Commission savings

F - Top Real Estate Agencies: How do the top agencies work?

If you know how commissions are split, you'll be in a better position to bargin for a favorable rate. This will also solve that nagging question as to why so many people get a real estate license.

 

How commissions are split:

To understand what makes the top agencies, it’s important that you have a basic understanding as to how commissions work. A real estate commission is split several ways. In a classic setting, the listing agency (representing the seller) gets half of the commission and half goes to the selling agency (who represents the buyer). Thus, on a 6% commission for a $300,000 sale, the commission is $18,000. The equal split would provide $9,000 to each brokerage firm.

Within each company, the agent involved in that sale would get a percentage of the $9,000. The typical arrangement for a newer agent is that the company would get half and the agent would get the other half, or in this example, $4,500 each. More productive agents or “top producers” would get a larger cut, upwards of 75% to 85% of the $9,000.

Traditional agents toe the mark:

Large national companies maintain strong continuity within their organization (high commissions and profitable sales) in order to pay franchise fees, national advertising, administrative and management salaries plus office overhead. Therefore, they tend to stick closer to their individual office policy of set commission rates and fewer discounts.

Agents go where the money is:

In the mid 60’s, Realty Executives started a concept in which the agent would get 100% of the commission due their brokerage. A few years later, RE/MAX popularized this concept, attracted top agents from the traditional companies, and eventually became the world leader in real estate sales.

So why don’t all agents go to the 100% real estate companies? The agents may get all of the commission, but these agencies charge their agents an office fee, usually in the range of $1,000 to $1,500 per month. The agents also pay for all their own advertising expenses. For successful agents with an entrepreneur spirit, the RE/MAX concept has proven to be extremely lucrative.

Advantage to sellers:

The 100% agencies rely on the agent’s monthly fees as guaranteed income. These offices tend to be more flexible, usually allowing their agents a higher degree of leeway in setting their own commission rate. Agents that must pay a fee every month are often quite willing to reduce their commission just to get listings, which they hope to convert into sales.

RE/MAX is a traditional agency, although their agents have been known to be a lot more commission friendly, especially those in larger metropolitan areas that foster competition among agents.

Other traditional offices have adopted this commission concept for selected agents within their sales force in order to avoid losing them.