Too often real estate agents focus on commission splits with their brokerage rather than the value and services they ultimately receive in return. If you are contemplating switching brokerages for a higher commission split, you should look at your total expenses at your current brokerage and compare that to what your forecasted expenses will be at your new brokerage.
These expenses can include the services and tools that both brokers pay(or don’t pay) on your behalf such as desk fees, tech costs, MLS expenses, E&O Insurance, and much more. Again the question you should be asking the brokerage is “what is my net” vs “what is my split?” Now, it is important to note that your net commissions can be somewhat hard to calculate because it not only factors in your net income but the life you live.
Working at a full-service brokerage, I have seen brokers make the decision to leave a successful career with a company and join a different brokerage all because of a higher commission split. In the majority of those cases, the agent winds up netting less money and sacrificing their time with their family because they no longer have the support that they were receiving from their previous brokerage.
Here are a few main reasons why the NET commission is more important than SPLITs or CAPs:
What is Your Taxable Income at the End of the Year?
Many agents chasing higher commission splits forget to calculate what that will cost them. If you are paying a higher split to a company, then you typically should be getting something in return either in terms of marketing, office space, training, or some mix of benefits. In the opposite case, generally, the higher split a company offers you, the less money they have to offer the agent in return which means these expenses would fall back on you.
Take for example an agent working at a firm where they pay fees but get 100% of their commissions. That sounds great but when you actually look at the expenses and remember the amount of time and effort they put into their business, you will see that this wasn’t all that it was cracked up to be. Let’s say this agent did $100,000 in GCI, or Gross Commission Income, and again got 100% of their commissions, but had to pay brokerage fees and all of their expenses which totaled $36,000. This means that their total net was actually $64,000. Again, this doesn’t include the effort and time they spent on their business with little support from their brokerage. It’s hard to quantify that! At the full-service brokerage on a 65% split, they would have received $65,000 as their total net and I can almost assure that their quality of life was better than the agent on an island by themselves.
An Incentive to Make You Succeed
Remember that the full-service brokerages are incentivized to make sure you make the most money because as you do, so too does the company! This is why they are willing to invest more in what you are doing, from marketing to training to overall support. At the end of the day, your interests are in line with the company’s, which is to make money and be successful.
At the high commission split, low-cap commission models are completely the opposite. Remember it doesn’t matter how much you sell, they will never make more money so they don’t have the incentive to go beyond that bare minimum or cap. In most cases, it is simply a numbers game. The more people a brokerage brings on, the more fees they get without the commitment of having to support or invest in their agents.
Support & Resources
As I stated earlier, in most cases companies that offer higher split levels have a meager budget and cannot provide the same support and resources as a full-service brokerage. According to Jeff Glover of GloverU, “Salaries are the largest cost of a successful Real Estate company and if there’s no money to pay talented staff, unfortunately, you are on your own.” This just adds to the expenses that you have to pay and eats into the time that you could be spending out in the field building relationships with potential clients and customers.
Your Overall Conversion Rates
As with every piece of the real estate business, the brokerage you associate with will impact your conversion. Conversion refers to client contacts and the process of converting them from prospective leads to satisfied clients. While there may be some that believe there isn’t much an agent can do to nurture their conversion rate, they would be incorrect as the professionals will tell you that improving conversion rates is the best way to secure more sales as an agent. With the ability of today’s social media sites to reach and influence unfathomable amounts of people, chances are good that prospective clients have already looked into you and your brokerage before making first contact.
Typically, companies take the money made through commissions and pump it back into advertising, marketing, community engagement, and other forms of PR to enhance the company’s public image. In this way, brokerages with lower commission splits can improve the conversion rates of their agents by establishing themselves as a reputable and successful organization in the eyes of the public.
The benefits of working with a full-service brokerage that offers lower commission splits are typically the investments they have made to provide their team with world-class systems, technology, data, and marketing, as well as people and a support team to help you be more efficient, effective and ultimately allow you to put more money in your pocket.
“Companies that promote the high split/low cap model on the other hand just simply do not have the resources to provide these benefits. The goal of the full-service brokerage is to put you in a position to actually work smarter and not harder because they have all of the systems and tools to make your life easier and give you back more time.”Glover, Jeff. (2022, April 7) Focus Less on Splits or ‘Cap’ and More on Net. Inman
Too often in the “high split low cap” brokerages, you are running around focusing on lead generation, marketing, and running your business. This workload is reduced significantly in the lower split full-service brokerages where they are able to give back most of that time and allow you to put it towards what you do best which is being client/customer facing and building/strengthening those relationships.
While there may be situations where a higher commission split could make you more money, it’s important to consider what that brokerage model is doing for you beyond your paycheck. Opting for a lower split could provide you with more resources and more time to do what you love, freedoms that are worth their weight in gold.
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