How do real estate brokers get paid? It’s a question that many new agents have once they realize they’ll be giving their broker a cut of their commission.
Brokers earn money two ways:
- A percentage of the commission earned by the agents they sponsor.
- One hundred percent of the commission from their own deals.
The seller is responsible for paying the commission, which is typically 6% of the sales price. The listing broker will offer a commission split with the buyer agent (normally 50/50). Of course, everything is negotiable in real estate, including broker commissions. Scenarios where a lower commission may apply are:
- Seller agrees to also use the agent as their buyer representative.
- The seller has multiple properties to list.
- The property is an expensive luxury home.
Even when the commission is lower than 6%, the listing agent will generally give the buyer agent 3% of the sales price.
After the buyer’s financial institution wires the cash for the purchase, the closing attorney will then distribute funds to the brokers involved with the sale. Once the commission is received, the broker will process the payment and deduct any predetermined fees before giving the listing/buyer agent their split via a direct deposit or check from the brokerage. Normally, the broker won’t deduct any taxes from the commissions paid to agents.
Pay Structures Used by Real Estate Brokers
In regards to the commission split between brokers and agents, brokers will typically use one of the following pay structures:
A straight commission split is the standard pay structure. The split can be anywhere from 90/10 to 10/90. Agents with more experience and a higher sales volume tend to get a larger percentage compared to new agents that need more assistance.
A tiered split structure works a little differently. Brokers will take out a larger split until an agent reaches a certain sales amount. The more the agent sells, the smaller the broker’s cut will be. At the start of the year, the commission split resets back to the first tier.
It’s less common, but some brokers will offer agents 100% of the commission in exchange for a monthly fee that covers supportive services and office space. This is a good option for established agents that have cash on hand for the first few months of fees.
Salaried positions are also rare, but they do exist. If this payment structure is used, agents typically get a regular salary plus a bonus for each close. New agents who need income coming in as they launch their career are most likely to select this pay structure.