Q: I’m a real fan of your column, but a recent one on how much commission real agents make is extremely misleading.
From the way I read the column, it looks as if the agent representing the seller walks away with that 5 percent to 6 percent of the sales price in his or her pocket. The truth is that there are huge expenses to be covered when listing a home for sale, all of which come out of the listing agent’s pocket, including advertising the property, any photos or videos that need to be taken, other materials for the showings and open houses and the broker’s time.
And most of that 5 percent to 6 percent commission gets split by at least four people, and sometimes six, if referral fees are involved. First of all, the fee is split in half between the listing and selling broker. So each brokerage company (listing agent and buyers agent) gets 2.5 to 3 percent of the sales price.
The individual agent then splits that with his or her broker at varying amounts, sometimes in half, so the agent is now down to 1.5 to 2 percent of the sales price. For that money, the broker provides a bricks and mortar office, copy machine and a host of other services.
Add to that, the agent pays national Realtor association dues, state Realtor association dues, local association dues, electronic key fees, car expenses and errors and omissions insurance, among other expenses.
Sure, there is some room to breathe, maybe, for some people. But not a lot. Agents won’t negotiate commissions because if they did, they would be working for no pay. And, like everything else in life, with discount brokers you are likely to get what you pay for.
There is a reason people continue to pay 5 percent to 6 percent to real estate companies — and not directly to the agents. It’s because they want it done right.
Thank you for listening. My suggestion is to research and write another article presenting this side of the story.
By the way, I do acknowledge that not all agents are worth what you pay them, but I’ve been a Realtor since 1987, and the majority are. Thanks for all your information. I really enjoy it and it is often very useful.
A: Thanks for your question and for breaking out how agents get paid.
You’re right: There’s a strong misconception that the listing agent receives all, or the majority of, the commission. As you note, the buyer’s agent and seller’s agent each receive about 25 percent of the commission that’s paid, or 1.5 percent on a 6 percent commission. The brokerage companies divide the rest, typically 1.5 percent each.
Rarely, the commission that’s paid is split unequally between the parties. When that happens, sometimes the buyer agent receives more (because the seller is trying to attract more buyers, and, well, money talks). But usually the commission is split equally.
You raise a good point about the expenses that go into running a real estate brokerage. In addition to the expenses of running an office (including advertising, an office lease, signage, phone numbers, MLS access and technology, among many other costs), brokers spend money to train agents, hire support staff and keep the agents who join them. Some of the documentation expenses are now being passed along to the buyers or sellers.
Being a real estate agent is expensive, too. As you point out, there are national, state and local dues to pay, office expenses (some real estate companies charge agents for use of office equipment, copying documents and the time allocated by support staff), insurance premiums, outside advertising expenses, and the costs of wining and dining clients.
The truth is, there’s plenty of money in these deals for agents (on both sides) who are good, who hustle and who work hard. If you’ve been in the business for 30 or more years, then you know how to do all three.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.
Joining a Real Estate Team - Is It Worth It?
What is a real estate team? It’s a group of agents working together to serve their community. Joining a real estate team is a personal decision; what works for one agent doesn’t necessarily work for another. There are pros and cons to any choice, so this guide will lay out how real estate teams work and if it’s right for new agents to join one.
How Real Estate Teams Are Structured
People are often drawn to the real estate industry because it offers freedom and flexibility. Before we delve into how to structure a real estate team, it’s important to note that, in many states, new agents are required to find a sponsoring broker and hang their license at a brokerage. However, this doesn’t necessarily mean that those agents will work on a team. An agent can work independently under a broker. If you’re considering creating a real estate team or joining a real estate team, you’ll want to know how to structure a real estate team. Below are the most common structures for real estate teams:
- A real estate broker and an agent, also known as the mentor and mentee real estate team.
- A leading real estate broker with a team of real estate agents, all of whom work in the company’s Sales department, exemplify the team leader model.
- A real estate broker and multiple real estate agents with oversight from the Operations department comprise the lead team model.
Consider how you like to interact with groups to determine which team structure to pursue. You might work best with just a mentor or one other agent. You’ll also need to factor in how commissions are split when joining a real estate team.
Before we get into how real estate teams split commission, let’s get a basic understanding of what real estate commissions are and how real estate agents get paid. In simple terms, a real estate commission is a payment based on the final selling/buying price of the property as defined in the brokerage’s contract with their real estate agent. It is usually paid to the brokerage, then it’s split based on the preset contract. Consensus says this commission fee is 5-6%. Now that we’ve covered this information, you’re likely wondering, “How do real estate teams split commission?”
Real estate teams split their commission differently depending on their team structure and overall earning potential. If you were to join a real estate team comprising multiple agents, there’s a higher potential to sell more properties and make more money. At brokerages like RE/MAX, for example, the commission split can be as high as 95/5 - though these splits vary depending on negotiations. Typically, whoever does the majority of the work gets more of the commission.
So, what would a commission split look like with actual numbers? Using the national average home value of $269,039 with a 60/40 commission split of 6%, the total commission would come to $16,142.16. One agent would make $9,685.30 while the other would make $6,456.85.
When it comes to joining a real estate team, consider your commission to determine which team structure works best for you. If you prefer a better commission split, the mentor/mentee team is probably best for you. If you like the potential of a real estate team having great volume in terms of buying and selling, the team lead or lead team model might align best with your goals.
Did You Know?
Real estate teams are not just for new agents. The National Association of Realtors notes that 26% of REALTORS® are members of a real estate team or partnership.
Pros of Joining a Real Estate Team
Shared Resources
Teams can share leads, software, marketing collateral, and other resources that can be challenging to acquire alone. By joining a real estate team, you have more access to a breadth of tools and people who can help you use them to their full potential.
Accountability
People fall into funks sometimes. If you work along, it can be challenging to get back into the swing of regular real estate business. With a real estate team, however, your leader or other teammates can help pick you up and hold you accountable when you start to slip.
Support from Your Team
Working in a team environment means that you should always have people cheering you on - and vice versa. You’re all working toward a common goal, and support from your team is a priceless benefit of joining a real estate team.
Lead Generation
Success in real estate is all about leads: knowing where the leads are coming from, where to find to find them, and how to keep them. When you have multiple agents looking for leads, your team will be more likely to find ones that convert into clients.
Professional Development & Advice
If you’re a new real estate agent, being a member of a real estate team can be invaluable because you don’t have to figure the industry out on your own. No matter how your team is structured, you’ll learn the ins and outs of real estate from people with local experience.
Cons of Joining a Real Estate Team
Commission Splits
If you’re a member of a big team, your commission split will shrink. Even if you’re in a mentor/mentee team structure, the split could slant heavily toward your mentor. Finding a team that clearly lays out the commission split and how it benefits you is crucial.
Negative Team Dynamics
There’s always the potential that your team won’t fully get along. Whether someone is only working to benefit themselves or just doesn't care about the team, the potential negative team dynamics are a factor to consider when joining a real estate team.
Less Creative Control
When joining a real estate team, you can’t just enact every great idea that pops to mind. In most cases, you’ll have to run it by the other team members first and get their approval. Typically, you’ll have less creative control working in a real estate team..
Lacking Personal Brand
Remember the old adage from the wide world of sports? “There’s no ‘I’ in team.” That means when it comes to branding, it’s about the team. So if you’re looking to build your own name, a real estate team probably isn’t the best avenue to make that happen.