Commission structure comparison table for real estate agents
Commission structure comparison table for real estate agents

There are a number of existing real estate models and more emerging every day. It’s no wonder that agents get confused or even overwhelmed with choice. These are boom times and agents are under enormous pressure to get listings and make sales. 

Many agents just jump into a business model without too much thought about their net benefit. Many agents end up making  poor choices and earn big gross commissions for someone else.  But there are some very easy choices if you cut through the noise and consider the real numbers.

This article may be uncomfortable to some people in the real estate industry and it reveals some home truths about how sales agents are being taken advantage of and underpaid, all for a brand.

We are going to discuss the real important number for real estate agents. It’s not the number you think.

Today I want to talk about 5 models that real estate agents may adopt, 3 for license holders and 2 for certificate of registration holders.

In a nutshell I believe most agents are paying away far too much for the comfort of a well known franchise/brand.

Reality is, most agents are having to generate their own leads/pipelines to achieve listings and in my experience the brand has a nominal contribution but there is no getting around the agent having to take control of their destiny.

So irrespective whether you work for yourself, a franchise or an independent brand the activities will be very similar and the gross results will also be similar. However there are many hidden costs which can significantly shrink the net result the agent puts in their pocket.

I believe that most agents are good people and want to do the right thing by their clients and the consumers they deal with. 

Unfortunately many of the highest profile producers in the real estate industry have been taught to use sales tactics and strategies that consumers don’t like and as a result, upcoming agents that also want to earn good incomes and be seen as TOP PRODUCERS copy what those high profile agents are doing. 

The good news is that there is an emerging group of agents that are offering consumers more choices, choices that consumers (buyers and sellers) love and as it turns out the agents love them also because regardless of the market strength these new strategies help property sellers achieve higher prices and in shorter periods of time.

happy real estate consumers
Happy real estate consumers

These new strategies and business models also help the agents keep much more of their commissions, relieving the pressure for agents to do MORE DEALS AT ANY PRICE.

In my opinion, the real estate sales agents in most companies, (brands and independent agencies) do all the hard work and have developed the unique skills and talents required to list and sell property and they deserve to keep as much of what they produce as is possible. 

I am a sales agent and have created a real estate business model and platform for the sales agent who has the consumers experience of highest priority. 

There are some other solid new real estate business models available for good real estate sales agents to consider as discussed in this article. 

Read on to discover what options you really have to build and accelerate your financial freedom so you can have real choices in life and sooner.

1.) Debit credit/salary model – Agent brings home 30%

+ No start up costs

+ No monthly costs

+ Cover Salary each quarter then get to split commissions (Bonuses = Poor deal for agent)

Base Salary $100,000 pa ($25,000 per quarter)

Base $70,000 for quarter then 50% over this figure is accounted as bonus dollars.

Agent produces $100,000 per quarter then deductions come off that so 10% franchise fee and 10% office/marketing fee leaves agent with $80,000 bonus dollars where they get 50% of $10,000 (over base) then agent is taxed at the highest rate for employees.

Agent gets around $5,000 per quarter or $120,000 per year and then pays tax at the highest tax rate.

Any money left after tax and living is available for building wealth and acquiring investment properties.

Under this model if an agent is single (no family) they may be able to purchase an investment property every 2 years.

If you have a family, chances are high $120,000 is just enough to get by on comfortably after taxes are taken.

Agents on this model are generally hoping superannuation or the pension will fund their retirement. How ordinary would that be after all you hard work in real estate?

Comparison on a typical sale:

Several options for real estate business growth.
Several options for real estate business growth.

1. Property listing sourced by listing agent

2. Selling price $800,000

3. Professional selling fees due $16,000 + GST (let’s leave that out of this equation because it has to be paid).

4. Deductions

Franchise fee 10% $1,600

Marketing/office levy 10% $1,600

Total deductions 20% $3,200

5. Commission to split 50% over $70,000 for the quarter. 

The split can increase the higher the production level but even at 70% of bonus dollars for the quarter if an agent produces $150,000 means the agent gets around $42,000, then pays the highest rate of tax and gets a cheque for around $21,000.

Over a year an agent on this type of structure will keep around $120,000 for $400,000 GCI produced or around 30%.

This is possibly the best model for an agent that is starting out in real estate. It makes sense to learn what you can and get the best sales training and guidance while you are paying so much of your production. 

Once an agent has been under this structure for more than 18 months to 2 years, it might be smart to look for a better real estate model where you can keep much more of the commissions produced from your hard work. 

2.) Business within a business model – Agent brings home 40%

+ Low start up expenses

+ No monthly fees

Important choices for a real estate agent
Important choices for a real estate agent

+ On each sale Sales Agent/Business within a business is charged franchise fees 7-10%, Office owner then deducts any additional items like Marketing levy 5-10%, then you get to split the commission with the office owner (administration team manager) typically 40-60% which after deductions equates to 32% to 48% of each gross commission.

Comparison on a typical sale:

1. Property listing sourced by listing agent

2. Selling price $800,000

3. Professional selling fees due $16,000

4. Deductions

Franchise fee 10% $1,600

Marketing/office levy 10% $1,600

Total deductions 20% $3,200

5. Commission to split $12,800 

40/60 $5,120 (32% of the gross commission)

50/50 $6,400 (40% of GCI)

60/40 $7,680 (48% of GCI)

70/30 $8,960 (56% of GCI)

Now out of the figures above you then have to pay your business expenses and your support team (if you have them).

If an agent produces say $400,000 gross selling fees and is on a 50% commission split then they will have $160,000 available to pay their business expenses including support team (if they have one). 

40% is what they really get to keep, well before tax is paid.

An agent on a 70% structure in this model producing $400,000 GCI would take home around $224,000 then pay their personal marketing and support team out of this income. 56% is what they really get to keep before paying tax.

Let’s say you have 1 assistant at $55,000 per year, this leaves you with $105,000 to $169,000 based on the above examples from $400,000 GCI production. An assistant would bring an agents KEEP PERCENTAGE (KP) down to 26% to 42%.

As a side note and this is an important point for those thinking of operating a business within a business. 

Paying a team of people and spending on marketing after paying a franchise and splitting commissions with the office owner is like paying tax twice and can have a significant negative effect on your ability to grow a passive income through asset accumulation. You might like to speak with your accountant about this.

Many talented agents are doing just this. 

We all love to talk about how many millions of dollars worth of real estate we have sold, but this number moves our focus from the important number… 

THE KEEP PERCENTAGE (KP).

This is all we can really live on and invest for our future. 

Why aren’t we talking about this?….

3.) Single Agent Model (One Agency, AgentCo etc.) – Agent brings home 40%

+ Start up fee

+ Monthly fee

+ Monthly subscriptions

Agent has to set up subscriptions and pay monthly subscriptions on top of monthly fee (typically $3,500-$5,000 per month or $42,000 to $60,000 per year regardless if you make a sale or not)

+ Agent has to operate those subscriptions/tools or hire, train, manage and pay someone else to operate them. (Costly and Distracts agent from finding more listings and making more sales).

+ Agent is responsible for trust account compliance and audits etc. 

Benefit to agent:

You get 100% of the commission. But you have to take into account your additional business expenses and possibly managing and paying a team to help your back end and risks associated with those extra expenses and responsibilities.

What risks?

Well regardless if you make a sale or not these business expense will continue to come every single month. If you are on holidays you have to keep paying the high overheads and possibly also manage a team while you are trying to have a holiday…..

Which Way for holidays
How do you take a real holiday?

Over a year say you produced $400,000 gross commissions under these models, you don’t get to keep $400,000 or 100% as is implied.

In reality you have to deduct your monthly fees to these brands/groups and then deduct your monthly subscriptions on top of those. 

Let’s assume those monthly expenses equal around $4,500 to $6,500. This means even if you don’t employ any staff or help then you have additional business costs of $54,000 to $78,000 per year.

From your $400,000 GCI you get to keep around $322,000 to $346,000.

But we’ve forgotten to mention one thing and it’s a biggie…..

As real estate sales agents we are not typically good at or like administration, paperwork, compliance and the smaller details that are essential to providing clients with a premium service.

So if a sales agent undertakes to do all this admin and run all these great tools and systems they are paying for, then chances are much higher they won’t make as many sales because they are distracted doing things they don’t like to do.

Agents under this model have 2 choices: 

OPTION 1: Do it Yourself

Do it yourself and save money which has a cost of time to focus on building relationships with buyers and sellers to find listings and make sales. 

So instead of producing $400,000 GCI for the year the agent may only produce $300,000.

Now take off the yearly business expenses and how much is the agent left with?

The agent only gets to keep around $222,000 to $246,000 from the $300,000 they produced. This makes their KP just 74% to 82% on $300,000 GCI. 

OPTION 2: Put on staff to do it for you. 

Option 2 costs you in 2 ways: 

1. Paying someone to do this for you may cost around $60,000 for the year. 

2. But it also costs an agent in distractions and requires the agent to develop new skills like hiring, training and managing. 

 If an agent makes it through those skills and manages to keep making sales to pay for it all then it can help them focus on making more sales. 

But what happens if the agent wants to take a holiday? Bills and wages still need to be paid and people still need to be managed.

What happens if their support team leaves? Back to hiring, training etc. and the agent may have to do that work till they get someone else on to help.

Option 2 is required to compare with the other models because someone has to help so the agent can focus on listings and sales.

To produce $400,000 under this model the agents KP would be 65% to 71%.

Now Let’s have a look at the last and in my biased opinion the best option for a successful real estate sales agent who wants to build wealth, deliver a premium service and build a rent roll asset.

4.) Ozway membership – Agent brings home 89%

Happy Agent With Family
Happy Agent With Family

+ Start up fee

+ Monthly fee

+ Admin service fee due only when a property settles. (Removes distractions so agent can focus on helping more clients and building relationships that lead to more listings and sales, aka more GCI).

+ Ozway is responsible for trust account compliance and audits. 

Again Ozway helps you remove distractions so you can focus on the important things and really service your clients with a premium value service.

Let’s take a look at an agent who produces $400,000 GCI with Ozway powering them.

They have monthly business expenses of just $1,000 per month. $12,000 + GST per year.

They only pay for administration, compliance and support when they settle a property. You only pay for support when you get a result that pays you.

For the year your business expenses with Ozway powering you is likely to be just $45,000. 

This means you get to keep $355,000 and because you don’t have the distractions of running all your tools and systems yourself, you can focus on building more relationships, grow a rent roll or create and foster more sales agents to join your team.

You’d have to agree that given the advantages of Ozway providing you with a dedicated team there is a much higher chance you will produce more listings and sales meaning you have a better chance of producing $500,000+ (as opposed to $400,000) and have a more enjoyable balance in your life.

for the purpose of the comparison and the real important number, the KP with Ozway powering you your KP on $400,000 will be 89%. If you produce $500,000 you would keep around $445,000 or 91% KP. On a million dollars GCI your KP would be around 93% or $923,000. Much better I hope you will agree. Well you won;t agree if you are the office owner of franchise owner, sorry guys but we are here for the sales agent.

At Ozway, our objective is for you to develop great relationships with buyers and sellers while building your financial freedom and having a life along the way. What’s the point of keeping all this income and not having any time to enjoy it? It’s up to you at the end of the day but at least you have the option with Ozway powering your personal brand.

Real Estate Report For Agents

FREE BUSINESS REPORT FOR REAL ESTATE AGENTS

This special report has been written by sales agents for sales agents to show you how to move towards keeping 100% of your hard earned commissions. Well it’s 100%, then they have to pay business expenses but 100% sounds better right?

As we stated above, all options have business expenses and what’s really important is how much you get to keep after all outgoings.

We hope you enjoy the free report.