The Real Estate Commission Structure: How Flat Fees, Splits and Thresholds Will Motivate Your Agents
Everyone knows the most important thing in the real estate industry is location, location, location.
But for realtors and real estate teams who help clients buy and sell properties, here’s another key phrase: commission, commission, commission.
Research from the National Association of Realtors found that across all of the sectors, real estate agents are the happiest employees in America.
The flexibility and potential to help people are common reasons for the high level of job satisfaction among real estate professionals, but earning potential also plays a significant role.
This is in part because of sales commission structures, which allow team members to directly reap the results of all the hard work they do to help their customers get the highest value out of a transaction.
Typically when a property sells, a portion of the sale price goes to the buyer’s agent and selling brokerage as commission.
This commission is then divided between the various real estate team members who brought the transaction to a close. This includes:
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 team agreement 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 real estate agents are motivated.
Here we explain five common sales commission structures and how each one can affect agents’ motivation to do their best work—as well as how you can make them 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 listing agent and real estate broker.
In most cases, the gross commission income is divided based on a predefined split ratio that’s negotiated when an agent joins the brokerage.
How Traditional Commission Splits Motivate Agents
Traditional commission splits motivate most 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 team members to continue investing in a pipeline of potential clients, as every sale will grow their income.
Traditional commission splits can further motivate agents to consistently do their best work over the long term.
This is because having a solid sales track record can help them to negotiate a higher commission split later on.
How to Make Commission Splits Even More Effective
You can provide more incentive for agents by offering splits that change based on the lead generation source.
Commission plans that vary 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 real estate 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.
However, 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 Agents
Tiered commissions offer similar incentives to splits in that agents are rewarded based on the outcomes they achieve.
This model can be extra helpful when it comes to attracting and retaining the most successful teams. Team leaders play a very important role with tiered commissions.
Their encouragement can motivate your real estate team to increase their sales and achieve higher commissions as a reward.
How to Make Tiered Commissions Even More Effective
Standard 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 top-producing 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, etc.
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 team members, 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 commission split plan.
For example, brokerages may not offer transaction coordination support, tools and systems, or coaching.
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 Agents
For agents with deep client bases and long rosters of experience, flat fees can be exceptionally motivating.
This is because agents are able to 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 more income.
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 team members will no longer pay the monthly fee or transaction fee.
4. The Team Commission Split Model
Most brokerages thrive on competition. Agents work alone and focus on their own deals to push up their commission.
A team structure is different. In these brokerages, a small group of highly productive and focused agents works together.
The commission is shared between everyone who works on a deal—not just the agent. It could even be shared with the entire team.
A real estate team commission split is similar to a standard split. The brokerage usually takes its share first, along with any fees. The rest is then split amongst the team members.
How the Team Commission Model Motivates Agents
The amount of commission each agent earns on each deal is lower.
However, their combined expertise allows them to bring in more deals and sell at a higher volume, so there’s potential to earn more if the team works well.
How to Make the Team Commission Model Even More Effective
This model can also be attractive to clients, as it tends to be more customer service-oriented.
Make sure your marketing and sales reflect this unique USP.
You can apply the same rules mentioned in the standard commission split section to a team model. For example, offering splits that change based on the lead generation source.
5. Franchise Fees
Franchise fees aren’t a commission structure, but they do play a major role in your commission calculations and how your brokerage does business.
Franchise fees are typically taken out of the gross commission before it is split between broker and agent.
Franchises can charge an initial fee, a monthly fee and a per-transaction fee, so you need to consider how this is charged to your agents.
How Franchises Motivate Agents
Franchises provide you with brand recognition so agents can bring in new clients quicker.
They provide access to software for lead tracking, email marketing, deal management and commission calculating. You will also have access to guidance and training.
The downside is that the franchise takes a chunk of all your sales and will charge you even if you don’t make a sale.
How to Make the Real Estate Team Commission Model Even More Effective
Franchises are great for new brokerages or those that take on less experienced agents.
When hiring potential agents, highlight the exposure and learning and development opportunities they will get. This will allow you to offer lower commission rates.
Does Brokerage Size Impact Real Estate Agent Commission Structure?
Yes it does. Real estate teams at large brokerages have a very different set of priorities to real estate teams at smaller ones.
As a rule of thumb, the more back-office support your agents get from transaction coordinators and admins, the more your agents pay—either via fees or lower commission.
Agents with less support get more commission because they have to spend more time generating leads.
Traditional Small Real Estate Team
This involves having an admin function to support your real estate agents. This means that real estate team commissions will be lower—around 50/50—in order to pay for that additional support.
Mentor Real Estate Team Structure
This real estate team model is where an experienced agent supports a small number of inexperienced agents. Agents are responsible for all their admin and the team lead only provides advice and support. Commission is usually very favorable for agents and can be as high as 90%.
Larger Traditional Team Structures
Larger real estate teams have separate buying and selling agents, as well as an inside sales team that will take a chunk of the commission. You could reduce agent commission by 10-20% to pay for it, add fees or reduce the brokerage’s cut.
Hybrid Teams
In a hybrid team, agents operate as both buyer and seller agents. This usually attracts more experienced agents and so this model might suit a flat fee structure, encouraging them to bring in as much business as possible.
Keep Your Real Estate Team Motivated
Regardless of the sales commission structure your brokerage employs, there are some key ways to ensure the earning potential of your agents continues to drive them 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 straight to agents’ inboxes.
Although managing various commission schedules can increase the complexity of managing a brokerage, Paperless Pipeline keeps track of everyone’s plans automatically.
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