The first and most important thing to remember about commissions is that they are completely negotiable. This means that you cannot say that there is a set-commission rate state- or nation-wide. This would be like price-fixing.

That said, however, there are industry standards. In slow markets, you may find some agents will negotiate lower commissions in order to get the listing. This is a whole other topic that can be controversial, so for now, let's just look at the basic formula for figuring out how commissions actually work.

Commission Splits/ Fees

 Any agent will tell you, real estate is a money game. The earning potential is fabulous, and it all starts with the brokerage. There are two components to think about when considering broker negotiations; commission splits and fees.

Commission splits can vary significantly from one broker to the next, and generally this is due to the various other factors that figure into the overall equation. It is not uncommon for brokers to offer a kind of “escalating” split. In other words, say the commission split starts out at fifty percent for the broker fifty percent for the agent, but will advance to a higher split that is more in the agent’s favor, based upon production.  Production doesn’t just involve the number of transactions a particular agent has sold, but also the total dollar amount that those transactions have generated.  Commission splits can be a tricky thing and it is in any new agent’s best interest to discuss the topic thoroughly with the broker. Also, it doesn’t hurt to confer with other established agents for feedback on the nuances of commission splits.

 Example of a commission split

Sales price of a property you listed: $200,000.

The entire commission the seller *might pay: $12,000.     (at 6% commission)

The amount that goes to the other agent:  $6,000. (when one agent sells and another agent lists)

This leaves $6,000 for the listing office. How that money is ‘split’ between you and your broker is how you know what you get. If you have a 50/50 split, you will take home $3000. Not a bad chunk or change. But, just imagine when your split is 60, 70, 80, or even 90 percent. Please note, many offices have various fees that come out of your split, such as, desk, technology or transaction fees, franchise fees, EO insurance.

*real estate commissions are not mandated by law and are totally negotiable, however, there always tends to be an accepted standard starting point.

While some broker’s may offer commission splits that seem less than adequate, there is often fee-based considerations that must be taken into account too. An example of this would be a broker who wants to keep half of the commission split, yet charges no desk, telephone, MLS, or E&O (Errors and Omissions Insurance) fees. Another broker may allow agents to keep most or all of the commission check, but then charge a monthly desk fee as high as $1,200.00. Of course, this is two dramatically opposing examples and in reality, there are many scenarios that will fall in between.

 Since there is no guarantee of how much commission an agent will earn each month, deciding which kind of option works best isn’t always easy. Some months will be abundant, and then there will be those that are not, when you are first starting out. This is of special concern when first breaking into the business.

Choosing a Broker is about more than commission splits!