Deep dive into how Real Estate Teams Split Commissions with Agents

When considering joining a real estate team, it’s important to understand how commission splits work. For agents, the commission split can be a major factor when joining a team. Commission splits vary widely across teams and often they’re typically function of the resources provided by teams. Understanding the rationale behind the split is paramount, but at the end of the day, the agent split is more than just a number.

Below we’ll demystify the variance with commission splits and equip agents with the knowledge to navigate this process. Here’s what we’ll cover:

• What is the average commission split for a real estate agent?
• How to negotiate a higher commission split?
• What else should you know when negotiating a commission split?
• How real estate teams commissions are reported for tax purposes
• Do some real estate teams pay agents salaries?

What is the average commission split for a real estate agent?

The most common model is 50/50 for team-generated leads and a more favorable splits for self-generated leads. but there are many factors that can affect the split that a team offers.

Here are a few of the most influential pieces of the commission split puzzle:

1. Value of Leads: All leads are not created equal. What’s the nature of the leads being offered? Are they exclusive leads? Do they require referral payments at closing? How much time and effort is typical to convert the leads? The better the leads, the more of the split the team can command.
2. Overhead and Support: Depending on the real estate team structure support resources can include marketing/administrative staff (including transaction coordinator), photography/videography, print marketing services, comprehensive software platforms (CRM, Supra etc), advertising, and office space, tend to keep a higher share of the split. This support is seen as justifying the team’s share of commissions due to the reduced workload and increased potential for agents to close deals.
3. The Role of the Team Leader: Effective team leaders are seen as crucial to the success of a team, providing not only leads but also mentorship, training, and a supportive culture. The best team leaders are viewed as those who invest in their agents’ success and offer fair compensation structures that reflect the value both parties bring to the table.
4. Agent Performance: We’ll get into this below but there are various production related factors that can affect an agents split. This generally involves the source of their leads (self-gen vs team leads) and the number of units closed (higher producing agents get higher splits).

How to negotiate a higher commission split

Agents should know there are a few factors that can adjust a split in their favor.

• Higher production volume (granted agents with exceptional production are more likely to build their own team instead of joining another team)
• Experience and ability to act as a mentor…especially if there’s deep expertise that can be utilized to benefit the entire team (ex: social media)
• A database of prospects especially past clients OR a valuable sphere/network from other personal/professional experiences
• Self sufficiency in areas that reduce costs for the team. Do you do your own marketing, graphic design, photography/videography, or transaction coordination. It’s not a sure shot, but there may be a chance to work out a higher split because you’re not adding to the team lead’s overhead in these areas.

What else should agents know when negotiating a commission split?

Keep in mind that the commission split isn’t the one and only deal point which agents can negotiate to increase their earnings when joining a team:

• teams will often have a different split based on the lead source. For example, self generated leads will have a higher split which could be separately negotiated especially if you have confidence in your lead gen efforts (ex: have a valuable sphere of influence). NOTE: Typically Open House leads count as “self-gen” but it’s worth confirming.
• Similar to above you can negotiate an escalating sphere lead split where you get a progressively higher split based on the number of deals sourced through your sphere.
• There are also graduated split increases when agent exceeds a certain number of units closed. This structure is another point that’s open for negotiation.
• Some teams will offer a cap on the team’s share, allowing agents to negotiate the cap amount.

Also consider the other parties that are taking part in the commission/fee from a transaction too. For example:

• The Broker: The team’s split and the broker’s split/fees aren’t the same. It’s a good idea to work through a hypothetical deal and see what goes to the broker and whether that comes off the top before the team’s commission split is applied OR if the broker split is applied individually to each side of the team split or another arrangement. Seeing this laid out visually can help avoid costly misunderstandings.
• A Pay at Closing Lead Provider: If the team you’re considering uses pay at closing leads, it’s important to know how that factors into the final commission math. It’s not unusual for the pay at closing lead source (ex: Zillow Flex or Ojo) to take 35% of the commission so it’s critical to know where that amount is coming from. Similar to above, seeing this breakdown via a sample transaction is a good idea if the team is involved with a pay at closing lead company.

How Agents on Real Estate Teams Commissions are Reported (for tax purposes)

It’s not what you make…it’s what you keep.

Navigating the intricate maze of tax implications for real estate agents on teams can often feel like walking a tightrope.

While in some instances, agent’s are issued 1099 forms based on the total GCI rather than their net share, this can lead to confusion and potential tax liability issues for agents, as it could inflate their reported income.

Here’s where the importance of consulting with a qualified tax professional or accountant is key. Tax professionals can provide guidance on how to properly report income and expenses, correct misreported income, and navigate the complexities of tax laws.

Generally speaking, taxation should mirror the reality of an agent’s financial receipt rather than the gross transaction volumes processed through their team.

Do Some Real Estate Teams Pay Agents Salaries?

Some brokerages (Redfin being the most common example) have popularized the idea of the salaried real estate agent, but the concept hasn’t really taken hold with real estate teams.

The difficulty in scaling a team under a salaried model is the challenge of finding agents who prioritize income consistency over maximizing potential earnings. The salaried model may not suit all agents, especially those highly driven by commission.

However some teams offer a base salary with additional bonuses, providing stability and motivation for agents.

Still many agents want more flexible hours which are less conducive to a salaried position. While the predictable income is attractive, many agents prefer the ability to set their own hours (which at times could be fluctuate from the typical 40 hour work week).

Due to some of these challenges, even Redfin has shifted away from the salaried employee model in some markets.

Navigating the intricacies of commission splits within real estate teams reveals a spectrum of practices, each tailored to balance the distribution of leads, resources, and support provided by the team or brokerage.

While lead generation is one of the largest factors in this split (and cannot be overstated), the specific split can also depend on the level of support and resources provided by the team or brokerage which can include:

• marketing resources: this includes specialists to assist with marketing graphics and social media OR printing and mailing services
• software platforms: CRM, website, marketing software, transaction management, etc
• administrative assistance: often this can be operations staff to help setup listings, coordinate Open Houses and showings, as well as, dedicated transaction coordinators

Many agents on teams will underscore the balance of finding an optimal balance that rewards both the agent’s initiative and the team’s infrastructure investment.

But this discussion isn’t just about percentages; it’s a reflection of the value exchange, marketing support, transaction coordination, and the broader ecosystem provided by the team.