The Different Methods of Compensating Real Estate Agents

Have you ever wondered how real estate agents get paid? Let’s begin by explaining the basics. Real estate agents are licensed salespeople who work under the supervision of a specific real estate brokerage. The brokerage ensures that agents adhere to state and national real estate laws. Agents can’t work on their own and are not allowed to get commissions directly from clients. All commissions must go to the brokerage, and then they decide how to share it with the agent. There are various methods of compensating real estate agents. Whether a beginner or seasoned professional, you must know how these methods work. This article provides you with the most common ways in which brokerages compensate real estate agents. Ready to get started?!

Commission Split

The most common way of compensating real estate agents is through commission, which is paid as a percentage of the sale price of a property. Typically, there is a standard split where the agent gets 60%, and the broker receives 40%, but the division can vary, like 50/50, 60/40, 70/30, or any agreed-upon ratio between the agent and the broker. More experienced and successful agents often negotiate for a higher commission percentage.

100% Commission

Imagine closing a real estate deal and keeping all the commission yourself. Sounds dreamy. That is precisely what 100% commission brokerages offer. Instead of splitting your earnings with a traditional brokerage, you keep 100% of the commission minus a flat fee per transaction or monthly fee. While you still have to cover some costs to be part of the brokerage, they are typically lower than the commission splits in traditional brokerages. However, choosing the right brokerage in this model is highly important. Do your research and ensure the brokerage is transparent about all their fees and that you understand exactly what you are paying for.

Salary Based

Some real estate agents, though rare, get paid a regular salary, just like any other office job. One place where you can find salaried agents is Redfin, an online real estate platform. Instead of the traditional commission system, their agents get a monthly fixed salary. On top of that, they even earn bonuses. The benefit of this method is that you make a steady paycheck and have no pressure to close deals every month. On the other hand, the downside is that realtors usually earn much less than those who get commissions.

Subscription Based

A less common method of compensating real estate agents is subscription. Like some 100% commission brokerages, a subscription-based brokerage charges agents a monthly or yearly fee. Like Netflix or Spotify, these brokerages offer different “plans” for agents. Agents can select from various pricing levels based on their requirements. For instance, if you need the basic desk and meeting space, pay a low “starter” fee. Are you craving marketing tools and training? Level up to the “pro” plan!

Flat Fee

In the flat fee system, agents receive a set amount for every completed deal. With a flat fee brokerage, you know what you will pay upfront, no matter how much the home sells for. Regardless of how much the house sells for, the brokerage fee and agent pay remain constant. Therefore, a flat fee model offers more financial security for real estate agents than the commission split or 100% commission methods. However, reaching high income becomes less likely in the long run.

Referral Fee

Imagine a client who wants to move to a new state and buy a house. You find the perfect home, but it is outside your area. Do you say goodbye to the commission on that sale? Not at all! This buyer needs an agent in their new state to handle the purchase.
You can refer this client to another brokerage and receive a referral fee in such cases. It’s a win-win situation for everyone involved. Clients find their dream home, brokerages make money, and agents are rewarded for their hard work. This model allows brokerages to show appreciation to agents who bring in clients outside their network. It’s like extra income for real estate agents.
Moreover, collaborating with other brokerages expands your reach and helps build valuable relationships for future referrals. Overall, the referral bonus can be an excellent way for agents to increase their earning potential. Remember, before referring a client, get everything in writing to ensure a smooth and transparent process. Don’t just send any client; only recommend qualified buyers who fit the other brokerage’s market well.

Profit Sharing Franchises

Let’s explore another way of compensating real estate agents within a franchise setup, specifically through profit sharing. First, it’s necessary to know what a franchise is. It’s like adopting a recognized brand or business model. Real estate brokerages pay a fee to join this larger organization, gaining access to valuable branding, support, and resources. In some franchise brokerages, agents can engage in a profit-sharing arrangement. They can receive a portion of the overall profits made by the brokerage.

To illustrate, consider a real estate deal with a gross commission of $10,000. If the franchise charges a 7 percent fee, the franchise would take $700. Now, if you are an agent in this franchise, they might share some of this profit with you. It’s a way to reward agents for contributing to the success of the overall business.
Team Based
A team based compensation method for real estate agents combines the benefits of a real estate team with a traditional brokerage. In this setup, agents receive training and access to shared resources and tools from the brokerage while being free to work independently. The key feature of this method is that the brokerage compensates agents based on the entire team’s performance. Agents in a team pool their commissions and distribute them equally among team members or according to a predetermined formula.

Are you seeking the support of a real estate team while also desiring the freedom to work independently? Working as a team member in real estate offers the best of both worlds. However, it’s important to note that your earnings will increase in tandem with the team’s overall performance.

Conclusion

In conclusion, there are several ways to compensate real estate agents. The ways mentioned earlier are just some of them. Besides the basic pay, many brokerages add extra bonuses for agents who hit specific goals, like beating sales targets or closing a certain number of deals. Some brokerages even mix different payment methods so agents can earn rewards differently. Agents, pay attention to your agreements. The more experienced and productive you are, and if you understand the local market, the better chance you have to talk about and get the best payment deal for yourself. Compare these methods and select a brokerage that compensates you in a way that suits you best. Drawing from our experience, we recommend 100% commission brokerages. Curious why? Read here to find out!