According to The Balance, a real estate agent in the U.S. earns an average of $42,183 as of February 26, 2020. Many of these agents earn through commissions arrived as a percentage of the selling price of the home. The commission split, however, depends on the arrangement they have with their sponsoring broker.
What is a real estate commission split?
A real estate commission split is the fee that the brokerage firm collects for assisting a home buyer or a seller in the real estate transaction. Typically, a real estate commission split ranges from 50-50 to 70-30 sharing.
Thus, real estate agents work under a sponsoring broker and cannot receive compensation directly from the buyer or seller. On the other hand, brokers can be directly involved in the buying or selling, or hire an agent instead. All commissions arising from the real estate transactions get paid to the broker and then split with the agents and brokerage involved in the transaction.
Read also: How Does One Become a Real Estate Agent?
Real estate commission split arrangements
Graduated real estate commission split. This type of arrangement is considered the most common agent compensation package. This arrangement is more favorable as earnings gradually get higher as the agent becomes more productive and hits goals.
The agent may start with a 50/50 split, then would progress to 60/40 after hitting his goals, then reaches to 80/20 after reaching certain levels for graduation. Graduated real estate commission split rewards agents with a high level of productivity.
Capped graduated real estate commission split. Some firms set a cap or limit to the revenue generated from the graduated commission split arrangement. Once they reach the threshold for the amount of commission income, the agent is then allowed to keep the rest.
For most of the companies that adopt this arrangement, they also apply a transaction fee, once the cap is reached, which is a minimal fee charged to cover the firm's administrative costs that are incurred with each transaction.
Graduated real estate commission split rollback. With this type of compensation arrangement, the graduated commission split resets to standard level at the start of each calendar year.
This arrangement benefits the brokerage firm and allows it to have a better chance of making a decent profit, which may have just a small group of agents. But it also helps motivate the agent to be very productive in the early months.
100% commission aka rent-a-desk. A 100 percent commission sounds very enticing indeed, but there's a trade-off, of course. There may be fees that the agent has to shoulder, including a monthly fee, administrative fee, transaction fees, risk reduction fees, and level of support.
Fixed real estate commission split. As the name suggests, a fixed real estate commission split does not change with the change in production goals or sales. So it will not matter how many homes you sell or purchase for your clients or how much dollar amount of sales you generate because the commission split will remain the same.
Read next: What Characteristics Does a Successful Real Estate Investor Have?
