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.

According to research from The Conference Board, real estate agents have a career satisfaction rating of 68%. This is higher than the national average of 51% and its among the highest in any profession. 

The likely reasons for this high level of satisfaction include job flexibility and the fulfillment of helping people. But earning potential also plays a significant role. 

This is partly due to sales commission structures, which reward team members for helping clients get the highest value from a transaction.

An agent’s commission structure affects more than just how much they receive when a transaction closes. 

Different ways of structuring sales commissions can impact your real estate agents’ motivation.

This article explains five common sales commission structures, how each can affect real estate agents’ motivation to do their best work, and how you can make them even more motivating. 

Key Takeaways

  • Real estate commission is calculated as a percentage of a property’s final selling price. This is usually split equally between the buying and selling sides before being distributed among real estate agents based on their commission structure.
  • A traditional split is when the brokerage and real estate agent earn a set percentage of the commission on each deal. 
  • A tiered commission structure is when the agent can graduate to a more favorable split once they pass a sales threshold.
  • The flat fee, or 100% commission model, allows agents to keep all the commission but the brokerage charges them a set fee or fees.
  • The team split is when each commission is divided among the members of the team. 
  • Franchises will take a large cut of your sales but they will also help you attract more clients. 

How Is Commission Distributed?

Typically when a property sells, a portion of the final selling price goes to the selling agent as commission. This is usually between 5-6%.

This commission is typically divided equally between the buyer’s broker and the listing broker. 

From there, it is divided between the various real estate team members who brought the transaction to a close. This includes:

  1. The individual agents who worked with the clients to buy or sell a home.
  2. The brokerage that manages the legal and compliance-related aspects of the sale, and provides other support services to agents. 

Additional parties are often entitled to some of the commission generated to cover other business expenses such as franchise fees, referral fees, marketing, staging, and more.

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

This means the buyer’s agent and the listing agent may get different commissions from the same deal.

1. The Traditional Commission Split Model

This is the standard sales commission structure. The total commission earned after a transaction closes is divided between the agent and the real estate broker. 

In most cases, the commission is divided based on a predefined split ratio that’s negotiated when an agent joins the brokerage. 

For example, if an agent on a 50/50 percentage split and 3% gross commission sells a $300,000 property, the total commission will be $9,000. The brokerage will collect $4,500 and the agent will earn $4,500.

According to the National Association of Realtors (NAR) 42% of real estate professionals have a traditional split commission structure. 

How traditional commission splits motivate agents

Traditional commission splits motivate most real estate 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 grows their income. 

Real estate agents can renegotiate their commission splits in the future. This motivates agents to consistently do their best work so they have a solid sales track record.

How to make commission splits even more effective

Incentivise agents even more by offering splits that change based on the lead generation source—in other words, whether they are given the lead by the brokerage or generate it themselves. 

Commission plans that vary based on the lead source generally pay higher percentages for leads that the agent brings in themselves. 

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

Sometimes known as a graduated commission split, the tiered model works similarly to the traditional commission split model. 

Real estate agents start on a standard commission tier. Once the total amount of commission an agent has earned reaches a certain threshold, they graduate to the next tier where a higher commission is earned. This typically resets on a regular basis, often annually. 

The tier threshold doesn’t have to be basely solely on commission earned. It can also be based on sales volume, money paid into the brokerage, number of closed real estate transactions, etc.

According to the National Association of Realtors (NAR), 19% of real estate professionals have a tiered commission structure. 

Tiered commission example

Let’s say an agent is on a tiered commission model, earning 60% commission up to $100,000. After that, they earn 90% commission. 

At the lower commission tier and a 3% gross commission rate, an agent who sells a $300,000 property would earn $5,400 and the brokerage would take $3,600.

However, they would earn $8,100 at the higher commission tier, while the brokerage would take just $900.

How tiered commissions motivate agents

Tiered commissions offer similar incentives to splits in that agents are paid a percentage of the sales price.

They drive agents to achieve greater sales, so they can begin to take home a higher proportion of commission. 

This model attracts and retains the most successful agents and teams. Because they are so effective, they quickly graduate to the higher tier and start earning better commissions.

Tiered commissions are also useful for brokerages as it allows them to ensure they lock in profits early in the year.

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%. This is sometimes known as a capped commission split. This motivates top-producing agents by giving them the opportunity to keep all their commission. 

Real estate brokers wanting to offer this may want to make it a stretch goal—something they grant agents once they have earned significant commissions.  

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

Instead of relying on splits to make money, a flat-fee real estate brokerage (or 100% commission brokerages) charges a set amount to each agent.

This could be paid when they earn a commission, or the agent may pay a set monthly fee to the brokerage, often called a desk fee for the use of their office and services. 

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 fewer support systems than a commission split plan. 

For example, brokerages may not offer transaction coordination support, tools and systems, or coaching.

Other standard fees that brokerages 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. 

Flat fee example

Let’s say an agent’s brokerage requires them to pay a $300 monthly desk fee and a $1,000 per transaction flat fee from their commission. They sell a $300,000 property at 3% gross commission. The brokerage takes $1,300 and they earn $7,700. 

The next week they complete a similar deal. But because they’ve already paid the desk fee, the brokerage only takes $1,000 and they get $8,000.

The following month, they only work one deal and it falls through at the last moment. The agent has to pay the transaction fee and the desk fee but doesn’t earn anything themselves, leaving them $1,300 out of pocket. 

How flat fees motivate agents

The example above shows that flat fees can be exceptionally motivating for an experienced agent with deep client bases.

This is because they know they’ll easily cover the fees and get to keep the remaining commission. 

However, the example also shows why this model is often less appealing to new agents. They 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 work 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 fixed fees. The rest is then split among the team members.

Team commission model example

Let’s say our team consists of a broker/lead agent, two junior agents, a transaction coordinator, and an admin assistant. The broker takes 30% of the commission, while the other team members each take 17.5%.

On a $300,000 property at 3% gross commission, the lead agent earns $2,700, while each team member receives $1,575.

How the team commission model motivates agents

The amount of commission each real estate 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 the 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.

Franchise fees aren’t the only fees agents get charged. We’ve already mentioned desk fees. Other fees include:

  • MLS: This might be charged per listing.
  • Marketing: Charged for general printing and advertising costs.
  • Errors and omissions (E&O) insurance: This liability insurance covers the brokerage and agents against being sued for making professional errors.
  • Technology: This might cover the cost of providing laptops, phones, tablets, and even 3D tour technology.
  • Training: Used to cover any training, coaching, or mentoring provided. 
  • Transaction coordination: Your brokerage may charge agents for using an internal or outsourced transaction coordinator.

Franchise fee example

Let’s say you’ve earned $9,000 gross commission. You pay a 1% franchise fee on every deal. Then your brokerage has a 50/50 traditional split with agents. 

The franchise would be paid $90. Next, the remaining $8,910 is split between real estate agent and brokerage. 

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 your brokerage 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 real estate 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 the real estate agent commission by 10-20% to pay for it, charge additional 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 may 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 controlling a brokerage, Paperless Pipeline keeps track of everyone’s plans automatically.

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