What is a real estate commission Split?
When a brokerage employs a real estate agent, the commission split is the fee the brokerage charges for each transaction. This fee is usually a percentage of the agent’s gross commission income, such as 80%, or it can be expressed as a ratio of what the agent receives compared to what the brokerage gets, such as 80/20. Some brokerages may have fixed fees, while others have no commission splits.
The commission split also represents the gross margin for the brokerage, which is the total amount of money the brokerage receives after collecting commissions and paying them to agents after the splits.
What are the types of commission splits?
Commission splits can be categorized as either fixed or graduated. A fixed break remains constant regardless of the agent’s gross commission income. For example, a fixed 60/40 split would mean that the agent receives 60% of their gross commission income, whether they generate $1,000 in commissions or $1,000,000 in commissions. On the other hand, a graduated commission split changes depending on the agent’s production.
This means that an agent has a particular split up to a specific amount of earnings, and beyond that amount, the split changes. Typically, splits become more favorable to agents as they generate more income. This is because the brokerage earns more margin from high-performing agents and wants to retain them.
In contrast, lower-performing agents face more competition, and their commissions may not cover their expenses.
What is a commission split cap?
Some brokerage firms limit the commissions that agents can earn. This limit is a fixed amount of money which cannot be exceeded. This approach is a variant of a graduated commission. When agents make more than the cap, their total payment to the brokerage is lower as a percentage of their earnings.
This makes the math calculations more manageable. Often, brokerages offer an 80/20 split with a $16,000 cap. For instance, if an agent earns $100,000 in commissions, they only pay $16,000 to the brokerage, which means they get to keep 84% of their earnings. However, if they earned $50,000, they would be below the cap and need to pay the brokerage 20% or $10,000.
What is the average real estate split?
There is no typical real estate split, and Splits can vary significantly by the brokerage. Here are a few examples:
- Keller Williams commission split: Varies but typically 70/30 split with a cap
- eXp Realty commission split: 80/20 with a $16,000 cap
- Actual commission split: 85/15 with a $12,000 cap
- Fathom Realty commission split: 100/0 split and $450 fee per transaction for the first 12 transactions; $99 per transaction after
What is the Split for Redfin or other modern brokerages?
Many current brokerages provide their agents with salaries, which means there is no traditional commission split for the agent. However, Redfin’s revenue cost considers personnel considerations and other fees that agents usually pay. You can use the gross margin of Redfin as a quick way to estimate a split-like number.
According to a source, in 2018, Redfin’s gross margin on real estate services was 28.5% of its revenue. This means roughly 71.5% of Redfin’s gross commissions go towards agents and agent-related fees. While it’s not technically a commission split, it’s the closest calculation that can be made.
When are commission splits determined?
When real estate agents are hired, they negotiate the Split with their brokerage. This is typically included in their independent contractor agreement (ICA). The Split is often renegotiated periodically, either annually or every few years. However, some brokerages, like eXp Realty, have standard splits and do not require negotiation.
What is a 100% commission split?
Certain brokerages offer agents a 100/0 split, but they may impose higher monthly or per-transaction fees. Despite this arrangement, the brokerage still receives some profit from its agents, although not based on a percentage of every transaction.