Sales commissions are still the norm in real estate, but the industry is also in the midst of rapid evolution when it comes to agent pay
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There are a lot of careers out there, but people go into real estate to get paid.
Of course, real estate is filled with opportunities to impact lives. Agents spend their days helping people find their first home, their dream home, or their forever home. The act of connecting people with their shelter speaks to fundamental human needs. It’s part of the draw.
But real estate is also unique because it’s one of only a few potentially high-paying careers in which industry members have significant control over their income.
To better understand how the agent compensation landscape works today, Inman reached out to a group of industry professionals across the U.S. and Canada. From those conversations and Inman’s own research, it’s clear that sales commissions are still the dominant way for agents to earn a living. However, it’s also apparent that the pay landscape has rapidly evolved in recent years, and continues to do so today. It’s a unique moment, with downward pressure on commissions while models such as stock options explode in popularity.
Agent pay is a massive topic, but here are the main ideas every industry professional should know about:
The evolution of the commission model
The commission model has been standard practice in real estate for generations. But Russ Cofano — chief executive officer for Collabra Technology and former president of eXp Realty — told Inman that in the 1970s, splits tended to be in the neighborhood of 50/50 between agents and brokerages. At the time, he said, the “general philosophy was that the brokerage company owned the business and client relationships, and the agent was sort of secondary in that.”
But that began to change when RE/MAX came along.
“The RE/MAX concept was, ‘Hey we need to make money to help support your biz, but it’s your business,'” Cofano said. “So they said, ‘Rent a desk from us. We’ll provide all the things that will enable you to be in business, but you’re an independent contractor so go to town.’ That really started to put ownership in the hands of the agent.”
Nick Bailey, RE/MAX’s current chief customer officer, told Inman these changes got rolling nearly 48 years ago when company founders Dave and Gail Liniger began looking at the brokerage landscape and thought “there has to be a better way for the real estate agent.”
“It really did change the landscape for real estate agents,” he added.
Over the decades, RE/MAX’s system evolved, but those early moves were key in driving an industry-wide trend toward more commission going to agents. That trend further accelerated, according to Cofano, over the ensuing decades when Keller Williams came on the scene and began doing commission splits with caps on how much an agent would pay to the company.
Ultimately, there was a philosophical shift in which the agent was seen as controlling the business.
“And whoever controls the business is going to get the lion’s share of the commissions,” Cofano concluded.
Commission models today
Comprehensive hard data is scarce when it comes to how pervasive different models are right now. However, Inman’s 2022 agent appreciation survey, which elicited nearly 400 responses, indicated that the vast majority of industry professionals continue to earn compensation via commission splits.
But there are almost as many flavors of split as there are real estate companies.
At RE/MAX, for example, Bailey said the company recommends brokers use a split that gives 95 percent of the commission to the agent, with the other 5 percent going to the brokerage. That said, RE/MAX is a franchisor and individual operators across the world are free to customize their own commission programs.
At eXp Realty, every agent starts off with a split that gives them 80 percent of their commission, with the other 20 percent going to the company, according to CEO Jason Gesing. However, Gesing also told Inman that eXp caps what the company can collect at $16,000 per year, meaning that once an agent hits that limit he or she collects 100 percent of the commission.
Another popular way to handle commissions is with a tiered system.
Ryan Rodenbeck, owner of Spyglass Realty in Austin, Texas, told Inman he uses “a graduated split model.” In his case, that means agents doing up to $3 million in volume have a 75/25 split, with the larger share in the agents’ favor.
However, when volume rises to between $3 million and $4 million, the agents’ split goes to 80 percent, and above $5 million it’s 90 percent. Rodenbeck said the graduated model works well for his company, which “operates like a team.” It also means that the brokerage itself really has to work hard to earn its share of the money and offer valuable services to its agents.
“You cannot treat a $20 million producer the same as a $3 million producer,” Rodenbeck added.
Tiffany McQuaid, president of McQuaid & Company, which has about 30 agents in the region around Naples, Florida, similarly uses a tiered system. McQuaid didn’t say what the specific splits at her company are but explained that there’s a three-tier system that increases an agent’s split of the commission as volume rises. This approach allows agents to earn more as they do more deals but still enables the company to provide an array of services.
“There is a lot that is included within their scope of being a Realtor here,” McQuaid explained. “Brochures, flyers, copies, things of that sort are all included.”
Cofano said that it’s rare to see a basic split today that gives an agent anything less than 60 percent.
However, that doesn’t mean most agents are actually taking home huge chunks of their commissions. Instead, the rise of teams means that many agents are now sharing their split with their team leader as well. So for example, an agent may be at a company with an 80/20 split in their favor, but if they’re also on a team they may be sharing half of that 80 percent with the leader.
“There are a lot of team members who are making 40, 50 percent splits,” Cofano said. “Which is what was happening in the olden days before RE/MAX.”
Whatever splits agents are getting, Inman’s recent survey indicated widespread satisfaction among agents with their compensation. One survey respondent, Heather Scott of Forest Hill Real Estate in Ontario, Canada, told Inman that while she’d, of course, love to take home 100 percent of her commissions, she’s happy to do a split because she knows the money is going to things she uses, like an office.
Inman’s survey further showed that nearly two-thirds of respondents keep more than 70 percent of their commissions. Another fifth work with 70/30 splits. On the other hand, only 3 percent of respondents have 50/50 splits.
When it comes to choosing a model, the experts who spoke with Inman recommended looking not just at the split itself, but also what it buys.
“There’s the compensation and then there’s the value you’re getting from your brokerage,” Gesing said. “Look for opportunities where long-term you’re setting yourself up for success.”
Non-commission income models
While commission splits are the most common form of agent compensation, there are other models too.
One of the highest-profile of those models is stock. Perhaps most famously, eXp offers stocks to agents as they hit various milestones. Gesing explained, for example, that agents get $200 in company stock for signing up. They get other stock awards for hitting their commission cap and bringing on other agents, among other things. Agents at eXp can also choose to take some of their commission in the form of stock.
For some agents who have been with eXp for several years, this program has been a major source of income. At the beginning of 2019, shares in eXp were trading for less than $4. But by mid-2020, prices began skyrocketing and ultimately peaked in February 2021 at nearly $78 per share. As of December 2021, the share price had settled back down into the mid $30 range, but that’s still a huge increase in value compared to just two years prior.
All of which is to say that somewhat uniquely at this moment, agents have an array of non-commission income options available to them.
Another non-commission income variant that’s worth mentioning is the salary model. Today, Redfin is the best-known firm using this option. And while Redfin is doing well, Cofano doesn’t see the salary model significantly displacing the commission model any time soon.
“That’s because, in order to do salary, you have to have scale,” he said. “And you have to be really, really good at lead generation.”
Pressures on compensation
Everyone who spoke with Inman for this story agreed that there is significant pressure on agent commissions right now, though there were differing opinions on the primary source of that pressure.
Carl Medford, who leads the Medford Team in California’s Bay Area, told Inman that in his market pressure is coming from an intensely competitive marketplace.
“Because the unit count is so low for teams in this region,” he said, “they’ll do almost anything to get a transaction.”
As a result, 5 percent commissions paid by the seller, with 2.5 percent going to agents on each side of the deal, have become ubiquitous. However, Medford said there are also sellers’ agents in his area offering to do 4 percent and to only collect 1.5 percent for themselves.
Bailey similarly pointed to competition as one of the factors driving commissions down. That competition is creating “in some ways a race to the bottom.”
“As the landscape becomes competitive, it’s easy for new entrants into the market to compete on price,” he said. “There is always someone out there that has a license who will be willing to do something for nothing.”
Bailey added that “in a seller’s market there is pressure on commission rates to go down. In a buyer’s market, there is upward pressure.”
Adam Hergenrother, who owns multiple Keller Williams brokerages and other companies in the Northeast, also believes there is pressure on agent compensation right now. That pressure seems to be coming from some of the tech-enabled firms such as Redfin, which can guide consumers into an ecosystem that is simple and includes discounts.
“I think in general the technology changes in some of the companies that come into the industry are starting to put pressure on the consumer to put downward pressure on the agent,” he explained.
Additionally, McQuaid said pressure is coming from big companies that have massive war chests from big investors. McQuaid didn’t mention any firms by name, though companies like Compass and Opendoor both have backing from Japanese mega-fund Softbank.
A 2020 study from real estate consultant Mike DelPrete further indicated that iBuyers specifically have been putting pressure on agent commissions.
Whatever its source, however, this pressure is likely to continue.
“We’ve not hit the bottom yet in terms of commission rates in my opinion,” Cofano said. “They will go lower.”
Defending your commission
Given the pressure on commissions, many agents are being confronted with situations in which their clients ask for discounts. McQuaid said agents should have a “script” ready for this scenario that allows them to explain their value. And, she added, it’s important for agents to practice that script so they’re ready when the conversation comes up.
“As a Realtor, your value should be conveyed clearly and concisely in regard to what makes you stand out over and above the others,” McQuaid said, adding that agents should be able to explain how they enhance clients’ lives, how they make the process easier and how they care about more than just money.
“If they are looking for an extreme cut and comparing it to what others will take, remember your value and worth,” McQuaid added. “In the infamous words of Kenny Rogers, ‘Know when to hold ’em, know when to fold ’em, know when to walk away, know when to run!'”
Missy Yost, an eXp agent who leads the Yost Group in South Carolina, told Inman that if her clients ask, she will offer a discount, reducing the total commission from 6 percent to 5.5 percent. She does this because competition in her area is intense. But she’s only willing to go so far.
“I will not discount the buyers’ portion,” Yost said. “So if I discount down to 5.5 percent, then I’ll do 2.5 percent and give the other side 3 percent. You need the other agents. So you don’t want to discount the buyers’ agent portion.”
Yost also said she is careful to describe where all the commission money is going. She explains that money goes to the brokerage, to marketing, to photography, and to the agent, among other things. Which is to say, greater transparency and an explanation of the value proposition help her navigate these conversations.
“I think after you explain it all to them they do understand it a little better,” she said.
Compensation isn’t only about money
Everyone likes to get paid, but the industry professionals who spoke with Inman also agreed that agents shouldn’t focus too much on the money.
“It’s not about the commission, it’s about the support,” Medford said. “It’s about finding the environment where you’re given the tools that you need to succeed.”
Agents also need to weigh things like company culture, work-life balance, and what appeals to them beyond making money.
“I believe compensation goes beyond dollar value, and I believe you really have to factor that in,” McQuaid concluded. “Remember, if you work hard and do the right things, the money always comes.”
BY JIM DALRYMPLE II January 18, 2021
This story was updated on Thursday, Dec. 30, 2021.
Randy Byrd, Team Leader & Coach The Byrd House Team - Brokered by eXp Realty, License# 01878277 Licensed in California and Oregon. CA#01388021 & OR#201235026 Cell 541-570-5777 Team 541-526-7788. Office 707-775-0999