{"id":592,"date":"2010-04-26T08:12:57","date_gmt":"2010-04-26T12:12:57","guid":{"rendered":"http:\/\/www.renthop.com\/news\/?p=592"},"modified":"2023-07-24T14:21:43","modified_gmt":"2023-07-24T18:21:43","slug":"understanding-brokerage-commission-models","status":"publish","type":"post","link":"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/","title":{"rendered":"Understanding Brokerage Commission Models"},"content":{"rendered":"

Every real estate brokerage wants to differentiate themselves from the competition. The heads of any firm will tout their unique dedication to excellent customer service, their high integrity and moral standards, their hard work ethics, and their innovative operations. All of this conveys zero bits of information, as Guy Kawasaki’s opposite test shows. Just as every software company claims they will build something fast, scalable, and easy-to-use, no real estate brokerage says, “Our firm believes in crappy customer service, sleazy operations, and lazy agents.” To gauge corporate culture, the most important feature to examine is the incentive structure,\u00a0 the brokerage commission models that determine how the agents<\/a> get paid.<\/p>\n

\"200547695-003\"<\/p>\n

Traditional Brokerage Model<\/h2>\n

In a traditional brokerage, an agent splits roughly half of each commission with the house. \u00a0That is, a $3,000 commission check will normally result in about $1,500 paid to the agent. \u00a0The firm provides office space, training, mentoring, a website, IT infrastructure and support, branding, advertising<\/a>, and most importantly, client leads.<\/p>\n

Brokerages enjoy this model because it is the most profitable for the firm, and it’s still the most popular model today. For the agents, the advantages are numerous. \u00a0New realtors usually receive free training, and may be matched with an experienced agent for the first few months. Also, potential clients who call the firm’s general phone line or enter the physical office will be matched with an available agent. This tens to be the less busy, newer members of the industry. \u00a0For the veterans, a traditional firm often provides slightly more attractive commission splits because the agent obtains many leads independently.<\/p>\n

Discount Brokerage Model<\/h2>\n

In a discount brokerage model, the agents tend to receive less than half of the commission split. \u00a0In some cases the agent doesn’t receive a percentage of the commissions at all, but instead an a la carte fee for services performed. \u00a0Either way, the firm plays a much bigger role generating leads than in a traditional brokerage. \u00a0Examples include ZipRealty, Foxtons New York (now out of business), and Redfin.<\/p>\n

The primary advantage for agents is that they do not need to spend as much time farming for client leads. \u00a0Instead, the firm uses their presence and rebates to woo potential clients, meaning the agent will accept a lower than normal commission. A home buyer who registers with ZipRealty and buys a home for $300,000 might receive a 20% commission refund at closing. With a standard 6%<\/a> sales commission co-brokered between the listing broker and buyer broker, the client would receive 20% of 3% refunded. This turns into a\u00a0 $1,800 refund at closing.<\/p>\n

High Split Models<\/h2>\n

The latest twist in brokerage commission models is almost the opposite of a discount broker (from the agent’s point of view). \u00a0Here, the agent gets significantly more than 50% of the commission split, and in some cases reaches 90% or more of the commission. \u00a0As expected, agents earning such high splits do significantly more of the work in finding clients and closing deals.<\/p>\n

In New York City<\/a>, a number of high split commission firms have gained traction in recent years. \u00a0They typically offer very limited office space, if any, and do not have a retail storefront for attracting walk-in leads. \u00a0Agents are expected to work from home on a day-to-day basis, but the firm often provides some technology support such as email accounts, a website, and some listing management tools.<\/p>\n

Two types of real estate agents benefit heavily from joining these firms. \u00a0First, veteran agents who generate their own leads benefit from the high commission splits. \u00a0Also, agents who want to commit part-time benefit from the flexibility of working at home and only working on their own sourced deals.<\/p>\n

Currently the biggest players in Manhattan<\/a> are Pari Passu Realty Corp, The Level Group, and Charles Ruttenberg Realty. \u00a0A typical rental transaction may pay a $3,000 rental commission to the brokerage, where the agent keeps $2,500. \u00a0The agents also often pay a small monthly infrastructure fee of $100-$300.<\/p>\n

Editor’s Note: We updated this article to enhance readability.\u00a0<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Every real estate brokerage wants to differentiate themselves from the competition. The heads of any firm will tout their unique dedication to excellent customer service, their high integrity and moral standards, their hard work ethics, and their innovative operations. All of this conveys zero bits of information, as Guy Kawasaki’s opposite test shows. Just as […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"yes","_lmt_disable":"no","footnotes":""},"categories":[269],"tags":[],"class_list":{"0":"post-592","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-brokers-and-landlords"},"yoast_head":"\nUnderstanding Brokerage Commission Models - Real Estate Topics, Tips, and Guides<\/title>\n<meta name=\"description\" content=\"Real estate professionals must understand brokerage commission models before signing with a brokerage, as this impacts their payout.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Understanding Brokerage Commission Models\" \/>\n<meta property=\"og:description\" content=\"Real estate professionals must understand brokerage commission models before signing with a brokerage, as this impacts their payout.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/\" \/>\n<meta property=\"og:site_name\" content=\"Real Estate Topics, Tips, and Guides\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/renthopapartments\" \/>\n<meta property=\"article:published_time\" content=\"2010-04-26T12:12:57+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-07-24T18:21:43+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.renthop.com\/content-manager\/wp-content\/uploads\/2010\/04\/salary.jpg\" \/>\n<meta name=\"author\" content=\"Lee Lin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@renthop\" \/>\n<meta name=\"twitter:site\" content=\"@renthop\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Lee Lin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/\"},\"author\":{\"name\":\"Lee Lin\",\"@id\":\"https:\/\/www.renthop.com\/blog\/#\/schema\/person\/5877a1d4b27a98e84d9840c6aea99af7\"},\"headline\":\"Understanding Brokerage Commission Models\",\"datePublished\":\"2010-04-26T12:12:57+00:00\",\"dateModified\":\"2023-07-24T18:21:43+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/\"},\"wordCount\":660,\"publisher\":{\"@id\":\"https:\/\/www.renthop.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.renthop.com\/content-manager\/wp-content\/uploads\/2010\/04\/salary.jpg\",\"articleSection\":[\"Brokers and Landlords\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/\",\"url\":\"https:\/\/www.renthop.com\/blog\/understanding-brokerage-commission-models\/\",\"name\":\"Understanding Brokerage Commission Models - 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