Commission Splits
How do real estate agents get paid? How do commission splits work? Here is the answer.
Sellers pre-establish a percentage of the sales price by negotiating with the listing agent of a property the commission based on the total sales price of the property sale. Generally the percentage is between 5 and 6 percent of the sales price.
Let's use an example of a $100,000 house. Lets say the agent negotiates with the seller to list the house for 6%. The seller will then give 6% to the agent for selling the house.
Generally, agents split this percentage rate in half. 3% they keep. The other 3% they will offer to another agent if the agent ultimately brings the buyer for the property.
After the sale, the listing agent then takes the commission and gives this 3% to his sponsoring broker. The sponsoring broker then splits the 3% commission earned by the agent into the corresponding pre-established split the agent and broker have agreed to. This could be 50% to agent and 50% to broker. It could be 60% to agent and 40% to broker. It could be 80% to agent and 20% to broker. Get the idea? It is whatever the agent and broker agree to.
Let's use an example where the agent receives 80% of his commission and the broker receives 20% of the agents earned commission. This is known as an "eighty twenty split".
The above pie chart represents this commission split. The green is the 80% that the agent receives. The 20% represented in yellow is what goes to the sponsoring broker. But why pay a sponsoring broker? Well the broker has expenses, training, and overall support for the agent that take up time and money.
Even further, some companies have a cap. This cap can be thought of like the cap to a bottle. Once the bottle is full of coins, the cap is put on the bottle and the rest of the coins go to the agent. At that point the agent will receive 100% of his earnings for the rest of that year. An example would be a $15,000 cap.
Still more, large franchises may charge franchise fees. Franchise fees are fees that are paid out to the "larger entity of the company" prior to the commission split. Here is an example about Franchise Fees that can give you idea of what they costs. A franchise fee is generally a fixed rate, say $500, which is taken from the agents commission prior to any splitting with the broker.
If you're considering becoming a real estate agent with Engle Realty then let us explain to you our commission plan. This plan both encourages production and rewards production. It varies per agent depending on experience.
