fees, but get to keep the commissions you make.
There are a number of elements to consider before choosing a brokerage, such as leads provided and mentoring opportunities. So even though real estate agent commission splits are important, they do not always tell the whole story of where you will earn the most. The support some brokerages provide through leads, mentorship, and education can bring far more transactions leading to more money earned.
How High / No Split Real Estate Models Work
While a roughly 60/40 split is most common in the industry, virtual brokerages, such as Real, offer an opportunity for an agent to retain even more of their hard-earned commission with split agreements that can range from an 85/15 split to no split at all. However, while an agent might keep more of the commission under these attractive arrangements, there are typically numerous administrative fees that can be both costly and confusing to a new real estate agent.
These fees are designed to help offset a brokerage’s operating expenses as they don’t earn as much from the commission split. Some fees may be flat monthly expenses that are owed to the brokerage whether or not you close a deal, while others might be tied to individual real estate transactions. Therefore, while a brokerage may not charge all of the following fees, you should be sure to ask about them when considering a high split or 100% commission split model.
Typical Fees Under a 100% Commission Model
- Equipment fees: These are usually flat monthly fees which cover things such as the use of offices, phones, and copiers.
- Administrative fees: Like equipment fees, these are typically flat and cover basic elements such as maintaining transaction records or one-time sign-up charges.
- Transaction fees: A flat fee is added at the time of closing.
- Risk reduction fees: These are usually applied toward errors and omissions insurance that helps to protect you, the brokerage, and your clients.
- Support fees: The level of support or mentorship you receive from the office may also come at an added cost.
The Pros & Cons of No Real Estate Commission Split
While the fees often involved in not having a real estate commission split can appear daunting, there are certainly times that all (or some) of these fees can be worthwhile.
If you are in a situation where you have no real estate commission split, you will have to be sure to have your technology in check and line up all the assistance you can. Brokerages that offer 100% commission may vary widely in how much assistance they will provide, as well as what equipment and technology they offer.
For example, If you are still looking for a way to store and manage customers to continue to build your business, feel free to check out our review on customer relationship management (CRM) software. Nurturing leads will be perhaps one of the biggest and most challenging aspects of what lies ahead.
While firms offering more traditional real estate commission splits utilize part of their commission money on infrastructure and support, the amount of money out of pocket that you would be expected to pay is far more with a 100% commission agency, and these fees can add up quickly. For a new agent who recently spent money on coursework, books, licensing, and getting set up, having a traditional company structure with far more limited fees and some mentorship often works best in giving them a head start.
Bottom Line
While all real estate commission splits have their positive and negative aspects, it is important to understand clearly how they can work to your advantage, as well as what structure might benefit you moving forward in your career. As you evolve in your contacts and production, some real estate commission splits might seem more advantageous to you than others.
