5 Things to Consider When Structuring Real Estate Agent Commissions

No matter how passionate people are about their jobs, at the end of the day, they need to earn a decent living. This is why one of the most important talking points of real estate agent recruiting scripts is the compensation plan, particularly the commission split. In fact, this can be the make-or-break part of your offer.

Obviously, you have to provide a compensation plan that provides a living wage. At the same time, there should also be a motivational aspect to it; the commission split structure should ideally push your agents to develop their skills in order to satisfy clients and thus earn more.

That said, here are some things to keep in mind when creating a compensation plan and commission structure for real estate agents:

Traditional Is Understandable

Differentiation is a common difficulty in real estate agent recruitment because all brokerages are technically the same. Company culture is one area in which you can stand out from the rest; another would be an attractive compensation plan. You can try to be creative with your commission plan to be more unique, but do remember that the traditional model is also easier to appreciate and thus reduces confusion. A prospective agent may also be turned off by a complicated scheme, no matter how attractive it is.

The most common commission structure is the 50/50 broker/agent split. If the gross commission amount is $10,000, then the split will be $5,000 each. However, a highly productive agent will likely request or negotiate a higher split in their favor. Take note of their potential to bring more business, as well as their skill level before deciding on a fair structure.

Some High-Performance Agents Prefer 100% Commission Split

Speaking of highly productive agents, there are those who would prefer to get the entire commission. Usually, this is in exchange for monthly desk space fees, advertising, and other services. Another viable method is to have the agent pay a fixed fee per transaction. This is an attractive commission structure for good performers since their expenses are capped while their capacity to earn is practically limitless.

You may also consider offering this kind of commission split to new agents, but they may not be as interested. That’s because this can be a stressful scheme for beginners without knowing beforehand how much they can make to cover the expenses.

Offer Higher Splits to New Agents But…

If you want to offer higher commission splits to a promising new agent, consider reducing advertising support or lessening assistance services. Of course, make sure that the agent understands this to prevent any disappointments. It might help to have a more senior agent also explain the way things work, so that the details are coming from someone on the ground and therefore more relatable.

Tiered Splits Are Also Popular

If you’re looking for a unique compensation scheme, tiered commission splits are also becoming more popular. The way they work is that the commission split starts lower for the agent until they reach a certain amount of sales. Afterwards, the commission split to the agent increases. This increase can also come in tiers or a full jump to 100%.

A commission scheme like this can help drive performance without putting a lot of pressure on the agents. Think of it as a kind of reward system for top performers. In fact, you can even add more incentives as agents make it to the next tier to further encourage agents to step up their game.

Think About a Salary Model Instead

The commission split is the most used compensation model in the real estate industry. However, there are quite a few professionals who aren’t in favor of it. Their arguments include the lack of focus on agent development, which leaves newcomers with limited options (and funds) for training. With an emphasis on closing deals, agents may not be able to provide good customer service.

This is just one of the reasons why the salary model is gaining traction. Like regular 9-to-5 workers, real estate agents will receive a base compensation whether or not they reach a specific number of sales. What you can do to sweeten the pot is to offer a bonus per deal closed or perhaps when the sales target is achieved or exceeded.

A salary model eases the pressure on real estate agents and instead creates a consumer-focused attitude. In turn, this can boost productivity and improve the brokerage’s reputation. The key here is to ensure that you have enough funds so that you can survive slower periods.

The bottomline is that you should be compensating your real estate agents (and all your other employees) properly. Remember: the success of your brokerage largely depends on your people. When you take care of them and help them reach their personal goals, they will be more than willing to help your business grow.

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