Real Estate Agent Compensation Models: Which One is Best?

Achieving success as a real estate agent is not without its challenges. Driving clients all over town, making and receiving endless phone calls, emails and text messages; hosting open-houses, networking to generate new business, trying to avoid pulling your hair out when something falls apart: Sound familiar? Whether you're an aspiring, new agent or a seasoned pro you know that this business has as much to do with helping people realize the dream of home ownership as it does the gritty, practical business of survival. It's about competing for a limited number of listings and a limited number of clients, taking nothing for granted.  Distilled to its essence, it is about getting paid.

So which compensation plan makes sense for your situation? By understanding how each compensation model works you will be better able to make an educated decision and optimize your earnings.

The Traditional Broker/Agent Split:

In this model, the real estate broker collects a commission, typically paid by the seller, and then shares a percentage of this gross amount with the agent. The broker and agent decide on the exact percentage amount. A broker may provide leads, dedicated office space, computers, office equipment, support staff, educational opportunities, etc. Agents may also benefit from a broker's strong internet presence—e.g., high traffic, high visibility, high profile.

As a general rule, the more tangible (and intangible) support the broker provides the lower the agent's percentage will be. Conversely, a broker may benefit by the amount of sales volume generated by the agent. The percentage amount would then tend to favor the agent. Here's one scenario:

* Broker provides a moderate level of support and services.

* Broker and agent agree to a 50-50 split.

* Broker collects a gross commission of $10,000.

* Broker keeps $5,000 and issues the remaining $5,000 to the agent.

The 100% Commission Model:

In this model the agent keeps 100-percent of the gross commission whereas the broker collects a monthly office fee or ‘desk fee' from the agent. While the amount paid to the broker varies it can be significant in many cases. High-volume agents tend to like this plan since it places a ceiling on monthly costs and at the same time allows for unlimited income.  Here is one example:

* Broker collects $10,000 commission and pays agent 100% of this amount—i.e., agent receives $10,000.

* Agent pays broker a monthly desk fee of $1,200.

A Real-Life Twist on the 100% Commission Model:

Realizing that lower-volume producers, such as new agents and part-time agents are typically not willing to incur a fixed monthly cost as this presents a certain risk, Indianapolis real estate broker MSWoods offers an innovative twist on the 100-percent commission model.

Here's how the MSWoods plan works:

* You keep 100% of the commission minus $445 per transaction side for the first 12 transaction sides each year.

* You keep 100% of the commission minus $50 for each transaction side thereafter for the remainder of the year.

* If you mentor a new agent, you and the new agent split the commission 50-50 minus $445 side until the new agent completes 5 transactions. The new agent then becomes qualified for the lower rate.

* The monthly affiliation fee is only $49 per month and includes Showings.com to set showing appointments for your listings 7 days a week and your E&O insurance.

* Tremendous Visibility with over 40,000 page views per day on our websites. That's 1,200,000 page views per month on Indianapolis blogs and news, Indianapolis fun home for sale search, and msWoods Indianapolis homes for sale

* Search Google for the most important keywords in central Indiana -- Indianapolis Real Estate, Indianapolis Homes or Indianapolis Homes for sale – and you'll see the MSWoods site usually in the number one or number two spot in the search results. Search for your favorite subdivision or a house address that is currently for sale. You'll find their websites there as well.

Broker Referral Fee with Agent Split:

Any fee owed to another company for referring a buyer or seller to the broker is subtracted from the gross commission. The remaining commission is then split between the broker and agent. Here is an example:

* Broker ‘A' refers a buyer to the broker ‘B' in exchange for a 30-percent referral fee.

* Broker ‘B' pays broker ‘A' $3,000 (i.e., 30-percent of the gross $10,000 commission)

* The remaining $7,000 is then split between broker ‘B' (the principle) and the buyer's agent.

Franchise Fee Paid by Franchisee to Franchisor:

Most Franchisors charge their franchisees a royalty fee on gross sales. This fee gets subtracted from the gross commission, with the remainder split between the broker and agent per their mutually agreed upon split. Here is an example:

* Broker franchisee collects a $10,000 commission

* Per the franchise agreement the broker pays a 5-percent royalty fee to the franchisor—i.e., $500.

* If there were a referral fee then it would be subtracted from the remaining $9,500.

* If not, the broker and agent would then split the $9,500 commission per their split agreement.

While other compensation models exist, these are by far the most common throughout the real estate industry. Which one is best for you depends on several factors, such your current and anticipated level of production as well as the level of support you require.