Is 100% really 100% real estate commissions?

With so many real estate brokerages offering 100% commissions, agents may ask “Is 100% really 100%?”

The reality of the real estate brokerage business prevents paying pure 100% commissions. That’s because real estate companies can’t stay in business if every commission goes to the agent with nothing for the broker.

So, in spite of all the advertisements regarding paying 100% commissions, the reality is they don’t exist in their purest form.

 

Reality of the 100% Real Estate Commission

 

Real estate offices overhead to stay open includes:

• Rent;
• Electricity;
• Salaries;
• Janitorial;
• Furniture;
• Equipment;
• E&O insurance;
• MLS and franchise fees; and other costs.

If the only income amounts to 100% of all commissions paid to the agents, how does the real estate broker pay for all these costs?

The answer is to charge 100% commission agents fees such as monthly, per transaction, and cost to do business fees.

This is where 100% commission real estate brokerages differ.

Some charge a monthly fee, also called a “desk fee”. Others charge a “per transaction” fee. Some combine the two to create a hybrid fee.

Which do you prefer?

Let’s explore the pros and cons of the typical fees 100% commission brokerages charge their agents.

 

Monthly Fee for 100% Real Estate Commissions Brokerages

 

Most real estate brokers charge their 100% agents a monthly fee, also known as a “Desk Fee”. Similar to dental and medical clinics and some stock brokerages where the professional pays a monthly fee to use the facilities. A workspace, use of equipment, receptionist, business cards, and company advertising all included for the monthly fee.

The professionals acquire and maintain their own clients. Walk-ins are distributed by the receptionist on an established basis allowing everyone an equal opportunity.

Some brokerages offer discounts for paying a full year in advance rather than a monthly. For instance, $300 per month or a yearly $3,000 fee.

 

Franchise Fee for 100% Real Estate Commissions Brokerages

 

Real estate franchises maintain their Brand Name known to clients in the U.S. and/or worldwide. Franchise licenses granted to individual brokerages based in specific neighborhoods, city, or region.

Becoming a part of the franchise family with name brand popularity requires paying a franchise fee. Every franchise along with their individual agents pay a franchise fee.

While some traditional split commission brokerages pay the franchise fee, the 100% brokerages require all of their agents to pay the fee.

 

Hidden Fees for 100% Real Estate Commissions Brokerages

 

Too many 100% brokerages advertise low monthly fees but fail to include all of the fees. Not until the agent spends time familiarizing him or herself with the brokerage and is ready to join do the hidden fees materialize.

The Broker and Associate-Licensee Agreement may allude to “extra costs” while requiring the agent to agree to them without spelling them out. These are hidden fees.  

Document Storage Fee

Not until the agent needs specific services does the fee come to light. For instance, an agent obtains a new listing and finds out that a “Home Warranty” fee must be paid. Or, a “Document Storage” fee required to open a file for the listing. Even Errors & Omissions (E&O) Insurance required for all listings doesn’t become known until after the first listing.

Transaction Fee

Hidden “Transaction” fees also pop up for agents securing a buyer. Maybe every sale requires a Transaction Coordinator (TC) to obtain, verify, and organize all of the required legal documents and paperwork associated with a purchase? Some brokerages charge a “Per Transaction” fee to cover these costs. But, did the agent know about them before joining the brokerage?

Risk Reduction Fee

Some brokerages charge their agents a “Risk Reduction” fee for each transaction. This usually includes the services of an in-house or private TC in order to reduce the risks inherent in every transaction. Beware when they become hidden fees unknown until the first transaction.

Sign Up Fee

Another hidden fee could be a “Sign Up” for the privilege of joining the brokerage. Often justified because office support staff must open a file on the new agent.

Training Fees

Other hidden fees include “Training”. This fee occurs when the brokerage insists on a new agent to pay for training courses. Includes important courses like understanding contracts, real estate laws, local zoning codes, marketing, negotiations, and other sales courses.

Quotas

Another hidden fee incorporates required “Quotas”. Some association agreements include fine print requiring minimum monthly, quarterly, or annual quotas. Volume listings and/or sales quotas must be reached before the next sale truly becomes a 100% commission.

 

Upfront Fees for 100% Real Estate Commissions Brokerages

 

Every business pays rent and other necessary costs to keep its doors open.

Some 100% brokerages believe transparency works best to maintain good relationships with their agents. Upfront costs specifically spelled out in the association agreements between the brokerage and the agent provides 100% transparency. The agent knows what he or she will be charged for every service provided by the broker.

These brokerages openly advertise all of their fees so new agents know how much they must pay in fees for each type of transaction. A monthly fee plus an established transaction fee plus a set E&O insurance fee makes it easier to budget and know the bottom line for every transaction.

 

Conclusion

 

Is 100% really 100% real estate commissions? As this blog post points out, not really.

Real estate brokerages must make money to stay in business. Therefore, 100% real estate commissions paid to agents must incur fees to pay for the business costs and provide a profit.

Agents considering joining a 100% commission brokerage must consider what fees exist. Avoid brokerages with hidden fees.

Look for a 100% commission brokerage offering 100% transparent reasonable fees.   

 

Steven Rich, MBA – Guest Blogger

 

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We hope you liked our blog on “Is 100% really 100% Real Estate Commissions?”. For more local real estate related articles check out one of our many blog pages here.

 

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