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May 29, 2016

Common Commission Options

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Common Commission Options

Offering a competitive commission is key to hiring and keeping top performers.

According to the 2012 NATIONAL ASSOCIATION OF REALTORS® Member Profile, 69 percent of REALTORS® work on a split commission basis and 17 percent work on a 100 percent commission.

Split Commissions

Often expressed as a percentage (50/50 or 60/40), split commissions give both the company and the salesperson a portion of the monies earned when a property is sold. Generally, as salespeople earn more, their share of the commission split rises.

TIP: Base splits on productivity, not longevity. —David Cocks, Compensation Master Corp., in Management Trends and Issues, Vol. 15, No. 6, December 2000

Pros

  • Your gains can be greater when salespeople are successful.
  • Your sales force has unlimited earning potential.
  • Most sales associates are accustomed to, and thus more comfortable with, this option.

Cons

  • You may not make much money if the market is slow, or salespeople don't produce.
  • Desk costs are generally low, so you don't have a set level of guaranteed income to cover costs.
  • You must often absorb some office costs, such as stationary or technology, without directly recouping costs from salespeople.

TIP: Consider offering several compensation plans so that sales associates can chose the one that best fits their personalities and abilities. —David Cocks, Compensation Master Corp., in Real Estate Broker's Insider, Alexander Communications, May 1999

100 percent commissions

The salesperson pays the company a higher desk cost and usually pays for most or all business expenses.

Pros

  • You have a high potential for earning profits if the salespeople are successful.
  • "It attracts entrepreneurial salespeople who are motivated by the challenge of the 'all or nothing' compensation." —Richard A. Rector, "The E-Myth Real Estate Brokerage."
  • Such a program is often particularly attractive to experienced, high-production salespeople.
  • You are guaranteed a more predictable monthly income from predetermined desk costs.
  • Your advertising costs and services are probably lower since salespeople bear more of these expenses.

Cons

  • The program is not well suited to inexperienced salespeople.
  • You have less control over salespeople, which makes it more difficult to run your business.
  • The sales force is likely to place their own interest over those of the company.

TIP: Salaried commission plans often work well for brokerages offering limited service options.

Salary or salary plus commission

Although representing only 5 percent of all real estate salespeople, salaried positions give brokers more control over salespersons' activities.

Pros

  • Such a plan is good for recruiting inexperienced salespeople, who need an income while learning the business.
  • You can supervise and direct salespeople more closely, making it easier to operate the company as a team.
  • The ability to exercise more supervision may help reduce errors.
  • Having a salary may help an experienced salesperson in a slump from leaving the business.

Cons

  • Commissioned salespeople have an incentive to work harder and thus earn more.
  • You have fixed salary costs even if salespeople are not producing.
  • You will be responsible for paying portions of Social Security and other withholding taxes when associates work as employees.
  • This plan would probably appeal more to low producers than to top performers.
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