Can a Realtor work for an non-Realtor Company on a commission split?

17 Replies

We are doing some restructuring  for 2015 ... decided to post the questions separately ... 

2. If I send one of my staff to get a real estate license, pay for their training and their classes to buy and sell our properties, ( we bought 37 in 2014, sold most of them). Is there a structure that allows an agent to work for a non agent company, split their commissions with his "employer"?

Its probably in my real estate course manuals ... but thought Id get some input and thoughts from the BP group doing volume business,  and get some insight into who they structured the way they did. 

why not form a separate entity that has a broker in charge that is like a sister company that handles the sales etc therefore making you an owner so you can take the agency cut that way.   I would say that would help from a liability stand point and a way to get a piece of all ends of the deal.  I have been considering doing this myself and this would work in NC.  There are some standard upfront disclosures that have to be known to all parties as part of the listing. 

Laws are different in every state so having a good business attorney to structure you companies would be the best way to stay compliant with your state laws.

First and foremost, the classes/training is relatively inexpensive so it is a good idea. The expensive part is generally the MLS access. Regardless with any sort of volume it is very cost effective.

From a compensation standpoint, a big split is not immediately possible.  A new agent (will be a salesperson), has to be under a broker.  The broker is who legally will be compensated for all transactions, and then gives the salesalesperson a split of the commission.  Recall on your hud, commissiocommission is made to the firm, not the agent.

 You could potentially structure a lower listing rate to realize the savings but the broker still has final approval in office rates.

Now... if that person works with you long term and forms a brokerage... golden :)

Originally posted by @Mitch Coluzzi :

From a compensation standpoint, a big split is not immediately possible. 

We have a couple local Brokers that will do flat fees, 585 a month, relatively inexpensive for the volume that we do. 

 A new agent (will be a salesperson), has to be under a broker.  The broker is who legally will be compensated for all transactions, and then gives the salespeople a split of the commission.  Recall on your hud, commission is made to the firm, not the agent.

Gotcha, So i believe this answers the question I posed in another thread, the broker always gets paid and the broker pays the agent?

So in the case of an agent team, Say Mitch SuperAgent, is working for a broker, Mitch gets so busy he cant handle all the listings, he hires another agent for his "team" , can he do that or does Mitch need to be a broker to build the Mitch SuperAgent Team? 

Now... if that person works with you long term and forms a brokerage... golden :)

If the person working for you forms the brokerage, how do you get paid? Would you not want to be the broker and have the other agent working for you the broker? 

Originally posted by @James Wise :

The agent needs to work for a broker.

Broker is paid the commission. 

Broker then pays some of the commission to the agent.

Broker cannot pay commission to someone who is not an agent.

Thank You @James Wise 

Question, if you were not a broker, but an agent working for a broker and you had a massive influx of business, enough to keep another agent busy full time, can you hire another agent to work for you? 

From your previous answer sounds like that would be a no go. 

So an agent that wants to grow and expand his business, there are only so many listings one agent can handle even with good support staff. How would you structure that? 

Appreciate your input. 

Originally posted by @Dell Schlabach :
Originally posted by @James Wise:

The agent needs to work for a broker.

Broker is paid the commission. 

Broker then pays some of the commission to the agent.

Broker cannot pay commission to someone who is not an agent.

Thank You @James Wise 

Question, if you were not a broker, but an agent working for a broker and you had a massive influx of business, enough to keep another agent busy full time, can you hire another agent to work for you? 

From your previous answer sounds like that would be a no go. 

So an agent that wants to grow and expand his business, there are only so many listings one agent can handle even with good support staff. How would you structure that? 

Appreciate your input. 

 Yes you can do that. Because both parties are licensed. You just can't split the commission with a non licensed person.

James Wise, Real Estate Agent in OH (#2015001161)
216-661-6633

@Dell Schlabach  yep.  Broker pays agent a portion.  You can form an agent team, but they are still underneath a broker... or can be broker themselves.  Either way, the principal broker for the firm is the first compensated party.  The problem with flat-fee (for many) is they undercut the buyer's agent.   Per some significant data I have collected buyer's agent compensation does directly influence time on market...  Ethically, it should not... but the data says it does.

Instead of looking to get paid, I would negotiate a much lower listing commission or do a flat fee brokerage internally.  For example: your broker lists at 3.5% total, 2.5% to buyer's office, 1% to listing office.  How to accomplish?  That's where your paid saleperson comes into play... they don't get a split they worked for nada on that property, broker is still compensated 1% for his license / insurance.

Unless you are trying to pull money away from the rehab entity for tax purposes I would stick minimizing the cost rather than getting a return check (which is what we do: we are structured across 3 companies: rental, construction/flip, and brokerage). 

Having a broker license gives you a bit more freedom on how you structure your listings / sales.  That said... you can't just take pass a test and pull a broker's license, most states have a salesperson time-of-service requirement (2+ years).

I'm not sure what you are trying to accomplish. But you, or another person, could become a licensed agent and hang you license at a non-Realtor firm (without becoming a Realtor). And then have a Realtor with MLS access make offers for you and list your properties. You could also ask this Realtor to pay the broker at the non-agent firm a referral fee (although they wouldn't be obligated to, but probably would), and then that broker could pay the non-Realtor licensee their cut.

@Dell Schlabach  

As others have said, the answer to most of your questions are....no.  I don't think you want to become a broker, I wouldn't, with the required paper work, admin, record retentions,etc, let alone if you start hiring agents, and have 5-10 walking liabilities running do who knows what.

Perhaps the simplest solution would be find a broker who works as a "transaction fee" broker: one who doesn't necessarily take a percentage of the commission but a flat fee per transaction; typically say a $350 brokerage fee and something like a $250 'record retention" fee (which is typical here-paid by the client or otherwise eaten by the agent.  This way, say if the Broker charges their agents a flat $500 per transaction, you could list the property for  say 3% plus $500 (3% offered to the selling broker/agent, and 0% plus $500 to the listing broker).

To your initial post, no, an agent can not split his/her commission with any unlicensed person or entity. A broker may not cut any commission to kickback either, a broker can't payout to a non-licensee based on commissions.

James and others pointed out the flow of commissions, taxes are also reported so if an agent did any illegal kickback they would be taxed on the amount.

Say I was a builder, I hired an agent in my office:

Not knowing the circumstances, can't suggest "the" way to do it, but there are a couple that come to mind.

1. You can agree to pay $X a month as a salary and set the agreement so that the agent is only to earn $X, if and when they earn any commission, then that amount is deducted from your payroll obligation, saving you that amount instead of paying it out.

2. The agent can rent office space from you on a % of sales basis. Commercial retail leases commonly have rents or part of rents set at a % of gross sales. This has possible hurdles too.

The payroll would be safer, the rental arrangement may have issues, if the rents paid from sales commissions became excessive for the value of the space rented, it would become clear that you were circumventing the law!

Whatever you do, if your employee becomes an agent, you'll need a broker to hang the license, make sure that broker knows what is going on, if they don't know and find out later they will have no choice but to report the violation to protect themselves.

The broker may make some arrangement off the two suggestions above. 

If that agent does RE business in your office, your office may then become a RE company! Sign, telephone number, equal housing sticker, and your agent may the need a broker's license as a managing broker. The broker/owner would then be involved too.

Your agreement of a flat fee is fine, but it's not up to an agent to cut commissions without approval of the broker, they should be flexible when dealing in volume, but the broker has staff expenses, fees that may be tied to production, like a legal retainer and accounting, taxes and errors and omissions coverage. The broker provides backroom operations for agents, the broker must be paid somehow.

You can become an agent, your best solution and you can have a non-licensed staff but their duties are administrative, they can't show or sell, sign contracts or give prices to the public generally.

Better yet, you get a broker's license, then hire the agent! :)   

Originally posted by @James Wise :

 Yes you can do that. Because both parties are licensed. You just can't split the commission with a non licensed person.

Another Question if I may,  Say Agent Wise builds the Wise Team, and has four Agents working for him. Does Agent Wise pay those agents, or would Broker ERA pays each of those team members directly, based on some commission split with Agent Wise and Team Member? I suspect Agent Wise would want to be paid something for his team members, sales that he provided all the clients and leads for. 

The Agents with teams, Say Agent Anna is on the Agent Wise Team, from my observations the listings appear to always be in name of the Team Leader thus there seems to be a provision somewhere that allows Agent Wise to pay his team members a comission. 

Or can agent Wise only do this if he is also a broker?

Appreciate all the feedback 

@Bill Gulley  

Appreciate your responses very much, Have questions and comments for each but out of time till later tonight, have a couple potential hot deals have to run and look at. 

Answered in your other thread, but short version: Team Leader Wise is on an 80% split with his broker, with newbie agents on Team Wise working on a 50-60% split; Wise makes the spread.

Originally posted by @Bill Gulley :

You can become an agent, your best solution and you can have a non-licensed staff but their duties are administrative, they can't show or sell, sign contracts or give prices to the public generally.

Better yet, you get a broker's license, then hire the agent! :)   

This is the actual consideration, assuming if I am an agent, I cant hire another agent to be on my team and work for me directly? 

I have to be a broker in order to pay another agent on my team?

Simply structure the deal so if you are the Buyer you don't pay the agent a fee that represents you and then adjust the price of the purchase down accordingly to that amount  and you have in essence saved the money thereby making it.

There is more to this on the front side. When you make the offer and then it is accepted  by both parties on the front side and the negotiaton is complete. The you have the seller reduce the price and your agent waves comissions in that amount.

Now if you are the seller.

Simply  have your agent list it and agree to not charge comissions.

Welcome to BP Craig!

To reduce a price or set a price with a net amount to a seller, you need to divide the amount needed by the reciprocal of the commission rate, for example, a 6% fee you would divide by .94 to get the sale price, you can't really deduct the commission as a dollar amount.

An agent always has a broker, I really doubt any broker would allow a listing without any commission, many do for an agent's own property, like one personal deal a year, but as I mentioned, brokers have expenses too.

@Dell Schlabach , an agent can not hire an agent to do RE sales activities, you must be a broker. Now, if you have leadership abilities and another agent follows your directions, that's different, it's not an employee/agency relationship.

If you become an agent or broker and own the property to be sold, you'll need to advertise the property and disclose that you're an "owner-agent" or "owner-broker". Not a big deal, but you'll learn that in school. 

Real estate brokers and agents are in a unique position and laws of agency apply, an agent is not an employee of the broker, but their agent to conduct business in his/her place or stead. A broker may not make certain demands of an agent, like telling them what time to be at the office on a regular basis, there are legal and tax reasons for the agency relationship. :)