100% commission real estate brokerages are not equal. Too many real estate agents and the public think they are all the same. As you will learn here, 100% commission offices can be different.
In its infancy, 100% commission real estate brokerages were shunned by traditional real estate offices. Since then, the trend favoring 100% commission broker model includes long-time traditional franchises like Coldwell Banker and REMAX.
Let’s explore these differences.
Truly 100% Commissions?
Myth: A 100% commission real estate brokerage should pay its agents just that without charging any fees. But, how can brokers make a profit in a truly 100% commission setting? They can’t.
So, let’s get past the notion that 100% of all earned commissions go to the agent while the broker doesn’t earn anything.
Maybe a little history will put this fact into context?
Understanding the Real Estate Brokerage Industry
Brokers become legally responsible for the actions of their agents when performing real estate activities. In order to become compensated for such a large responsibility, brokers created a commission split (originally 50/50). In addition, brokers imposed their company procedures and policies on their independent agents to limit errors and omissions.
Most often, 50/50 agents received training and mentorship and then had to fend for themselves. Over time, 50/50 brokerages realized that not all agents were good salespersons. Thus, the splits began to favor the brokerage such as 60/40 and even 70/30.
Eventually, other brokerages began charging their agents desk fees and some charged their real estate agents for training and licensing courses. Desk fees are not very different from renting an office (or a work desk) on a monthly basis which other professions do like dental and medical clinics.
After a while, competition between brokers evolved into 80/20 and even 90/10 splits with the agent receiving the lion’s share.
What About 100% Commission Real Estate Brokerages?
100% commission real estate brokerages evolved from this competition. The agent keeps 100% of the commission, but the broker may charge a flat fee per transaction and monthly fees often matching the same fees charged for higher commissions.
Basically, they began marketing higher commission splits minus fees as 100% commission brokerages. For example, an agent expecting to receive a $10,000 commission while paying a monthly $400 fee and a $600 per transaction fee ends up the same as a 90/10 split arrangement.
Always remember, real estate brokerages are in the business to make a profit. Never expect a true 100% commission without compensating the broker for all of the office and real estate business expenses, plus a profit.
Now with this brief history out of the way, let’s focus on the types of fees a real estate brokerage must charge in order to survive.
Look at the broker as a landlord charging monthly for space used. A desk fee varies from the size of the space included and amenities provided such as:
- A little desk surrounded by another 20 to 30 desks in a large room offers the lowest rent.
- On the other hand, a large desk with seating for up to four clients with a partition separating the space from the other agents’ desks demand higher rent.
- A separate office with an even larger desk with client seats, a couch, furniture for accessories (printer, supplies, books, etc.) demand an even higher monthly rent.
Amenities include the use of the office copier and office phones. An office conference room for agents to use is another amenity. Coffee, snacks, and refreshments can also be amenities. Some offices provide vending machines for those items.
Some 100% commission real estate brokerages charge their agents a transaction fee. Such offices used to be called “Flat Fee Brokerages”. But, nowadays they re-branded themselves into 100% commission brokers charging a flat fee for every transaction.
If you are an agent looking for an opportunity in a 100% commission real estate brokerage, you need to ask, “What flat fees do you charge?”
Some 100% real estate brokerages don’t charge transaction fees. Instead, they charge for additional items like a one-time signup fee, errors and omissions insurance (known as a “risk management” fee), a key fee, and document storage fees.
Again, you need to ask them, “What other fees do you charge?”
Office Facilities and Benefits
When interviewing a 100% brokerage (yes, you need to interview them as well), ask these types of questions:
- Are you a member of any Realtor® associations?
- Is this a totally virtual office, or are there workplaces and a conference room in your office that I can use?
- Do you pay agents directly by escrow or does my commission go to the broker first?
- Do you provide an in-house transaction coordinator?
- What hours are broker support services provided?
- Are risk reduction fees towards errors and omissions insurance separately charged?
- Does the brokerage advertise all of the listings? Or is up to each agent?
- Do you provide any training to improve my sales skills, marketing, understanding contracts and real estate laws?
- What type of support do you provide your agents?
- What are the other benefits an agent is entitled to?
Of course, there are more questions you can ask to see if the brokerage is a good fit for you.
Pros of 100% Commissions
Here are a few pros of avoiding traditional real estate commission splits in favor of 100%:
- Experienced agents with a great reputation and access to leads by working neighborhoods for a long time or specializing in a profitable niche make more money.
- High volume sales by working in a productive neighborhood, maintaining prolific contacts, great referral systems, and selling in high net worth areas thrive with 100% commissions.
- Fixed fees make budgeting easier.
- Ability to spend time crafting your profession.
- Greater independence and control of your time as you won’t be asked to conduct open houses, handle drop-in clients, or follow poor leads.
Cons of 100% Commissions
Depending on the brokerage, some disadvantages of the 100% commission model include:
- New agents lack the experience and contacts to survive.
- Lack of in-house support offered in traditional commission models.
- Monthly fees mount fast if unable to earn sufficient commissions.
100% commission real estate brokerages are not equal. That’s why you need to ask many questions before joining a 100% commission real estate brokerage.
The 100% commission model provides advantages for experienced, successful producing agents. Like greater freedom, independence, monthly budget, and more money.
Know the right questions to ask brokers. Make more money with 100% commissions.
Steven Rich, MBA – Guest Blogger
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