Want to learn how 100% commission brokerages make money? We’ll show you.
KEY TAKEAWAYS
- 100% brokerages charge fees to their agents instead of sharing commission splits.
- We explain the different types of fees like monthly, desk fees, transactions, and E&O fees.
- The fees vary amongst different brokerages and we explain many of them here.
- Watch out for hidden fees not advertised or mentioned during interviews, but included in the written contract. So, carefully read the contract before joining a 100% brokerage.
- Learn about the many hidden fees to look out for.
- Understand the benefits and advantages of the 100% agent.
- View what to look for when comparing 100% brokerages.
- Learn how the 100% commission real estate brokerage model works.
Here’s How 100% Commission Brokerages Make Money
First off, 100% commission real estate brokerages do pay agents 100% of their earned commissions. Of course, agents always ask how does that make sense? Aren’t brokerages losing money if they don’t share the commissions?
No, they won’t lose money letting their agents keep 100% of the commissions. They make money in other ways.
To understand how the 100% commission business model works, let’s compare the two main commission structures.
Traditional Commission Structure vs. 100% Commission Model
For over a century, the typical commission splits between a real estate broker and his/her agents were 50/50. An even split between the two. Over the years, brokers experimented with different splits favoring the agent like 60/40 and 80/20.
Eventually, brokers introduced the true 100% commission model intended for seasoned successful agents who did not require the broker’s support.
It works just as you imagine it will. For instance, the sales commission for a transaction is $12,000. Traditionally, the 50/50 split gave the broker and agent each $6,000. Yet, the 100% model gives the agent the entire $12,000.
This means higher profits for the agent. Sell 10 properties paying $12,000 commissions and the agent keeps $120,000.
So, how does the broker make money with the 100% model?
By charging fees to associate with the broker’s state license. By law, agents cannot open their own real estate company. Only a licensed broker can do that. Thus, the agent must join a brokerage team to earn a real estate commission.
Now, let’s explore the types of fees charged by 100% commission brokers.
How the 100% Commission Real Estate Brokerage Model Works
It’s all made in the fees. Brokers are free to charge various fees to their 100% agents like:
- Monthly fee;
- Desk fee for using the office with a specific desk or exclusive space;
- Transaction fee that includes using a transaction coordinator to help with the escrow closing;
- Office equipment and meeting rooms fees are based on a need to use;
- An open-ended administrative fee;
- Courses to meet state post-licensing requirements if the broker gets accreditation as a school; and
- E&O fee which pays for each transaction’s Errors & Omissions insurance.
As you imagine, these fees add up quickly.
Of course, these fees must offset the brokerage operating expenses like:
- Rent or commercial loan for the office;
- Staff wages;
- Insurance;
- Utilities;
- Equipment maintenance;
- Taxes; and
- Minimum profit.
Thus, 100% of brokers must sign up many agents who pay these fees to meet the business goals.
Comparing 100% with Traditional Commission Models
Instead of comparing 50/50 or 60/40, let’s use the 80/20 split to better demonstrate the difference.
Assuming the transaction earns a $10,000 commission for the brokerage. In an 80/20 split, the agent keeps $8,000 while the broker keeps $2,000.
With the 100% commission model, the agent keeps the entire $10,000. Still, the 100% agent must pay some of the above fees to the brokerage. If the fees total $500, the agent keeps $9,500 which is $1,500 more than the 80/20 split above.
Add up all transactions during a typical year, the $1,500 savings equals:
- $15,000 savings for 10 transactions ($95,000 net commission);
- $22,500 savings for 15 transactions ($142,500 net commission); and
- $30,000 savings for 20 transactions ($190,000 net commission).
Not bad!
Benefits for the 100% Agent
100% commissions allow agents to budget operating expenses knowing the monthly and transaction fees;
- Allows flexibility with business and marketing plans;
- Able to invest more funds into the business for growth;
- Become more competitive with fees for services without brokerage interference; and
- Off rebates (if state laws allow) to clients to enhance business.
Disadvantages to 100% Agents
The biggest complaint about the 100% commission model is that unscrupulous brokers charge their agents hidden fees.
You will find that every 100% brokerage charges different fees. So, besides looking for hidden fees, you must compare all fees.
Tip: When associating with a 100% brokerage you must read the contract carefully. You will find fees never mentioned during the recruiting promotions and interviews with the brokerage hiring manager.
Typical hidden fees include:
- Administrative;
- Compliance fees;
- Franchise fee;
- File review;
- Marketing services;
- Technology support fees;
- Training fees;
- Supplies; and
- Errors & Omission (E&O) fee.
These add up quickly!
Tip: Watch out for the E&O fee because like auto and business insurance the rates differ between insurers and what’s covered.
This is why you must carefully review the association contract to look for hidden fees. Once you find them you must ask for clarification.
Tip: Never accept an oral explanation of a written contract’s terms. Always add an inclusion (addendum) to the contract specifying what each fee entails and its costs.
Always Compare Several 100% Brokerages Before Committing
Since every 100% brokerage charges different fees, it’s best to see which one is 100% transparent by disclosing all their fees upfront. Besides avoiding hidden fees, watch out for other tricks.
Beware of so-called 100% brokerages that use a quota system to earn your 100% commission. Some may advertise as a “100% Commission” but after reading the fine print in their association contract you may find wording like “Agent must sell “X” amount of homes to qualify for the 100% split”.
It’s more about the best fit than the lowest fees. Research the reputation and leadership qualities of the broker and brokerage. Avoid brokerages with negative client reviews on Google Business and Yelp and other reviewer sites.
Look for award-winning and highest reputation within the local real estate community. Peers rank and rate brokers and brokerages like coaches rank football teams.
Remember, you don’t represent yourself as an independent agent. Your association with a real estate brokerage must be disclosed when dealing with clients and others during a transaction. If your broker or brokerage has a bad reputation it will hurt your business.
Big Block Realty publishes many useful articles about 100% commission models and what to look out for. Here are some examples:
- “100% Commission Real Estate Brokerages Are Not Equal”;
- “Advantages of a Large 100% Commission Real Estate Brokerage”; and
- “How to Choose a 100% Commission Real Estate Company”.
Looking to Join the Best 100% Brokerage in San Diego?
Big Block Realty is recognized in 2022 as the Best Brokerage in San Diego for four straight years (2018 – 2021) by the LocalBest.com site.
Big Block Realty is also recognized as the 49th Best Independent Real Estate Brokerage in the U.S. out of 106,000 real estate brokerages by
The Wall Street Journal partnering with Real Trends Rankings.
Why Are We The Best?
We offer completely transparent 100% Commission Plans with no hidden fees. It’s very straightforward:
- $3,600 per year (by paying $300 a month) or only $3,000 one-time annual payment;
- $185 for E&O per transaction; and
- $125 Administrative Fee per transaction.
That’s all. No hidden fees.
We also include Free:
Contact us to find out more about the benefits of joining us in beautiful and warm San Diego with a bustling real estate market.
Steven Rich, MBA – Guest Blogger
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