[pullquote align=”right”]Commissions allow you to be rewarded in direct proportion to your ability to work hard, work smart, and become successful.[/pullquote] [dropcap character=”W” color=”blue”]While pay is rarely the most important issue in job satisfaction, it is certainly near the top and a decisive issue! The finest sales people in the world get paid by commission and they would have it no other way! Good sales professionals can surpass their potential of hourly pay, and they get to focus on a single profession’s duties (unlike management) and can earn more than their peers in salaried positions.
There are downsides, of course: you get paid only when you complete a sale, the industry is cyclical (good and bad times), some people can cheat you out of your pay, and the competition can be formidable. Most ‘normal’ people also cannot handle receiving irregular paychecks and unpredictable income. But the ones who can will make more money.
In the real estate industry there are many factors in how much money you take home. To evaluate an opportunity and compare with other brokerages, a Realtor® should consider all of these issues:
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What is Commission Split?[divider]
The commission is paid by the seller and is divided between the listing and selling brokerages. A common example might be 6% of sale price with a 50/50% split of the commissions between the listing brokerage and the buyer’s brokerage.
Inside each brokerage, there is another split – between the brokerage and the selling or listing agent. This can vary widely from office to office. Some can be 50/50% or worse! Some may be as good as 80% to the agent and 20% to the brokerage. At Bella Casa, our Brokers’ commission is split 70% to the Realtor® and 30% to Bella Casa, every time a commission check comes in from a sale.
The crucial issue here is how much of each commission check from your sales will you be able to keep? Obviously the more the better, right? Maybe not…[/one_half] [one_half_last]
What is Commission Cap?[divider]
Not every brokerage will offer a commission cap! The cap is the point at which the brokerage will no longer take a commission split and the Realtor® receives 100% of the commissions. Caps are usually restarted annually, either the calendar year or the contract year (anniversary of joining the brokerage). Obviously a broker will want to ‘cap’ as early in the year as possible in order to make more money during the year. An agent who has capped has seemingly unlimited income potential.
The ‘cap’ is a more important factor than the ‘split’ to a successful professional. Those who do not sell much will make more money with a better split (80% vs. 70%). However, those who are successful in sales will make much more money by enjoying 100% of their sales after fully satisfying their share of the brokerage costs.[/one_half_last]
Royalties and Fees
Brokerages can be creative in finding ways to nickel & dime you to death. Most brokerages are money-making operations and naturally look for as many ‘income streams’ as possible. You must look at every service and product they give you as a profitable center for them.
If your brokerage requires you pay a royalty to the national or regional office/brand, then it costs you a lot more than nickels and dimes. Royalties commonly are 5-6% of the gross commission on each and every transaction (although I have seen 8%!). Only one that I know of will cap the royalty at a certain number, $3,000 per year, for example. The value of the royalty (having a national brand) can be debated and is discussed in other articles.
Investigate and be alert to fees and other charges which will come out of the gross commission for each transaction:
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Is there a fee for mentoring or training (or is it taken from your split as a certain percentage)?
Do you pay for Errors and Omissions Insurance per side of transaction (or how is it paid)?
Do you pay a transaction fee in each sale for its paperwork being processed?
Is there a marketing fee for assistance with advertising or marketing, for you individually, or for what the brokerage does generically? [/one_third] [one_third][iconcolor icon=”tick” size=”32″ align=”center”]
What advertising do you pay for? How much is it and does it promote you or the brokerage?
Is there a minimum sales fee? If you do not sell enough it might cost you to ‘hang your license’ there. Sometimes this is called a monthly minimum desk fee.
Is there any specialty fee; perhaps a special assessment to help the brokerage when times are tough as it has been since 2007?
How much do they charge for desk space? [/one_third] [one_third_last][iconcolor icon=”tick” size=”32″ align=”center”]
How much for a private or semi-private office?
How much are copies, both black & white and color?
Are you required to purchase home warranties or other affiliated business services (some of which have rebates to the brokerage)?
Do you pay for your own signs, lock boxes, sign posts, etc?
Do you pay for eFax service or other technology services?
Is there a technology/website fee? [/one_third_last]
Bella Casa Offers Two Compensation Plans:
Plan 1: Most agents get 70% of the commissions until they cap at $15,000. After this they receive 100% of the gross commissions until the end of the contract year.
Plan 2: Realtors® confident of their sales for the coming year can receive 100% of their commissions for every sale. They pay their share of the brokerage expenses by paying $1,000 monthly as a normal bill. For these agents their total commissions paid (cap) is $12,000! Additionally, when the brokerage is profitable, these Realtors® can have their cap lowered based on the profits made for each year.
Because the cap is designed to satisfy the full needs of the brokerage, we are excited when our Realtors® cap very early in the year and enjoy all the fruits of their labor for the rest of the year.
Bella Casa Splits, Cap, Fees and Expenses:
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Our split is 70/30%
Our cap is $15k or $12K (approximately sales of $2,000,000)
We do not have a royalty or payment to another entity (save over 5%)
Our only fee is an Errors and Omissions assessment of $50 per transaction side. Because risk exposure is related to the number of transactions, we believe this is the fair way.
Our copier charges are free for black and white, and 10 cents per copy for color.
Our office usage and desk space is free. If someone wants private space, they pay based on our adjusted lease rate of space costs. [/ul_list]
[pullquote]The issue is not that many of these services come with a price tag, but that you have a right to know what you are paying and to decide for yourself whether this is a good value. [/pullquote][space10]
You also have a right to evaluate the competitive differences accurately. Of course any brokerage’s costs are subject to change but you should be able to assess for yourself whether changes are reasonable and the value is still worth it. It should not come as a surprise once you are already committed to it when it is too much hassle to change back to the better brokerage.
Randy McCreith, Principal Broker Bella Casa Real Estate Group 503-310-9147