It’s no secret that the competition for attracting and retaining top agent talent is fiercer than ever, with many brokerages ready to roll out the red carpet for the best performers. Perhaps the biggest thing agents look at when selecting a brokerage is the commission structure, so picking the right one is key. A variety of factors dictate how (and how much) you pay your agents, and both paid brokerage benefits and net commission income will factor heavily in their decision to join, and remain on, your team and stay. Let’s look at five factors that affect what kind of commission split you should be using.
The type of agent you want to attract
Different agents have different financial and professional development goals. This means different commission structures will appeal to different types of agents depending on their experience:
- Early-career agents: Newly licensed agents just getting their feet wet probably won’t have a steady stream of business, so they might have less regular commission income. They will likely be more interested in training, mentorship, and (free) leads. In general, a full-service brokerage with a fixed split will appeal most to early-career agents, and they may be willing to accept a lower split in exchange for the help they need.
- Mid-career agents: Mid-career agents have experience and know what they’re doing. They have developed a niche, advanced time management skills, and have a regular flow of leads and closings. This results in regular (and often growing) commission income. They are more interested in leveraging useful tools while lowering unneeded fees. Mid-career agents might be more enticed by a graduated commission split with a cap to keep more of their commissions and be rewarded for their higher sales.
- Late-career agents: Late career agents are at the top of their game and are therefore the top producers. They are usually interested in minimizing their fees and keeping the maximum amount of their commissions. Therefore, a fixed or graduated split would need to be tipped heavily in their favor to be worthwhile. Otherwise, they might gravitate toward a 100% commission model so they’re only paying for what they need.
Want to learn more about the different kinds of commissions splits brokerages can choose from? Read our blog post detailing the most common commissions plans.
The maturity of your brokerage
Whether your brokerage is mature or newly established will have a major effect on what kind of commission structure you implement. Brand-new brokerages need cash. A fixed or graduated commission model means no income unless agents are closing deals, while a 100% model, revenue is guaranteed because agents will pay the fees they owe whether they are making sales or not.
The size of your team
The number of agents on your team will also impact your optimum commission structure. This number can be related to market maturity, but this isn’t always the case: while the largest brokerage in the US has over 50,000 agents, plenty of mature boutique brokerages operate with a team of just 10 to 20 agents. Keep in mind that the smaller your team, the more difficult it will be to have predictable, regular income from month to month using a fixed or graduated model, so a 100% model may work better but might also deter newer or less experienced agents, making it more difficult to grow.
Local market conditions
If the average price for a home in your market is $100,000 versus a market where the average price is over $1,000,000, your predominant agent type, team size, and cash flow needs will vary widely. An agent would need to make 10 sales at $100,000 to earn the same commission income as one sale at $1,000,000. This means that a full-service model—with a fixed split covering marketing, professional development, admin, and other benefits—would appeal more to an agent in a market where they need to make smaller sales more frequently.
Your biggest issue: trying to please everybody
Most of the trouble brokers experience while deciding how to pay their agents is trying to come up with one model that works across their brokerage. We have news for you:
It’s not possible.
As your brokerage matures and grows, so will your team and its needs. The best way to please your agents, maintain profitability, and continue building your business is to be flexible. One way to do that is to offer the right kinds of plans that account for the above factors and your brokerage’s own goals when you calculate commission.
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