Brokerage Fee/Commission Structure

3 Replies

Over the last month or so, I took the required 90-hour broker pre-licensing course online, passing the course and also the Indiana state exam just last week.

My plan is to never quit my W2 job, as I have a good, steady income, insurance, 401k, profit sharing, etc. Additionally, I have a decent amount of flexibility at this job and experience large periods of downtime on a daily/weekly basis. Therefore, the goals I have for using my license are to fill in that downtime by acting as a broker. I've always been interested in real estate, have sold a couple of my own homes by owner, owned and managed a 24-unit apartment building with partners and own a couple of small commercial rental properties in town.

Here is where I need some opinions, advice or experiences from any seasoned agents & brokers...

I've spoken to two local brokerages this week about their general operations, fee and commission structure. Below is how each is structured.

#1 - Fees are billed monthly and would average roughly $1,200/mo. Commission split is 95/5. National company, locally owned franchise. I've known the owner/managing broker for over 20 years and she has always treated me like one of her own kids.

#2 - Fees are billed monthly, much smaller at roughly $200/mo. Commission split is 50/50. Local company. Not very familiar with the managing broker here but both agencies have good reputations.

Most agents looking to do this part-time are obviously scared of the obligation to pay the $1,200/mo regardless of how much volume they do. However, for someone who is confident they can sell above the breakeven point to cover those fees (which would be about $500k in volume annually in a region with average home prices of $100-120k), the income potential is much greater with the 95/5 split. There are numerous part time agents in this area doing in excess of $3 million annual volume.

I know this comes down to my own goals and risk tolerance, but do any of you have an opinion or advice when deciding who to go with? My personality type is one that would result in me being as active in real estate as some full-time agents are, and the busier I am the more efficient I become. I've lived in this city since I was born, know the area well and have numerous connections, so I feel like I'm set up to start off as well as anyone else would be.

At the end of the day, I also realize I'm not stuck at the first brokerage I choose and could always switch if one place is not working out as expected.

@Joseph Parker    Does either cap your commission paid to sponsor? Ex: after _______  (cap) paid to broker in a 12 month period you should be keeping 100% of commission.

This is something often overlooked by agents.  An aggressive split sounds great in beginning, but if you are a performer then a cap is almost a necessity to maximize your share. 

@Jake Fugman Neither broker mentioned a cap. I'm not too familiar with that, but what you're saying is (using Brokerage #2 for example with 50/50 split and lower monthly fees) that once they take X amount of your commission during the year, you would then get to keep 100% of all commission from that point on and they would take nothing besides their small monthly fee?

My assumption is that with the 95/5 split of the first brokerage, there wouldn't be a cap based on the current structure but I will definitely ask. 

I also realize, or have been told, that everything is negotiable so while I would prefer to work for #1 as the owner/managing broker is like family, they are a national company with better lead-generating systems, education, etc., the required monthly fees starting out are intimidating. I've considered asking if the fees could be lowered for a certain period of time in exchange for a smaller commission share while I learn the industry, then go back to the original terms next spring when the market picks up and I will have hopefully built a solid foundation. Therefore I wouldn't feel like I'm digging myself a whole starting out in fall/winter months when the market slows here, meaning less chances of sales yet still required to pay the monthly fees.

@Joseph Parker   Correct.  For example the firm I'm with does an 80/20 split and caps at $16,000 paid to sponsoring broker.  So assuming average commission of 2.5% an agent typically starts to collect 100% of commission after selling about $3.2M.  Anyone selling over about $3-4M who is generating their own leads REALLY needs to be at a capping firm or they are giving away $$. 

I would do your homework on where the $1,200/mo fee is being allocated.  Typical monthly minimum fees are closer to $100 - 200/mo and still include advanced lead gen, CRM software, training, document portals, etc.  

Hope this helps!