How Is Split Commission Calculated in Real Estate?
Author : Emily Clarke | Published On : 30 Apr 2021
Real estate agents and brokers make money by charging commissions on completed property transactions. Agents work under real estate brokers who oversee property transactions. At the completion of a sale, the broker and agent divide the proceeds. Brokers track the financials through a commission reporting system. The commission may be calculated according to a fixed or graduate formula depending on the contract between a broker and agents.
Fixed Real Estate Commissions
A fixed formula applies a specific percentage to the commission. Typically, an agent receives 60% of the money, and the broker collects the remaining 40%. Fixed commissions may be 50/50, 70/30, or 80/20. The percentage does change whether an agent sells one property or a hundred.
On the surface, a higher percentage for an agent may appear to be the best situation. However, brokers vary in how they charge fees to agents and the amount of support given to agents. A broker who mentors agents and provides sales leads could offer great value even if the split is 50/50 or 60/40. A supportive broker can enable an agent to complete more transactions and ultimately make more money compared to a broker who offers a more favorable commission split but does not provide sales leads.
Example of a 60/40 Fixed Commission Split
- The transaction involves two agents working for two brokers.
- The home sells for $300,000 and produces a 6% commission paid by the seller.
- The 6% commission on $300,000 equals $18,000.
- Each broker receives half of the $18,000, or $9,000.
- Each agent receives from each broker 60% of $9,000, or $5,400.
Graduated Real Estate Commissions
The graduated approach to commissions gives agents a greater incentive to sell more property. An agent may earn a 50/50 split on transactions until reaching a certain threshold of sales. At that point, the commission reporting system would elevate an agent to a 60/40 split. After reaching more sales milestones, commissions could increase to 70/30 or 80/20.
The calculation of a graduated commission will depend on the percentage applicable at the time of the sale according to an agent's current sales totals.
Emily Clarke writes about business software and services like commission tracking platforms, softwares etc. You can find her thoughts at commission system blog. Click here for more information on compensation management.