In the year 1908, the National Association of Real Estate Exchanges was founded to bring agents and brokers together. In 1913, the first draft of the real estate agent code of ethics was written. In 1916, the National Association of Real Estate Boards (NAREB) was created, and the term “realtor” was coined for members who subscribed to the Code of Ethics. Until 1919, anyone could be a real estate broker and close deals. My guess is, this is probably when commission splits with brokers were introduced too. It has been 100+ years since commission splits have been around. It’s very difficult to change a format that has been around for so many years. But, like every other industry, this will get rewritten in real estate too. Here’s why!
Declining Overall Commissions
The current average of commissions charged for a transaction is between 5.5% and 6%. There is no law saying that it should be a certain number but this is the norm, so everyone goes with it. This number has been steadily declining, with a lot of resistance over the recent few years. The reason for this decline is obvious. It’s because consumers can search for listings themselves and find their favorite listing or at the very least, do their research online about where to buy, what to buy, etc. Sellers still depend on agents to sell their homes at the best possible price. Buyers will still need an agent to help them with paperwork, help with mortgages, inspection, place offers etc. These requirements will never go away. With more tech introduced in real estate, agents are going to find it easier in the future to do all these things for their clients. As it gets easier, commissions will drop gradually. This will push agents to renegotiate their commission splits with their brokers.
Dependency on Brokers
When you start your career as a real estate agent, you probably don’t know much. You have so many questions, right? How do we talk to clients? Where do we generate leads? What’s the script to use when I am cold calling? Where will I get my marketing budget? How do I stage a home? What’s the paperwork involved? Who will audit my files? So many questions. You need an experienced broker or an agent to guide you. This mentorship comes at a cost. As you gain experience, this cost is less and less justified. You might have started with a 70/30 split but at some point, you can be independent enough to make it a flat fee commission structure with your broker.
Agent Brand vs Broker Brand
The agent brand is already becoming more important than the broker brand. Most consumers choose to work with an agent because they have been referred by a friend, heard of the agent, or seen their profile on a yard sign/postcard/social media/Zillow. Very few consumers actually call a Sothebys or a Remax or Keller Williams office asking for help in finding a property. This way of getting in touch with an agent is declining sharply.
Building a brand for yourself is not a short-term project. It takes months, sometimes years to build an online/offline presence. Start working on it now before it gets too competitive 5 years from now. As an agent, you have to be where the consumers are. This makes it very important for you to choose your channels, whether it’s social media or local events or zillow and double down on making your brand strong there. Don’t worry, this is not rocket science. You can easily get marketing teams to help you with this. Join a brokerage that can help you with branding without them pushing their brand. This service shouldn’t come at a commission split as it’s the same service for all agents, regardless of listing price or buying price. So, make sure you join a flat fee brokerage that can help you with branding.
Re-invest in Marketing
You will notice that after you move to a flat fee brokerage, you will end up saving a lot more money than normal. Now, you have extra income to re-invest in marketing and building your brand. This will get you more leads and suddenly a simple decision such as moving from a commission split to a flat fee structure will start giving you exponential returns. When you make a decision to switch to a flat fee brokerage, don’t just count the additional income you will make on the number of deals you currently make. Think about the additional income you will be making with all the extra leads that you got from re-investing those extra profits. If your brokerage can help you with this marketing too, it’s a no-brainer to choose them.
Why Pay Different Amounts for the Same Service?
This is the easiest argument for why you should always have a flat fee structure with your broker. Whether it’s a listing worth $300K or $1M, the support you get from your broker is the same, unless your broker is spending more for you on marketing the more expensive listing. So why should you pay different amounts simply because it’s a commission split. This is why flat fee structures are going to be the future.
On every deal you are closing on a commission split, ask yourself if the commission split you are paying is justified. Are you still learning something? If yes, should you be joining a team in a flat fee brokerage instead? If you are not learning anything, can you go independent at a flat fee brokerage that can support you in marketing and branding? These are questions only you can answer, but something to think about to set yourself up for success in the future in a fast-evolving real estate industry.
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