How Do Real Estate Teams Split Commissions?
One of the most important decisions that real estate team leaders and entrepreneurs face is how to split commissions with their agents. The more successful your business, the more likely it is that you will want to offer your agents a lucrative and rewarding commission structure where your agents are rewarded for their hand in helping you build a successful real estate team. In this article, we’ll discuss how to create an efficient compensation model as well as some common mistakes made by those who try to do it themselves.
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4 Strategies for Splitting Commissions with Your Agents: Choose the Compensation Structure That Works Best for You
What is a real estate team?
A real estate team is a group of real estate professionals who work together to provide services to clients. The team is typically led by a real estate agent or broker, and the team’s members may include agents, brokers, assistant managers, transaction coordinators, and more.
Typically a real estate team leader charges their agents either a flat fee or a portion of their commission in exchange for providing the agents some sort of value, whether that be leads, training, support, systems, etc.
How do real estate teams split commission?
One of the most important questions that team leaders ask is how they should split commissions with their agents. There are a number of different commission structures that teams can use, and each has its own set of benefits and drawbacks.
The most common real estate team commission splits are:
1) Shared Commissions
A shared commissions team is when all the agents on a team are paid a percentage of the commission for each closing, every time that the team closes a transaction. Many real estate teams use this type of commission split because it’s easy to manage and makes sense from a fairness perspective.
The main drawback to the shared commissions model is if the agents on the team did not contribute the same amount of effort in the closing of one transaction. This model is extremely similar to how group projects were graded in school. All members would get the same commissions (same grade) based on the closing of the sale (completion of the project).
If an agent on the team contributed significantly more or less to the closing of one transaction, then it could seem extremely unfair to pay everyone the same percentage of the gross commission earned from that closing.
Usually, this type of commission split is used for teams that have 3 or fewer team members. This type of split is most commonly used in agent partnerships and domestic partnerships between husband and wife agent teams.
2) Straight Split Teams
A straight split team is where the team leader offers their team some combination of value and charges the agents a percentage of their commission (usually 25-50%) on every deal that the agent closes on that team. This type of commission split is common among real estate teams that have more than three members.
The main benefit to the straight split team compensation model is that it’s extremely simple to understand and administer. The team leader simply sets the percentage of commission paid to them by the agents on their team and takes a cut of the commission earned by each agent as income every time one closes a deal.
An issue that can arise with this type of team structure is that agents may feel taken advantage of if the team leader is taking a larger percentage of their commission, especially if the team leader is not providing enough value. This can lead to agents who have successfully established their business leaving the team in favor of a better commission split.
3) Referral/Lead-Based Splits
A good way for team leaders to structure their commission split around a straight split team in order to increase retention is to only take commission splits from their agents when they provide the agent a lead. This is very similar to when one agent generates a lead and refers it to another agent to close the sale, hence why this type of commission split can also be referred to as a referral-based split team.
This is a great way for team leaders to ensure that they are providing their agents with leads and value, as they will only be compensated when they actually contribute value to the agents on the team.
It also solves the problem of retention that most traditional real estate teams have because agents only need to pay a commission split to their team leader if they have received value from them. This way, more seasoned and established agents are more likely to remain on your team and might actually end up becoming leaders themselves for new agents.
4) Flat Fee Teams
The 4th most common way real estate teams split commissions is by having a flat fee for every transaction that an agent on the team closes. This type of commission split is most common among real estate teams that have more than three members.
The main benefit of the flat fee team compensation model is that it’s extremely simple to understand and administer. The team leader simply sets the amount of the flat fee paid by the agents on their team and takes that amount of money each time one closes a deal.
Usually the team leader of a flat fee team will provide the agents with the same amount of value as they would on a straight split team, but will instead take the risk to provide that value for free. The main reason why this type of commission split works well is that there are no problems with how much an agent contributes or how much agency support they receive from their team leader.
This model also reduces turnover within real estate teams and can help agents establish their own businesses moving forward. Because most flat fee teams provide their agents with admin support in order to ensure their transactions close smoothly, established agents who have their own lead generation systems can also find value on these teams, allowing the admin staff of the team to take care of the leg work in the transaction for a flat fee while they are generating more business and closing more transactions.
BONUS: A New Model
Now that we’ve covered the 4 most common ways for real estate teams to split commissions if you are looking for a new more creative way to build a real estate team and want a 5th option, then you might want to consider partnering your business with a brokerage that gives real estate agents a built-in team-building compensation structure.
In this new real estate model, real estate brokerages are compensating their agents for providing value to other agents and attracting agents to their team at the brokerage. In this compensation structure, the agents are now no longer splitting any part of their commissions with the team leader or other agents on the team. Instead, the brokerage pays the team leader, or agent responsible for providing value to the other agent and attracting them to the company, from the brokerage side of the agent’s commission split every time that agent closes a transaction.
This way, both the team leader and the agents are able to maximize their earning potential, by allowing the brokerage to compensate the team leader.
If you want to learn more about the new model of real estate teams, book a free strategy session below to see how it can help you and your agents maximize your potential and income!
Bottom Line
If you are a real estate agent looking to start your own team, it is crucial that you have a good compensation structure. Finding the right commission split for yourself and other agents on your team will help make sure that everyone gets paid what they deserve. This can be tricky when there are multiple members of the same company or agency involved in sales transactions, but our experts at the Agent Wealth Collective know how to do this successfully.
We’ve helped many ambitious individuals like yourself achieve success with their businesses by creating profitable partnerships with high-quality people who share similar goals as them. Contact us today so we can show you how we can help build your successful real estate team!