Don’t worry, the following is not an SAT question, just something every buyer or seller should know: Let’s say a broker has a listing for a million-dollar house, and the seller has agreed to a 6-percent commission. When the house is sold, the agent gets $60,000, right?
“The public has a huge misconception about how commissions are allocated,” said Chris Chapin, a broker at Douglas Elliman. “Even I did before I started in the business.”
The truth is, the agent’s pie is split into many pieces. Again, let’s make the supposition that, as is usually the case, the listing agent is not also the selling agent. Thus both brokers have to split the commission. Then, because both have parked their licenses at a real estate agency with which they also share their commission, each of their commissions is split again — meaning the original agent has to split the commission four ways, each party getting 1.5 percent of the selling price, or in our hypothetical case, $15,000.
Don’t forget that both the listing agent and his agency have paid for the marketing of said property, so shave off a couple grand more. Take into account all the showings, open houses, paperwork, prospects who have seen umpteen properties then disappeared — the weeks and weeks of work — and the commission Joe Public thought was so exorbitant begins to seem downright paltry.
Add on to that the fact that sellers often feel they’re getting ripped off if they pay the standard 6-percent commission. Alan Schnurman, a broker with Saunders admits that the commission a seller pays an agent is “always negotiable,” and that “most [agents] will settle for 5 percent.” But he believes that the seller actually does himself a disservice by paying a lower rate. “You want the fee high enough to stimulate the selling broker to sell your house,” he said, pointing out that with, say, a 4-percent commission, and a high inventory of houses available, brokers would be less motivated to show it, as opposed to a “house around the corner” offering a higher commission.
On the other hand, the higher the value of a property, the more negotiable the fee. A four-way split of the commission on a $20 million house is nothing to sneeze at. When an agent at Rosehip Partners gets a listing at, let’s say, 4.5 percent, Joe Kazickas, the managing broker and founder of the company, will incentivize the selling broker by offering 2.5 percent rather than an equal 2.25 split, a win-win-win — especially if both agents hail from the same agency.
Another way an agent’s split can shrink is when a sale is teetering on the edge. At that point the buyer’s and seller’s agencies might take a bit off their commissions to slide the deal through.
Let’s not forget that the more productive an agent, the higher the commission he will receive from his agency. All agencies pay out on a sliding scale. “Newbies usually start out at 50 percent,” said Mr. Kazickas. “Once you reach a certain threshold of gross revenue generation, they will raise you to 55-45 or 60-30.” And that can keep growing and growing. “Private companies [such as Rosehip] are free to cut any type of commission deal we want,” he said. But he suspects that “larger companies have to be more rigid.”
In a commission policy document from 2009, an agent generating above $475,001 in gross commissions would have received 75 percent from Saunders.
The bad news for agents is that if they don’t keep their numbers up, their split goes back down too.
Mr. Kazickas has introduced a motivational point system for his office’s rental agents. “Most brokers don’t want to do rentals,” he said, but he believes they’re important. “It’s an investment in the future: Most who buy, rent first and most [homeowners] who rent eventually sell.” He awards points for not only bringing in a deal, but also for every $5,000 in gross rental commission. “Once you accumulate 20 points, you move up to a 60-40 split.” Rentals may not generate huge commissions, but if you’ve worked yourself up to an 80-percent split on a $100,000 rental, you’re sitting pretty.
Enter into the equation the many teams operating around town. Most teams comprise two agents (though some have more) who each have to divide the spoils between them. If we go back to our original equation, each agent’s share is now down to .75 percent. That is, if their split is 50-50. Some are equal partners, others not so much. “This is not communism,” is a favorite expression of Mr. Chapin’s partner, Ray Lord III. The pair works equally on most deals, but not all.
With the team of Robert Tramondo and Vince Horcasitas of Saunders, Mr. Tramondo said, “Vince is the principal partner and I’m a lesser partner.” In their case, Mr. Horcasitas was an established broker before being joined by Mr. Tramondo, who worked in publishing before switching to real estate. “Make no mistake, his name is the marketable brand,” he said. Their split is not equal.
When it comes to family teams, sharing commissions equally seems to be the rule of thumb. The father-and-son team of John and Bill Wines, who specialize in commercial real estate at Town and Country, are equal partners. “We respect each other’s capability,” said John, the father. “He’s great support and a great sounding board for me,” he said. While the son contributes technological know-how and more, the father offers “a depth of knowledge in terms of financing, legal issues, and zoning.”
Ditto for the sister-and-brother team of Laura and Carl Nigro of Nest Seekers. Though Ms. Nigro is the senior partner, “we have different strengths,” she said. “I may bring in a listing that’s more expensive, but he’s going to do the groundwork.” A 50-50 split, she believes, is “the only way to go. Otherwise, you’d wind up fighting. It’s a trust issue. He was born on my 3rd birthday. . . . I know we would never hurt each other.”