How Is a Real Estate Agent's Commission Split With a Broker?
Updated March 10, 2023
When considering a career in real estate, it is important to understand the relationship between different roles and how payment works. Real estate agents split commissions with real estate brokers after helping a client buy, sell or rent a property. By learning more about how real estate agents split commissions with brokers, you can determine the percentage of earnings you receive for each buying or selling activity at your firm.
In this article, we define the relationship between real estate agents and real estate brokers, review how real estate commission works, list the types of real estate income models used and answer frequently asked questions about real estate agent commission splits.
What is the relationship between brokers and real estate agents?
The relationship between a real estate broker and a real estate agent is collaborative and leadership based. Real estate agents typically work for brokers at real estate agency firms when they first start out in their careers. They conduct work activities in the same office and may even connect with clients through brokers. Real estate brokers are also real estate agents, but they have more advanced licensure and professional experience.
Because of this, they have the authority to oversee a team of real estate agents and provide them with guidance on how to advertise services, find properties and assist clients with buying, selling or renting activities.
Related: Real Estate Brokers vs. Agents
How does real estate commission work?
Real estate commission percentages may vary depending on the size of the property being bought or sold, the number of individuals involved in the process and the commission rates decided upon by brokerage or real estate firms. In some situations, real estate agents can pay a fee to their broker in order to keep the majority, if not all, of a commission they earn. Review this list to determine how real estate commission works to aide your understanding:
1. The real estate agent and broker negotiate a percentage
Real estate agents can negotiate commission percentages with brokers when they first get hired by a brokerage or realtor firm. Typically, this commission percentage becomes the routine percentage that a broker and an agent use to split commission between one another. In contrast, real estate agents and brokers can also negotiate commission percentages right before the purchase or sale of a property.
Typical commission splits include 50/50, where the broker and real estate agent receive equal sums of money from a commission split, but they can also use the 60/40 or 70/30 split options. In these situations, the real estate agents get a larger sum of the money than the brokers. This might be because of the size of the firm and the number of real estate agents a broker oversees.
2. A house gets sold and 6% gets removed from the selling price
The home seller typically provides 6% of the total selling price to go towards the real estate professionals involved in the sale and purchase of the home. For example, a homeowner sells their home for $500,000. $500,000 x .06 = $30,000. $30,000 becomes the amount that real estate firms need to split amongst one another.
3. The buyer's real estate company and seller's real estate company split their earnings
Regardless of the commission split decided upon by the real estate agent and a broker, the buyer's real estate company and seller's real estate company typically split the total commission evenly. For example, the buyer and seller real estate companies divide the $30,000 commission so that each company receives $15,000.
4. The buying agent and broker and selling agent and broker receive split commissions from their employers
After each real estate company receives its portion of the total commission from a home sale, the real estate agents and brokers involved in both the buying and selling of a home receive their earnings. This is where the negotiated commission percentages take effect.
If an agent and broker decided to do a 50/50 split then each would earn $7,500 from the original $15,000 commission. If an agent and a broker decide on a 60/40 split, the agent earns $9,000 and the broker earns $6,000. In contrast, if an agent and broker decide on a 70/30 split for the $15,000, then the agent earns $10,500 and the broker earns $4,500.
Related: What Is a Realtor's Commission?
Real estate income models
Here are some examples of real estate income models to aide your understanding of commission splits and how real estate agents earn a living:
The traditional mode, or 50/50 split, is when the real estate agent and the broker split the original commission evenly. 50/50 splits typically occur when brokers provide office spaces, client leads, marketing resources and other materials that help agents find work opportunities.
Related: How Much Do Real Estate Agents Make?
The salaried model is a less common income model used by brokers for real estate agents. In this situation, the broker pays a real estate agent a salary with the opportunity to earn a commission from helping clients buy or sell properties.
The consultant income model occurs when a brokerage firm in one location refers a client to another brokerage firm in an area where they plan to purchase a property. Here, the brokerage firm a client gets referred to would receive the majority of the commission as they help them find and purchase a home in their area. Because the first brokerage firm referred the client to them, the other firm gives them a percentage of the commission as a thank-you.
Office fee model
The office fee model, or the 100% commission split model, describes a situation where the real estate agent gets 100% of the commission from the purchase or sale of the home and the broker doesn't receive anything from the commission. Real estate agents compensate for this by paying brokers a set monthly fee.
Frequently asked questions about real estate agent commission splits
Review these frequently asked questions about real estate agent commission splits to enhance your knowledge of the topic:
Is real estate commission included in closing costs?
Yes, closing costs typically include real estate commissions. The commission amount gets removed from the total selling amount after the home buyer purchases the home from the seller and the funds become available.
Can you negotiate real estate commission as a real estate agent?
Technically, you can negotiate real estate commission with your broker at the start of your job or before closing on properties. However, some firms may have set commission split rates that real estate agents need to adhere to.
Does real estate commission vary by state?
Real estate commission for property buying or selling can vary by state but typically stays between 5% and 6%. It can also range because of economic and industry factors or heightened competition among real estate agents in your area.
How do I justify a higher commission split with my broker?
You can justify earning a higher commission than normal when you split a commission with your broker by highlighting the time, work and effort you put into helping a client buy or sell their home. You can also outline the buying or selling costs if it's a big commission.
Explore more articles
- What a Researcher's Work Is and How To Become One
- 15 Jobs In the Eye Care Industry
- 30 Well-Paying Medical Jobs To Pursue With Limited Schooling
- 15 High-Paying Jobs in the Cannabis Industry
- The Guide To Finding a Job Over 60 (With Tips)
- How To Become a Tower Climber
- What Is a Constitutional Lawyer? (Duties, Skills and Salary)
- How To Find Foreclosure Cleaning Jobs (Plus Job Search Tips)
- Is Sonography a Good Career? (12 Reasons It Is)
- 11 Pros and Cons of Being a Cosmetologist
- 17 of the Best Careers for ESFJ Personalities
- Pros and Cons of Being a Physician Assistant (Plus Salary)