What is a “Split?”
Congratulations! You’ve passed your real estate licensure exams and you’re on the hunt for the right brokerage from which to launch your real estate career. Besides things like ample training and support services, one of the most important considerations for you should be your commission split. Often just called a “split,” commission splits can vary widely between real estate brokerages. Because they’re literally what your income will be based off of, it’s really important that you understand how this works before you jump in with both feet.
How Real Estate Commissions Work
As you may recall from your real estate courses, when you sell a house, the commission goes directly to the brokerages involved in the transaction. If you have both seller and buyer, for example, the entire thing will go to your brokerage, but if you have the buyer and another brokerage has the seller, then two checks would be cut at closing, as described in the listing contract.
As a real estate agent involved in this transaction, you’ll generally be expected to turn the check in to your broker, along with the fully executed contract file. But what happens to that check once you’ve sent it off to the powers that be?
First, the numbers are examined closely to ensure the check you’ve brought is for the correct amount of money. Next, the check is deposited into an account belonging to your broker. Finally, the broker will cut you a check based on your split. This is why splits matter and why having a favorable one will result in your making more money in both the short and long run.
Types of Splits
There are generally two types of splits in the real estate world: fixed splits and graduated splits. You’re likely to find plenty of both types, depending on what type of real estate you’re interested in selling. But, in general, here’s what to know:
Fixed splits will guarantee you a certain percentage or dollar value every time you sell a piece of property. It’s easy to know how much to expect, since the fixed split never changes, so you can easily budget for it. These are good options for agents who don’t expect to sell a lot because they’re primarily focused on investing their own money and acting as their own agents, or they are selling real estate as a side job.
Graduated commission splits should be considered if you’re wanting to be a career sales agent. With a graduated split, you may start with a bit smaller commission split than you would with a fixed split, but your performance decides how much your split is. Most agents in a graduated commission split arrangement will get what is essentially a pay raise for every so many dollars sold.
For example, you may start out with a 40 percent split as a green agent, but once you’ve sold $300,000 worth of homes, you’ll be bumped to 50 percent. At $1 million, you may be taken up to 60 percent, and so forth. Always ask for a detailed outline of how a graduated commission split will work over time, since they are often different between brokers.
Consider What You’re Getting for Your Split
It’s all fine and good to compare splits directly when you’re choosing a brokerage, but there’s a bit more to it than that. Brokerages offer various additional services and benefits to their agents, which can sometimes make a smaller split worth a lot more than a larger one. For example, a very large brokerage may start you with a smaller split, but pool their advertising purchasing power, reducing your advertising costs dramatically.
You may be provided services including marketing consultation, continuing education training opportunities, chances to capture new leads as an “on call” agent, the use of advanced technology, and even legal consultation. Obviously, all of this would add up if you were paying for it out of pocket, rather than it being simply part of your benefit package as an agent with that brokerage.
Some brokerages don’t offer their agents any benefits, instead acting primarily as a license holding institution. If you don’t intend to make a living as a real estate agent, these may be perfectly good for your needs, but a professional agent typically will need a great deal more support than this. A real estate contract is a complicated and delicate legal document, and the sales process is one that’s fraught with potential legal turmoil.
Bottom Line: Understand Your Split
Once you’ve weighed the many pros and cons of any given brokerage along with the split you’re being offered, you can move forward with choosing the company you feel the most confident in working with. Make sure it’s one that will align with your goals as an agent, since this will make finding success that much easier.