Commissions. After all the splits and expenses, profit seems low?

Question

Hi and thanks for taking them time to read and hopefully comment.

I'm taking my real estate license course for Texas. After reading about how the typical 6% commission is split(Between co-brokerages 50/50 and then the 50/50 split I hear new agents do with their sponsoring brokerages) and given the expenses involved for gas, marketing, exc... the profit left seems very low. Especially considering I read the typical agent sells about 12 homes a year?

So the scenario playing in my head is this:

I am an agent in a transaction for the purchase of a home for 100k. Commission is 6k. The co-brokers split this 50/50 so my broker is now left with 3k. My sponsoring brokerage and I now split that 3k 50/50. I now have $1,500 for the 100k transaction I was involved in... now expenses to obtain this deal through self-promoting and marketing(if seller side) and gas when commuting and trips to the property for various reasons, rent, yearly memberships and such associated with being an agent, and even daycare($400 month) for me to go back to work vs staying at home like I am now... this almost seems like very little money if any would be made... and this is assuming I had 1 sale a month... which I dont expect to have right off the bat as a new agent...

Please tell me I'm missing something here? This is all from an IC scenario.

Maybe I'm not correct about how expenses are split between an agent and a brokerage in an IC situation?

Would anyone recommend if a new agent should do IC vs salary/hourly?

I think some personal stories from agents about their experience and how things worked starting out would really help clarify some things for me.

Any information or personal experiences would be VERY appreciated.

Thank You

Chris Farrugia · Answer

Great questions.  Just to address a couple of points you've made, I really hope your average sale isn't a $100k house.  Here in Naples, FL, I'd say the average is somewhere around $350-$400k.  Next, the 50/50 split brokerages are where you start to take advantage of all of the trainings.  Once you're established, move on!  Pay a desk fee at a brokerage and get close to 100% of the commission.  That's the path I think most agents take.

Jim Wilson · Answer

@Jessica Martin I would definitely look more into Keller Williams. The split is 70/30 and it caps. So, if you started today, January 10th would be your anniversary date. Our cap in my office is $21,000, this will vary office to office depending on location and operating expenses. Once the broker has their cut, $21,000, I am 100% commission till my anniversary date, January 10th, then the cycle starts over again.

So you get a higher split and great education for someone just starting out. Pick up "The Millionaire Real Estate Agent" book by Gary Keller. He has a business plan in the book that can literally tell you exactly what to do to make the amount of money you choose to selling real estate.

Good luck. Selling real estate is an addiction.

Ned Carey · Answer

Yes your calculations are basically right. The average agent doesn't really make much. The public's perception is that agents make a killing just by listing a property on the MLS. The typical commission of 6%  seems like a lot. Obviously you have found otherwise.

However if you are familiar with the 80/20 rule, yes 20% of the agents do 80% of the sales and they do very well. Many brokerages offer better compensation packages and even many of the old school 50% brokerages have a much better split as you sell more.

Guy Gimenez · Answer

@Jessica Martin

You should shop brokerages. If you want a national chain, you'll likely pay a higher split and an brick and mortar to call an office. If you work with a smaller independent brokerage, especially those without the overhead of a brick and mortar location, you should be on an 80/20 or 90/10 split. In either case, you will likely pay a per transaction errors and omissions fee as well.

There are many variations of commission splits as there are brokerages, so determine what it is you're looking for and shop around.

I have been an independent broker for 8 years...only spent a couple of years as an agent with a national chain as I didn't like the splits either.

Rodney Henson · Answer

Hi Jessica, I may offer what you are looking for in a sponsoring broker. Check out the signature area below to see if I have what you are looking for.

Ken Lowe · Answer

Not all brokers take 50%. e have brokers that charge $75 per month and a fee per transaction. These systems are good if you do not need office space. Also as your sales grow most brokerages increase your percentage of the sale. I recommend you look at all options for commission splits and broker services and determine what works for you.

If your target price range is $100,000 you will have to do a least one sale per week to make a good living with your current structure. In a 100% office you would lose the support to some extent but only have to do 2 sales per month.

We always plan our goals based on end dollars then back into the amount of sales required at our average transaction price and convert that to the amount of customer contacts required to acheve those sales.

Good luck in your new career. I Love both selling and investing in Real Estate.

Donald Morrison · Answer

Jessica,

You are operating on the assumption that real estate agents make money. This is the flaw in your thinking. Think of your stereotypical agent. What do you see? Female, mid 40s. A Lexus. It appears that this person is doing well. But, perhaps they are an empty nester. The significant other is at work so this person takes a job selling real estate. The broker they are working for needs an extra set of hands doing showings, etc, and they don't have to pay the agent until the sale goes through and the agent isn't pressed for money win/win. That's just one example, there are many others. In reality most people who make the jump onto real estate don't make it. Your best indicator of this is to try and find a brokerage that isn't hiring. Yes they don't have to pay an agent until a commission comes in however if they were swimming in money why hire anyone else? Reality is that, yes, it is an addiction, often it is chasing a paycheck.

The larger companies have a model for how much they want agents to make. (Enough to keep them hungry is the short answer.) They each, also, have their own business style. KW likes cold calling. CB has a relocation arm that is huge. Re/Max charges desk fees. In the end what they are really looking for is for you to get your friends and family to go through you and thus the company you work for, any extra business is gravy. Then there are "teams." these are little businesses within brokerages which revolve around a person or persons. Watch it here, you may become part of a team yet you may take on most of the work in exchange for being part of the team. Like anything there are good ones and bad ones and a lot of middle of the road ones.

Find someone with their hands in a few different areas. A little property management, some sales, some rentals. Maybe someone who has built up a business and now wants to spend time with the kids. You get some work, they get family time. Good luck.

Jessica Martin · Answer

Thank you @Jim Wilson.

Fred Heller · Answer

Hi Jessica,

Once you get your license you'll be inundated with agencies asking you to come in for an interview. So you'll have plenty of choices.

The 50% split is only for the sales commission on the house. Your broker split will be more like 70/30 to 80/20 depending on the company. You might also have a monthly flat fee of a $100 - $300.

There are also a bunch of brokers out there who offer no-split arrangements. You pay a flat fee every month and then a transaction fee every time you sell a house. They'll have an office where you can use a conference room and copiers/printers/etc. The downside is there is not a lot of support. These brokers are really more for the established agent who doesn't need a lot of hand holding.

And you won't be selling a lot of $100,000 homes. Think more like $175,000 and up.

Good luck!

Jessica Martin · Answer

I did just move to Houston in hopes of the higher commissions. Where I'm from however is a somewhat rural area and home averages are probably 80k-180k for typical buyers with the exception of the lake houses Im sure the more experienced agents already have a good hold on. I guess that rural area is where my mind was set when typing that. I've only been in Houston since Monday, so I do hope Houston will provide more opportunity as well as higher homes sales(Im sure). My husband was already down here working as an Industrial Electrician. I just worry about the amount of competitions I have and the fact I'm new to the area so I don't know anything about the neighborhoods yet. I hope to have my courses done in 3 months so not much time to learn either.

Zach, I have done a little looking into KW. I have heard many good things about them. I'm interested in possible working for the East Houston/Clear Lake KW?

If I may ask, what is an average # of homes per month y'all sell? How long have ya'll been in the business to get that number of deals...

Commissions. After all the splits and expenses, profit seems low?

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