Sales Commission Structure: How Flat Fee, Splits and Thresholds Will Motivate Your Agents

Everyone knows the most important thing in real estate is location, location, location. But for Realtors and real estate teams who help clients buy and sell properties, here’s another key term: commission, commission, commission.

Across sectors, real estate professionals are the happiest employees in America, research shows. The flexibility and potential to help people are common reasons for the high level of satisfaction among real estate professionals, but earning potential also plays a significant role. This is in part because of sales commission structures, which allow teams to directly reap the results of all the hard work they do to help their clients get the highest value out of a transaction.

Typically, when a property sells, a portion of the sale price goes to the buying and selling brokerages as commission. This commission is then divided between the various members of a team who brought the transaction to a close. These consist of:

  • the agents who worked with the clients to buy or sell a home;
  • the brokerage, which manages the legal and compliance-related aspects of a sale, and provides other support services to agents.

There are often additional parties entitled to some of the commission generated to cover other costs such as franchise fees, referral fees, marketing help, staging, and more.

While the commission model is relatively standard, the structure by which an agent earns their share of the commission may vary depending on the brokerage and the individual agreements negotiated when recruiting and hiring new agents.

The commission structure affects more than just how much an agent receives when a transaction closes. Different ways of structuring sales commission can also have varying effects on how your agents are motivated.

Here we explain three common sales commission structures and how each one can affect agents’ motivation to do their best work—and how you can make each even more motivating. 

1. The Traditional Commission Split Model

In the most standard sales commission structure, the total commission earned after a transaction closes is divided between your agent and brokerage. In most cases, the gross commission is divided based on a predefined split ratio that’s negotiated when an agent joins the brokerage. For example, if the percentage split is 50/50 and the total commission is $10,000, your brokerage will collect $5,000, and your agent will earn $5,000.

How Traditional Commission Splits Motivate: Traditional commission splits motivate agents because there is a simple and direct correlation between increasing the value of a transaction and an increase in their total earned commission. This sales commission structure also encourages agents to continue investing in a pipeline of potential clients as every sale will further grow their income. 

Traditional commission splits can further motivate agents to consistently do their best work over the long term because having a solid sales track record can help them to negotiate a better split later on.

How to Make Splits Even More Effective: You can provide more incentive for agents by offering splits that change based on the lead source. 

Commission plans that change based on the lead source generally pay higher percentages for leads that the agent brings in themselves. For leads that your company or brokerage gives them, you will earn more, and your agent will receive a lower percentage. This model works well for agents with extensive networks and those who are eager to build their prospect lists.

2. Tiered Model/Income Thresholds

The tiered model works similarly to the traditional commission split model except that instead of a fixed split ratio, your agent’s commission is allowed to increase as they meet increasing levels of sales.

How Tiered Commissions Motivate: Tiered commissions offer similar incentives to splits in that agents are rewarded based on the outcomes they achieve. However, tiered commissions can be even more motivating because, as agents increase their sales, they take home a higher proportion of the total commission. This model can be extra helpful when it comes to attracting and retaining top talent.

How to Make Tiered Commissions Even More Effective: Common commission tiers generally jump between two or three levels. You can further motivate agents with a final commission tier of 100%. Essentially, the cap motivates agents by offering a 100% commission rate once they reach a set goal. These goals can be based on sales volume, money paid into the brokerage, number of closed transactions.

3. The Flat-Fee (or 100% Commission) Model

Instead of relying on splits to make money, flat fee brokerages, or 100% commission brokerages, charge a set amount to each agent when they earn a commission. This is also sometimes called a 100% commission model. For your agents, this may sound great because they are able to keep the entire commission earned on a real estate transaction. However, it often comes with far fewer support systems than a split commission plan. 

Brokerages may not offer transaction coordination support, tools and systems, coaching, and more. The agent may pay a set fee to the brokerage, often called a desk fee, on a monthly or per-transaction basis, for the use of their office and services. Other standard fees that you may charge are Error and Omission, Transaction Fees, or Marketing Fees. Such costs vary depending on the brokerage itself, and, unless applied on a per-transaction basis, would be charged regardless of whether or not an agent closes a sale. 

How Flat-Fees Motivate: For agents with deep client bases and long rosters of experience, flat fees can be exceptionally motivating because they keep the full commission earned on every transaction. However, this model is often less appealing to new agents who may not wish to commit to ongoing fixed costs (which can be high) before they are confident in their ability to generate sufficient revenue.

How to Make Flat Fee Commission Plans Even More Effective: Some brokerages use the flat fee model to help them grow and recruit new agents. Occasionally, it’s helpful to waive the fee when warranted. Or, set goals at which point agents will no longer pay the monthly fee or transaction fee. 

Regardless of the sales commission structure your brokerage employs, there are some key ways to ensure the earning potential of their work continues to drive agents to do their best work. Specifically, it is essential to offer agents tools that make it easy to track their commissions (and to calculate commission potential).

Paperless Pipeline’s Commission Module makes it easy to calculate everyone’s share of the commission in seconds and delivers up-to-date statistics on earnings right to agents’ inboxes. Furthermore, though managing various commission schedules can increase the complexity of managing a brokerage, Paperless Pipeline keeps track of everyone’s plan automatically.

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