Is Your Real Commission Split What you Think It Is?

Avoid making any change until you have run the numbers and have a clear understanding of the costs

by
Bernice Ross

Key Takeaways
If you are thinking about changing brokerages, compare your total expenses at your current brokerage and what your projected expenses will be at your new brokerage, including the tools and services that both brokers pay (or don’t pay) on your behalf.
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If you’re working at a full-service brokerage where you are on a 70-30 split, you may be tempted to jump ship to one of the 95-5 or 100-percent brokerage firms. Before you make that decision, take a hard look at the numbers — you may be making more exactly where you are.
So-called 95- or 100-percent brokerages are mushrooming up everywhere. Although their main selling point is their high commission rate, the question you must answer is how much you will net after you pay all your expenses in each model?
To better understand how this works, here are three of the most common 95-100 percent models.
Desk fee model
This model typically has the highest payout. Agents on 95-100 percent desk fee model are charged based upon whether the agent maintains a desk in the office, uses a work station or works from home.
Typically, there are three types of fees:
Fixed monthly fees
Desk rental fees
If the brokerage is part of a franchise, a 6 percent to 8 percent franchise fee taken off the top on all transactions.
For an agent earning $100,000 of gross commission income (GCI), here’s what they can expect to pay.
Fixed fees Annual cost
Management, shared office expenses, and tech fees $12,000 ($1,000/month)
Private office desk rental $8,400 ($700/month)
Office telephone line for prospecting $1,200 ($100/month)
6 percent franchise fee on $100,000 GCI $6,000 ($500/month)
Other fees
Print advertising (one ad, local paper) $2,400 ($200/month)
Signs, riders and flags $1,500 ($125/month)
Just listed and just sold cards $1,200 (100 cards/month)
Website $1,188 ($99/month)
CRM $1,200 ($100/month)
Copier/printing services $600 ($50/month)
E&O insurance $600 ($50/month)
Total $36,288

In this scenario, the agent nets $63,712 after expenses, a split of 63.7 percent.
In contrast, the full-service agent on a 70-30 split only pays the $600 for E&O insurance. The brokerage picks up the balance of these costs. Thus, the full- service agent nets $69,400 or a 69.4 percent split.
In this scenario, the full-service agent nets $5,688 more than his or her 100 percent counterpart.
The cap model
In a cap program, each office sets a number that the agents must reach before they go to 95-5 or 100 percent. That number covers the broker’s costs and also includes a profit. A typical cap in many offices is $23,000.
Here’s how one broker described its cap program:
Agents grossing above $100,000 the previous year start with an 80-20 split until they reach a $23,000 cap.
Those who gross from $25,000 to $100,000 start on a 70-30 split until they reach a $23,000 cap.
Those grossing less than $25,000 start at 60-40 split.
Once agents hit their cap, they pay a 95-5 split for the remainder of the year. What this brokerage website failed to mention was that its company is part of a franchise that charges a 6 percent franchise fee.
Here are the costs for this scenario:
Fixed fees Annual cost
Cap $23,000
6 percent franchise fee on $100,000 GCI $6,000 ($500/month)
Other fees
Print advertising (one ad, local paper) $2,400 ($200/month)
Signs, riders and flags $1,500 ($125/month)
Just listed and just sold cards $1,200 (100 cards/month)
Website $1,188 ($99/month)
CRM $1,200 ($100/month)
Copier/printing services $600 ($50/month)
E&O Insurance $600 ($50/month)
Total $37,688
In this scenario, the agent nets $62,312 after expenses, a split of 62.3 percent.
As compared to the full-service agent’s split which is 69.4 percent or $69,400, the full-service agent nets $7,088 more than his or her 95-5 percent counterpart.
Using the same numbers, the desk fee model with a private office nets $1,400 more the cap model.
Affiliation fee plus transaction fee model
This approach runs the gamut from paying a few hundred dollars to hang your license with a virtual broker with no location and no services to at least one company that is offering a full suite of services (agent website, call center, CRM, plus a marketing department to construct print and digital marketing campaigns).
The comparison below looks at this hybrid model of full service using the affiliation fee plus transaction fee approach. Assume 14 transactions at an average commission of $7,143 or $100,000 GCI.
Fixed fees Annual cost
Affiliation fee $900 ($75/month)
Transaction fee (14 transactions) $5,530 ($395/transaction)
Other fees
Print advertising (one ad, local paper) $2,400 ($200/month)
Signs, riders and flags $1,500 ($125/month)
Just listed and just sold cards $1,200 (100 cards/month)
E&O insurance $600 ($50/month)
Total: $12,130
The agent in this scenario nets $87,870 or an 87.9 percent split. Here’s how this model stacks up against the other three:
Full-service model (70-30 split) $69,400 (Agent pays $18,470 more)
Desk fee model $63,712 (Agent pays $24,158 more)
Cap model $62,312 (pays $25,558 more)
Winners in the cap and desk fee model comparison
The more GCI the agent earns, the smaller percentage the desk fee/cap is as a percentage (a $23,000 cap is 23 percent of $100,000 but only 7.67 percent of $300,000 GCI). This makes the cap and desk fee models especially attractive to top producers and teams.
However, many of the traditional models increase the agent’s split up to 85 percent to 90 percent, and some have also instituted a cap as well.
The really big losers in the cap and desk fee models
It’s common for new agents to start at 50-50 at many full-service firms. New agents normally pass on the desk fee model, especially if they’re not well-capitalized. Many, however, are drawn to the cap model, which is essentially pay-as-you go.
Here’s the rub with the cap model that they never tell new agents. Yes, they’re on a 60-40 split (higher than 50-50 at the full-service companies,) however, they’re still paying for all their expenses!
Once their expenses are factored in, their split may be as low as 30 percent or even less!
Furthermore, if you’re in a desk fee model, how will you pay your monthly overhead if you are unable to work due to an illness or injury?
Which model is right for you?
If you are thinking about changing brokerages, compare your total expenses at your current brokerage and what your projected expenses will be at your new brokerage.
To obtain a complete picture, you must factor in the tools and services that both brokers pay (or don’t pay) on your behalf. Avoid making any change until you have run the numbers and have a clear understanding of the costs.

Special Thanks to:
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. Learn about her training programs at http://www.RealEstateCoach.com/AgentTraining and
http://www.RealEstateCoach.com/newagent.
Article image credited to Photo by Pablo Heimplatz on Unsplash

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