Different Real Estate Agent Compensation Models

Let’s consider the many different real estate compensation models:

Let’s start with the basics; both the agent and the broker hold state-issued real estate licenses. Legally, agents must work under a broker, who serves their sponsor. With this system, agents cannot work independently and cannot be paid any fee or commission directly by a buyer or seller. Brokers can be involved with both sides of the transaction or hire agents to do the work for them instead. All commissions get paid to the broker, who then splits the money with any agents involved. Within the commission fee structure, there are two splits to consider. In a traditional transaction, a seller would contact an agent to list their property for a set percentage of the selling price. The agent is sponsored by a broker who works for a listing brokerage. The broker then offers to split the sales commission with any MLS agent member who brings a buyer to complete the sale. This is the first split. The second split is with the broker that the agent works for.

The fun part of real estate is that you can get paid under any model as long as you are following the laws and regulations of the state for compensation. Let’s consider the many different real estate compensation models:

Traditional Commission Sharing Model –This model is the most common practice within real estate. Like we mentioned before, the listing agent takes on the commission that is taken out of the purchase price. The buyer is taking on part of this burden because it’s factored into the price. The buying and selling agent split the commission 50/50 and then the agent again splits that portion 50% with their managing broker. In exchange for this split, brokers provide training, broker services, and marketing. Sometimes within this model, the agent remains within this split but often after the agent gains experience and clientele they can re-negotiate the terms. This usually goes in favor of the agent gaining a larger split because it keeps from switching to brokerages that provide better terms.
The Office Fee Model –This concept was originated by the ReMax franchise. They came up with a model where the agent earned all the commission and then referred back a set fee to the broker each month. The fee was considered an “office charge” and it would pay for things like office space, office support functions, and office equipment, etc. Within this model, the agent would be financially responsible for their marketing, pictures, and other costs. The agent is compensated more than in the traditional model, but they receive much less support.
Salaried Agent Model –Redfin, a large franchise pays their agents a salary and provides them some additional benefits. They do this in combination with giving a rebate to the customer for part of the commissions received by the brokerage.
The Consultant Model –This model originally had a hard time catching on and in some states it is considered illegal. It only really works for single broker-business models. The real estate professional is paid by the hour for their services, sort of like an attorney or accountant. Some exchange services as well for a flat rate or a range of services charged in package form. Part of the reason this method has not caught on is that the seller does not like the idea that they are paying before they see a result.

There are so many different ways you can to compensated as a real estate agent. The best way to chose which model works for you is to consider how you are motivated and how you learn the best. Then find the broker who you think creates an environment that you can thrive in and chose that broker. Chasing just the money is going to ensure that you switch around more than you should. If you want to learn more about how to pick a broker visit the career corner and read our article here.