How Real Estate Commission Splits Work

Cody Cromwell
Written by
Last update:

Who Shares in a Real Estate Commission Split?

For most agents, the real estate commission is the bulk of their income. Because most Real Estate Math is the same for every state, you can easily convert the figures into your own state’s equivalent.

The real estate commission is paid out in one of two ways. In hybrid models, one brokerage firm is conducting the business in both roles. The other, more commonly used, method is known as the point system. In these models, the commission is split in half and the agents are paid by a percentage based on whether they’re working for the seller or the buyer. This system is far more popular in certain parts of the world where there is no broker liability insurance, but is common in certain other markets.

A commission split is complicated and obviously, all brokers have different rate cards. This is why you need to find a broker who will split their commission with you. Remember, your personal rate card will not be the same as it is for your broker.

Real Estate Math is a personal business. If you’re working in a hybrid real estate model or if you just don’t understand what the commission split is, you can always hire an accountant or attorney to represent your interests. After all, you’re the one being paid the real estate commission.

Types of Commission Splits

In real estate, the seller and buyer will enter into a deal, and this is when an agent comes along. Once the contract is signed, the buyer and seller will each have their respective real estate agent within the brokerage, and the agent will act as the liaison between the two parties.

As an agent, your job is to work with the buyer as well as the seller to ensure that their needs are covered. If the seller is a first-time homebuyer, for example, and he wants to sell his home for a guaranteed price, this is when you step in. You help the seller with his desired price; you ensure that the buyer is ready to buy; and you negotiate with the buyer.

The agent commissions are split according to the agreed amount. Brokers, as an example, will split their commission, and it may be based on different factors, among them the price, the amount of activity, and the features you add to the deal. Take a look at this overview to know what the commission split actually means: Broker’s commission = 15%

Type 1: Fixed Real Estate Commission Splits

Type 2: Graduated Real Estate Commission Splits

The real estate agent is asked to perform a number of tasks as part of his services. The commission split is determined in conjunction with the tasks. The following are example of tasks and split in a graduated real estate commission split.

How Commission Splits Are Determined

Real estate commissions are what a realtor earns when they sell a property. The buyer and seller both contribute to the closing costs of the sale and, as a result, there is an agreement between the realtor and the buyer as to how much of a commission the realtor will receive.

Splits are the percentages that are agreed upon as part of this agreement, based on which side of the transaction is bringing money to the table.

The commission split is generally based on two factors:

{1}. The buyer must make a down payment on the property and typically will make over time payments. Therefore, the buyers’ contribution typically decreases with the time in payments.
{2}. The seller will typically contribute to the commission by paying both a contingency and a seller’s commission. Therefore, the seller’s contribution increases with the amount of the contingency and how long the property is on the market, as well as with time.

How High / No Split Real Estate Models Work

Not all real estate contracts are the same. Not only do the terms of the contract differ, but the commission splits for the brokerage and agent, as well as other important details, will differ too. These are called different splits or to use less formal language, they’re broken out differently.

The High Split

If a listing agent is compensated on a 50/50 split of a commission earned, they will earn 50% of the commission contributed by the buyer’s agent and 50% of the commission contributed by the seller’s agent. For example, if you’re looking to sell your home and you use the service of a listing agent, you may opt for a high split.

The No Split

If a listing agent is compensated on a 3/3 split or 3% commission, they will earn 100% of the commission contributed by the buyer’s agent. For example, if you’re looking to sell your home and you work with a listing agent, you may opt for a no split.

Typical Fees Under a 100% Commission Model

The typical fee schedule for realtors who work under a 100% commission earning scheme is as follows. Please note this does not include any listing fees such as the one-time-only broker’s fee and the cost of creating the original ad copy.

The realtor’s fee is a percentage of the property’s base selling price, as well as a minimum of two percent of the selling price. If the commission involves properties that are sold in more than one bid, the one percent commission fee may be paid on a sliding scale based on the list price.

The seller’s closing cost is generally a percentage of the selling price, with the exact amount ranging from two hundred to three hundred dollars on the lower side and up to one thousand dollars on the more upscale end.

The Pros & Cons of No Real Estate Commission Split

Bottom Line

A Real Estate Commission Split is a % of the List Price for the Property, the % is based on the commission rate set by MLS for the area. It is a standard formula that is generally used to calculate the commission based on sales.