Maximizing Your Learning Path: A Guide to Understanding Real Estate Brokerage Commissions and Success in the Industry

Dated: April 26 2023

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As a seasoned real estate professional, I fully understand the daunting challenges that new agents face when starting their careers. Having recently obtained my Broker's License, I've taken time to reflect on what I wish I had known when I was starting out as a real estate salesperson.

BUILDING A FOUNDATION FOR FUTURE GROWTH

One thing that's important for new agents to understand is that competition drives quality in our fiercely competitive industry with its steep learning curve. However, I firmly believe that with the right guidance and mindset, anyone can become a top-performing agent. That's why I've written this blog post – to provide new agents with insights into how money flows through a real estate brokerage and to help them maximize their learning path to succeed in the industry.

In real estate, everyone is some type of salesperson, and it's important for new agents to learn the skills they need to advocate for their clients and themselves. By understanding the intricacies of the industry and the standard of excellence they want to represent, new agents can bring their best selves to their clients. Clients want to work with agents they trust and who have their best interests in mind, and when new agents understand their values and strengths, they can build a personal brand and establish themselves as trusted advisors in their local market. This, in turn, will help them attract more and better clients, and ultimately lead to a fulfilling and successful career in real estate.

WHERE MONEY COMES FROM

It’s no surprise real estate sales is a lucrative and exciting industry to work in, which is why we see so many people cycle-in with excitement. There are so many ways to make money for the brokerage (and yourself): by helping client sell, buy, lease, and/or invest in real estate.

But there are other ways the brokerage is making money as well – with direct, in-kind servicing, and partnership dollars in fields like financing, title services, insurance, specialized coaching, MLS’s, and a host of technology growing plans, to name a few. As an licensed agent for a brokerage, you'll develop relationships with vendors across many disciplines and have partnerships of your own who will be competing for your professional recommendation. You will compete for their business recommendations, too, as you reinvest in the growth of each other’s businesses and develop a balance of trade. Some of these businesses/partnerships are heavily regulated, like title/closing and insurance, and others are loosely managed like construction, painters, staging, or deep-cleaning recommendations.

YOU'RE INTERVIEWING THEM

For new agents, it can be overwhelming to decide which brokerage to work/partner with as an independent contractor. But understanding how the real estate brokerage makes money is crucial in deciding which brokerage to work with and how to maximize your learning path and lay a strong foundation for future growth. Everyone is going to tell you they're the best, and that can't be your only decision criteria. Of course you'll look at which brand identity you connect and respect the most and what the vibe at the physical and virtual office is like.

It's ideal to be able to begin with the end in mind... but at the beginning you don't know what you don't know. But you probably have a sense as to how commited you'll be to learning and growing. The broader questions is an ongoing journey: how committed will you be to the industry and all of the relationships it represents? Customers, clients, co-brokers, inspectors, admins, political minutae all with different level of experience, commitment, and attention to their piece of the profession. The broker, team leader, or coach will be your lightning rod as you get started.

The "product" that a brokerage offers new agents at it's most basic level are formal training and on-the-job experience. Brokerages invest in new agents because they see potential in them and want to groom them to become top-performing agents. In exchange, the brokerage takes a cut of the commission earned by the agent. As a new agent you're still developing and in learning mode. Seasoned solo agents and teams of agents who have strong and loyal relationships in their community can leverage their experience, reputation, loyalty (and scarcity) when it comes to negotiating commissions and use of resources.

THE 80/20 RULE

By understanding the Pareto principle, that 20% of the agents tend to sell 80% of the houses, new agents can approach their career with a realistic perspective and set achievable goals. While it may seem daunting to compete with top-performing agents, it's important to remember that success in real estate is not solely determined by experience or brand recognition. Rather, it's a combination of hard work, dedication, and a commitment to providing excellent service to clients.

As the National Association of REALTORS® currently represents 1.5M members across 54 states and territories, and the total number of existing home sales slightly exceeded 5M nationally, there is plenty of business to go around, but the mass of it is being services by the top 20% of agents. Don't let that depress you. By focusing on building a strong network and delivering exceptional value to clients, new agents can establish themselves as trusted advisors and rise to the top of their field. With a willingness to learn, adapt, and work hard, new agents can defy the odds and become part of the 20% that sells 80% of the houses.

COMMISSION SPLITS

Everything in negotiable in real estate—that said, the commission is typically a percentage of the sales price of the property, usually ranging from 3.5% to 6% total. When a property is sold, the commission is split between the listing agent (the agent who represents the seller) and the buyer's agent (the agent who represents the buyer). The commission is almost always paid by the seller, and the split between the listing and buyer's agents is agreed upon beforehand. Now, let's talk about how money flows through a real estate brokerage and how you fit into the equation. When a commission is earned, it goes to the brokerage first. The brokerage takes a percentage of the commission as its cut, usually between 6% to 50% depending on the brokerage and their commission structure. The  remaining percentage goes to the agent who earned it. For example, if the commission on a $500,000 property is 6%, the total commission earned is $30,000. If the brokerage takes a 40% cut, the agent's share is $18,000. There could be additional franchise fees (roughly 6%) on top of that.

It's important to note that similar to a listing commission agreement with a seller, the commission split between the brokerage and the agent is negotiable. As previously noted, new agents typically start with a lower split, and as they gain experience and prove themselves as high potential agents, they can negotiate for a higher split either internally or externally. The cost for a brokerage to acquire a new top agent from a competitor exceeds that of retaining a top agent they may have already and will rely heavily on loyalty to their brand and business approach. So it’s almost always easier to negotiate when you’re working externally since that broker will see your prospective sales as new revenue on their books.  

In addition to taking a cut of the commission, brokerages may charge fees to their agents for various services, such as desk fees, transaction fees, and marketing fees. These fees vary by brokerage and can add up, so it's important to understand the fee structure before deciding which brokerage to work with. You’ll also want to find out if you are competing with your team leader or broker if they are also selling while they are recruiting and managing the office for multiple revenue streams.

THE QUEST FOR MARKET SHARE & TALENT/LABOR

Think of the brokerage as similar to a casino in Las Vegas in that the house almost always wins. Top performing agents and teams are playing a game of skill across multiple disciplines, including prospecting, marketing, home improvements, transaction management, inspections, pricing, technology, and negotiating tactics against a well-versed marketplace. And by definition, buyer & sellers, landlords & tenants, and investors & competing asset classes are pitted against each other with opposing goals that require a broker to assist with a mutually agreeable solution. It's challenging for new agents to compete with seasoned agents when they're coming in armed with the equivalent of a high-potential rookie contract you see in sports.

The strongest team leaders are looking for those most willing to learn to grow their business and stay with the firm year after year—but it really is a recruiting game for them, just like it is a sales game for the salesperson. Look for a brokerage that has a proven track record of grooming top-performing agents and is willing to invest in your growth and success and so you’re not treated like a small fish in a big pond.

MAXIMIZING THE OPPORTUNITY AT HAND

In the end, real estate is an industry that offers a tremendous amount of opportunity for those who are willing to put in the work and commit to their clients' success. With a focus on building strong relationships, delivering exceptional value, and continuous learning, new agents can establish themselves as trusted advisors and rise to the top of their field. By understanding the intricacies of the industry and how money flows through a real estate brokerage, new agents can lay a strong foundation for future growth and success. It's an exciting time to be a part of the real estate industry, and I'm confident that with the right mindset and guidance, anyone can become a top-performing agent.

written by MOSES OLIVA

©2023 Moses X.O. & Associates, LLC. All rights reserved. All content including the presentation thereof is the property of Moses X.O. & Associates, LLC. and protected by U.S. and international copyright laws. You may not copy, reproduce, distribute, transmit, modify, create derivative works, or in any other way exploit any part of copyrighted material without the prior written permission from Moses X.O. & Associates, LLC. The postings on this site are my own and don’t necessarily represent the positions, strategies or opinions of Weichert® .

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Moses Oliva

Moses Oliva is a licensed Real Estate Broker Associate with Weichert Realtors® where he is a top performer. Moses was recently selected to chair of the NJ Association of Realtors® Po....

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