1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

Real Estate Agent Commissions & Brokerage Business Models

Is the Commission Split Model On Its Way Out?

By

It's been a great run, but is the commission split model for the real estate brokerage business in danger of extinction? With virtually every other facet of our business changing, from marketing to delivery of services, can we really reasonably expect to maintain the status quo for compensation structures?

Of course, the large franchises are definitely in the cross hairs. Their structures require enough of a bite out of a transaction to support the business model, and to feed the various participants:

  • Off the top - a percentage to the franchise entity
  • Enough to the sponsoring broker to market, pay overhead, and make a profit
  • Enough to the agent to give them incentives and keep them in business

True, all franchises do not operate the same way. Some give the agent the lion's share of the split, taking their cut as office/desk fees, overhead item charges, and marketing charges to the agents for their share of brokerage marketing and advertising. However, the front end still must support this structure. None of these business models leave a lot of room for innovation or reductions in charges to consumers.

Add to these requirements the newer approaches to growth and agent retention that incorporate down-line cuts from agents recruited, as well as ongoing revenue sharing for retirement, and the challenges are significant. I'm not writing this to provide answers, as there may not be any as long as the large overhead structures remain in place.

If the consumer embraces branding, taking their business to the large franchises because of their marketing, then the situation can continue without major changes. However, if the influence of the Internet causes the consumer to gravitate to smaller boutique brokerages, or even single broker consultant models, then we're going to see some very interesting franchise gyrations.

My thoughts seem to always gravitate to a solution that can allow the large players to survive and prosper, but it isn't doing business and compensating agents the way it's being done now. I have an article on capitalizing on technology for brokerage growth and agent retention. Check it out.

Related Video
Adam Gerber on advertising business models
Babycenter's Jasmine Kim on the challenge of technology

©2014 About.com. All rights reserved.