Building a real estate team is an incredibly exciting journey, but those who have actually done it will be the first to tell you: It’s NOT easy.
One of the toughest bumps in the road? Figuring out the right compensation structure for your team.
You’ve heard the cautionary tales of agents-turned-brokers who gave away too much too soon and ended up making a painfully low hourly rate — and you’ve worked way too hard to let that happen to you.
The thing is, a good commission plan takes even more work. But it can also be a powerful tool to help motivate your team and achieve your biggest goals.
So how do you make sure you get it right?
Truth be told, team compensation is complex. It rarely looks the same from one team to the next. And while that makes it a frustratingly ‘non-cookie cutter’ part of the business journey, that’s also exactly how it should be.
In this article, we’ll share the questions you should ask about yourself and your unique team before you set your compensation model, talk about some of the most common approaches, and show you a few ways to adapt your commission structure to support your personal and business priorities.
When you start a real estate team, your compensation model will be one of the most important milestones in your journey — and one of the first things potential team members will ask about. But before you start mapping out your splits, you’ll want to ask yourself a few key questions first.
One of the most important things to consider before you create your commission structure is what goals you’re hoping to achieve with your team. For example:
None of these options is better or worse than the other — it’s all about what will fit you best and the type of team you’re trying to build. And your compensation model will absolutely impact how you achieve those goals.
"I have little kids and I don’t want to work 80 hours a week. I’ve done that. I want everyone on the team to hit the goal they want to hit.”
Determining your commission split should also depend on the level of support you provide your team and how much it costs you to provide it. This can include marketing and advertising, lead generation, software subscriptions, and other tools and technologies. For example:
If you’ve got a finely-tuned, scalable system new agents can quickly plug into and start converting deals, that’s a huge benefit — one that should be reflected in the split. On the other hand, if your approach is more hands-off, your agents will likely expect to take home a higher percentage.
In a similar vein, you’ll want to factor in the cost of any supporting staff, such as ISAs or showing assistants. Sometimes these specialists are only paid on an hourly or salaried basis, but some teams will also offer a bonus or small commission for leads that convert.
Stay competitive with your team comp model. Our vision is to provide agents with more and cost them less, we want it to be a no-brainer.
Another thing to keep in mind is that the compensation model you choose can attract specific types of agents and incentivize certain behaviors — this will also tie directly into the level of support you’re offering.
For example, if you don’t have any real systems in place, you’ll want to attract agents who are self-starters and want to have more control over how they run their business. Their commission split should reflect that.
New York broker Darrell Handler shared a great mindset for approaching compensation:
“When it comes to determining a compensation model I take 2 things into consideration:
You want to be fair to the team and the members putting in the time/effort into each deal. I take a deal-by-deal approach to reward team members based on the value they bring to specific deals.
You want to motivate the members of the team to continue to learn and better themselves as real estate professionals. If they see that the harder they work, the higher the split they receive, you find that the members will go the extra mile."
One last thought: Make sure you’re not incentivizing turnover. If your compensation model doesn’t sync up with your performance expectations and the support you provide, your agents will start seeking greener pastures.
When it comes to commission splits, a solid starting place is the classic 50/50 model — that is, 50% to the agent and 50% to the brokerage. However, the exact numbers can vary depending on your business and leadership philosophy.
For example, if you’re providing the majority of the leads and at least some administrative support to the agent, it may make sense to even go as high as an 80/20 split brokerage/agent. Of course, that’s if you’re covering most of the hard work with marketing, lead gen, and other tedious administrative tasks.
Some teams choose to offer 100% commission but then charge a flat monthly or per-transaction fee. This option typically comes with minimal support from the brokerage, but can make sense for agents who are already well-established.
Of course, there are many, many more ways you can structure your team’s compensation model. Here are a few variables you might consider:
If you want to keep it simple, a fixed commission split is the easiest to keep straight.
However, if you want to drive high performance, you may want to use a graduated scale that increases the percentage given to the agent as they reach higher levels of production.
A similar approach is to offer a bonus on each deal an agent makes above a certain standard. For example, if your standard is 2 transactions per month and the agent hits 3 or more, you may offer a 5% bonus for each additional transaction.
Another strategy to help motivate performance is to place a cap on commissions — that is, a limit on the total amount of commission that the brokerage will collect.
A typical capped commission plan is an 80/20 split with a $18,000 cap. Once the brokerage has collected $18,000 in commissions, the agent will earn 100% on any additional volume.
Similar to a graduated split structure, the cap incentivizes agents to reach for higher production because the more they do, the more they earn. The only difference is that you as the team leader or broker are putting a limit on your earnings. But depending on your approach to the business, it might be the right move.
You can also combine the graduated and cap structures. For example, you may offer a 70/30 split up to a $23,000 cap, and then offer a 95/5 split on any additional volume.
Yet another way to add some variety to your commission plan is to offer different splits based on the type of client and/or where the lead came from. (Of course, that’s why it’s so important to have a rock-solid lead management system.)
Typically, you would offer the agent a higher split on buyer leads than on seller leads, and a higher percentage for self-generated leads than for company-generated leads.
Using this approach can help you incentivize specific priorities, such as helping agents focus on expanding their SOI or attracting new rockstar agents to your team.
“Before when I had caps in place, I wasn’t ready to be a full service brokerage. We just weren’t there yet. When we got rid of them it was at a point where we knew we absolutely were good enough to do that.”
Looking at the real estate industry as a whole, most agents’ compensation is fully commission-based. Furthermore, some real estate coaches advocate strongly against paying salaries if at all possible.
But should you pay agents a salary? And if so, when?
Well, a big factor in whether or not you pay agents a salary will depend on how your team functions and what’s expected of them. This will determine whether they can be legally classified as an employee or an independent contractor — and whether or not you’re required to pay salary.
Let’s also be clear here: The legal risks of misclassifying employees as independent contractors are very real, and not something you want to mess around with.
But that’s not the only reason you should consider paying a salary.
The fact is, new agents — and especially millennials who came of age at the height of the 2008 financial crisis — are often concerned about having a reliable source of income. If your goal is to appeal to these agents, it may actually make sense to consider a salary-based compensation model as an option.
No matter which compensation model you choose, be sure to keep it simple, profitable, and motivational for your team members.
Do the math and make sure everything lines up, but also know that your plan needs to be easy enough that your agents don't need to consult a complex spreadsheet each time a deal closes. (And remember, always calculate your splits on net revenue — not gross!)
Chicago broker Jake Tasharski said it best: "While the goal of a team is to grow the business and have more work-life balance, it needs to make sense financially. Not setting realistic and attainable team production goals for the year is a surefire way to derail profits and the team's morale."
Over time, you may need to adjust your compensation plan to make sure it’s still the right fit for your team goals. Or you may find that it’s best to offer several options and allow your agents to choose the plan that fits their strengths and goals. Remember, your team compensation model is a moving target. If you’re making regular adjustments and updates, you’re probably doing it right.