How Real Estate Commission Splits Work & Negotiation Tactics (+ Free Calculator)
This article is part of a larger series on How to Become a Real Estate Agent.
A real estate commission split is the designated percentage of profit agents and brokers receive when they help a buyer, seller, or renter close on a property. There are multiple types and ranges of commission agreements, with traditional models offering a range of 60% to 70% to agents and high split models offering 90% to 100%. The split largely depends on the type of brokerage you choose and the market you are working in. Learn about which commission structure might work best for you, and try our free calculator.
The image above depicts a 60/40 commission split from the sale of a $350,000 home. The commission is 6% of the sales price, which is $21,000. This gross amount is split between the seller and buyer’s agent, with each representative receiving $10,500. Then, the 60/40 split is enacting for each agent, leaving the broker with 40% ($4,200) and the agent with 60% ($6,300).
Why Real Estate Commissions Are Split
When you become a real estate agent, you must associate yourself with a real estate brokerage. All real estate transactions go through the agent’s broker, and the agent receives a set percentage of the final commission. This commission split is negotiated and agreed on before any transactions are made, and is based on the total gross commission before taxes or other deductions of any sort.
In a typical transaction, there are two real estate agents representing the buyer and the seller, and each of them represents their brokerage. At the closing of a transaction, all commission money is first split between the brokers. Then, each broker splits their portion with the agent based on their brokerage’s commission split agreement.
The real estate broker’s commission is typically used for overhead costs like office expenses and marketing materials, but can be used for other purposes as well. Depending on the size and type of real estate brokerage, the income from commissions may go back into the tools and resources provided for agents, like client relationship managers (CRMs) and websites.
Types of Commission Splits
Although commission splits can look very different, they generally fit into three types: fixed, graduated or tiered, and high split. A few agencies are also starting to offer a salary to their agents and have them as employees rather than independent contractors. The most common and traditional model is fixed, but graduated or tiered splits are also common. High split models and salary models are relatively new to the industry but offer great options for new and experienced agents.
Traditional Fixed Commission Split Model
Fixed real estate commission splits occur when the percentage of the commission that is distributed to the agent and broker remains constant (or fixed). These agreements do not change with production goals or sales, like other splits can. A fixed real estate agent commission split can come in a variety of amounts, but the most common split is 60/40.
Having a fixed realtor commission split with a broker means that you will be getting the same percentage of the commission for every transaction in the foreseeable future unless your agreement changes. While some agents truly love the predictability of this arrangement, higher producers can sometimes feel that a 60/40 split in real estate does not adequately compensate them for their increased sales and transactions.
Notably, a fixed real estate broker commission split is often offered by a company that also prioritizes training and support for their agents. In these cases, a large portion of the commission kept by the company goes back into marketing and lead generation tools or mentorship programs for the agents.
|Highly predictable||Lower earning potential|
|Lower risk||Changing the commission agreement requires negotiation or changing brokerages|
|Training, support, and mentorship||No income guarantees|
In 2021, 37% of agents (the largest group) chose a fixed commission structure. Only 23% of agents received a graduated split, and only 15% operated with a capped split. After all, the costs of becoming a real estate agent are significant, and being able to generate an income quickly is a high priority. 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.
Graduated or Tiered Commission Split Models
Graduated or tiered commission splits offer opportunities for agents to increase their splits as they reach production goals. For example, an agent may start with a 50/50 split, then receive 60/40 after reaching a specific commission or deal goal. Graduated splits can then increase even further to 80/20 or even 85/15. 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.
If you’re considering a real estate brokerage that offers a graduated commission split, make sure that you learn all of the rules and specifics before signing an agreement. Many graduated splits have additional detailed rules that can significantly impact your potential real estate salary, like commission split caps and annual rollbacks.
- Commission caps: Some brokerages offer the graduated real estate commission structure along with a limit, or cap, on the amount of revenue they can collect from an individual agent. After the brokerage has earned a certain amount of revenue from the agent’s sales, the agent receives 100% of their commissions. However, most companies that offer caps also establish a minimal transaction fee that occurs at the time the cap is reached.
- Annual rollbacks: In these arrangements, every agent “rolls back” at the beginning of every calendar year to the initial graduated commission amount—typically a 50/50 or 60/40 split. Brokerages benefit from rollback because agents have an incentive to produce, whereas agents benefit as they are motivated through slower seasons and have greater earn potential in high volume seasons.
|Higher earning potential||Lower starting split|
|More incentives to sell||Rules can be confusing|
|Balance of support and autonomy||Must earn high commission percentages each year|
Even with a rollback policy or cap in place, the graduated commission structure can still provide agents with the best opportunity to earn more money per transaction. Make sure to calculate your potential earnings with a fixed commission vs. graduated commission model in order to stay motivated and maximize your income.
High Split or No Split Model
While fixed and graduated split models are the most common and well-known in the industry, some brokerages offer agents the opportunity to keep even more of their hard-earned commission with split arrangements that range from 85/15 to 100%. For instance, virtual brokerages, such as Real, offer an 85/15 split with an annual cap of $12,000. Once you reach this low threshold, you earn 100% of your commissions.
These arrangements can be particularly attractive to agents who want to avoid giving away a large percentage of their commission. However, there are typically numerous administrative fees that can be both costly and confusing to a new real estate agent. Typical fees can include:
- Sign-up fees: This is usually a flat, one-time fee paid when you join the brokerage. It covers onboarding and allows you to access the online brokerage systems.
- Equipment fees: These are usually flat monthly fees that cover 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.
Since agencies and brokerages that provide a high split commission model don’t earn as much from commissions, they have to cover their costs in other ways. These can be flat monthly expenses that are required whether or not you close a sale, or additional fees that accompany each transaction. Therefore, when you are choosing which real estate company to work for, make sure you ask detailed questions about the required fees.
In addition, be objective about your real estate career goals and your needs when you consider what a high or no split brokerage offers. Many real estate brokerages that offer a no split commission model are designed to attract experienced agents, and often don’t include training or mentorship programs for new agents.
You should also be prepared to have your own technology and real estate tools up and running, since the brokerage may not provide any type of website or digital marketing assistance. For new or part-time real estate agents, the limited support and fee schedule may not be feasible.
|Highest starting earning potential from commissions||Required monthly fees, regardless of production|
|Commission agreements don’t change, which makes them easier to calculate||Fee structure can be confusing|
|Limited support, training, and mentorship|
Although 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. Real estate agents, realtors, and teams who already have an established real estate lead generation system and a pipeline of clients don’t need to sacrifice more of their commission for marketing resources.
In addition, when agents consistently produce a high number of sales, the increased commission checks may easily cover the monthly or per-transaction fees from a high split brokerage.
The salaried model is the least common in the real estate industry, but many agents prefer it. Instead of being paid solely from commission checks, some real estate companies pay their real estate agents a regular salary and offer opportunities for additional commission and bonuses. One of the most well-known real estate companies that are starting to offer a salaried business model is Redfin.
Salaried real estate companies usually offer benefits to agents, paid time off, and incentives to earn more money as you make more sales. Their training and mentorship programs are often extensive, and agents receive ready-to-go marketing systems and new real estate leads. One of the main reasons why real estate agents fail is a lack of support, so working with a company that offers a salary and opportunities to grow is an ideal choice for many new or struggling agents.
|Most predictable||Limited earning potential|
|Includes benefits packages||Less autonomy in marketing and business decisions|
|Extensive support and training|
However, salaried commission structures limit an agent’s autonomy and can limit your earning potential. For high-producing realtors who want to generate leads and work with clients in unique ways, working for a salary would not be a good fit. There are also many expenses that come with working with clients, like car maintenance and home office supplies, that typical real estate agents can include as real estate tax deductions.
When you work as an employee, those expenses may or may be covered by your real estate brokerage. In every case, it’s vital to develop a clear understanding of the offerings of a real estate brokerage before making an agreement.
Calculate Your Commission Split
Before choosing a brokerage to hang your license, evaluate their commission split model using a calculator to see what your profits will be under each model. Our calculator below helps determine the amount of money you’ll put in your pocket after a deal. Input the following information to automatically calculate your commission:
- Sale price of home: The amount of money that the buyer agrees to pay for the seller’s home
- Percent of commission collected by agent from sale: The percentage of the sale price that you are collecting at the close of the transaction
- Agent commission split with brokerage: Your split of the commission agreed upon between you and your brokerage
For example, if the sale of a home is $300,000 and you are collecting 3% of the commission from the sale, you will collect the following commission for each split model:
High or No Split
Depends on employment contract
4 Tips to Negotiate Your Commission Split
Commission splits are extremely important, but they are only a piece of what helps an agent become successful. There are many different reasons to choose a specific real estate brokerage, even if they don’t offer the most ideal commission structure for your needs.
On the other hand, many successful agents joined their brokerage when they weren’t sure what a good split in real estate was, but the existing model is no longer benefitting them. In these cases, the best choice to maximize your income and continue growing your business is to negotiate a better commission split with your existing brokerage.
Before you set up the meeting, consider the following four tips:
1. Record & Analyze Your Progress
The foundation of every good negotiation is knowledge. If you don’t already have a real estate business plan, it’s time to create one. Identify your past sales, income, your growth, and progress in other areas like lead generation, marketing, or conversions. Analyze areas that need to grow and clearly articulate your goals for the future.
Most brokers are happy to support their agents, but there must be a clear reason for them to change your commission agreement. Their bottom line is the growth of their business, so you need hard numbers and facts to show how changing your commission structure will ultimately help the broker’s business.
Most importantly, calculate your gross income commission (GCI), or total commission earned before expenses and fees, as well as your net income, which is the total after expenses. With these numbers in hand, approach your broker with clear proof that increasing your commission would ultimately increase the success of the brokerage.
2. Negotiate on Specific Transactions
A real estate agent commission split is an agreement between two parties, not a legal document that can’t be adjusted for special circumstances. Keep in mind that the agreement should mutually benefit both parties, so there are some scenarios that are worth extra attention and discussion.
For example, the majority of real estate clients are individual buyers and sellers who don’t frequently participate in real estate transactions. These are valuable sources of real estate referrals and potential repeat clients, but there are only small chances of getting new sales out of the same clients.
On the other hand, a real estate client who owns a variety of commercial properties or is just starting a property investment venture is much more likely to bring multiple transactions and profit to a brokerage. If an individual real estate agent builds a strong relationship with a highly valuable client, it’s a perfect opportunity to negotiate a higher commission on all transactions from that particular client. Valuable business relationships take time and effort to continually nurture, and repeated transactions ultimately help the broker’s business.
Pro tip: Commercial real estate commission splits often work much differently than residential transactions, and can vary on each transaction. When you generate commercial real estate leads, make sure you set clear expectations and standards with your broker.
3. Refer to Your Goals
In order for real estate brokers to have a successful business, they need agents who are passionate about growing their own businesses. As an agent, you may have general goals for yourself, but your real estate broker may not know what you are working toward. By openly sharing your goals and your plans to achieve them, your broker may offer more support and show more willingness to adjust your commission agreement.
However, setting a goal should be more involved than simply picking a number that you want to reach. Everyone wants to make six figures, but that is not a realistic goal if you are unwilling to call real estate leads.
To create an actionable goal, use the following steps:
- Identify your current sales and income data
- Set your financial or sales goal
- Calculate how many deals you’ll need per month to reach your goal
- Create a plan to increase the number of deals
Visit our article How to Write a Real Estate Business Plan: Elements, Examples & Free Template and download our free goal calculator to keep track of the amount of money you earn for yourself and your brokerage.
4. Negotiate Other Factors
As real estate agents quickly learn, commissions aren’t the only element of a successful career or a growing income. If your commission split is satisfactory or unable to be adjusted, consider negotiating other elements of your business. For example, if you live in a rural area and travel 20 to 30 miles to client showings or listing appointments, you may want to ask for mileage reimbursement.
Another option is presenting a new real estate tool or type of technology to your broker. The right marketing or advertising tool can massively increase your return on investment (ROI), and you can offer your broker an opportunity to be a part of testing and finding more efficient ways to build the business.
For example, Market Leader is a lead generation tool that provides exclusive leads, as well as a customer relationship manager (CRM), customizable websites, and a complete marketing suite. It makes it easy to design professional pieces for both print and digital marketing, plus it comes with a ready-to-send listing marketing package. Negotiating a powerful and versatile tool like Market Leader could be the key to the next phase of scaling your business.
Remember that all negotiations should be built on facts, so make sure you are prepared to clearly identify the ROI potential of any new product or technology. Support your claim with information about the brokerage’s clientele, marketing strengths, and weaknesses, and give specific features of the product that will support your needs.
While all real estate commission splits have unique pros and cons, it’s important to understand clearly how they can work to your advantage and fit your needs. Successful real estate agents must stay informed about the most profitable commission structures for themselves as they begin to build a real estate career.