How profitable is the 100% commission model for real estate agents?
The 100% commission model has been shaking up the industry for several years now, but it seems that it’s still mysterious to many agents. How can a brokerage profit while giving away 100% of the commission? Surely, this is to good to be true, right?
While we can’t speak for all 100% commission brokerages, we do speak for ourselves when we say there’s no catch. Some assume that there must fine print or hidden fees lying in wait, but we’ve cleared these assumptions in previous posts about the #1 and #2. most common misconception about 100% model.
How it works
Here at Better Properties Eastside, we make our money in different ways than the traditional “big box” brokerages. We do collect up to $8,500 in commission from our agents in a calendar year. This is collected at a rate of 5% of the commission until $8,500 is paid off. At this point, the agent moves to 100% commission.
In other words, agents start a calendar year at 95% commission and then move to 100% commission after covering the $8,500 obligation.
This ends up being quite profitable for real estate agents, so we want to run some quick theoretical numbers to demonstrate just how much.
Using averages to explore an agent’s income on the100% model
According to Zillow, the average sale price of a home in King County (as of the the time of writing) is $805,871.
Commission on a property is usually around 6%. As you know, the commission is split if the buying and selling parties have different agents. For the sake of this exercise, let’s say the agent is taking one side of the commission one each deal. Call it 3% of805,871 on your typical sale in King County, or $24,176.13.
Prior to clearing the $8,500 obligation, this chunk sees a 95:5 split between agent and brokerage, so the agent takes home a total of $22,967.32. The brokerage collects $1,208.8, and this amount goes toward the agent’s $8,500 obligation.
How many payments will it take the agent to clear the$8,500 obligation?
$8,500 / 1,208.80 is 7.03. Let’s simplify the math by calling it 7 transaction sides.
So what’s a typical year for an agent?
Well, this source indicates that 12 transaction sides is pretty standard in a year for a full time agent.
Let’s look at a few different scenarios to put things in perspective. Using the averages above:
• If you sell only three transaction sides in calendar year at 95% of commission, you’ll take home $68,901 (Again, that’s 22,967.32 * 3).
• If you sell 7 sides in a year at 95% of commission, you’ll take home $160,771.24. That’s 22,967.32 *7.
• If you sell 12 sides, the math would be 7 sides * 95% Commission = 160,771.24, + 5 more sides at 100%commission, which is 5 * 24176.13, which equals 120,880.65. Solet’s add that up: 160,771.24 + 120,880.65 = 281,651,89. Not a bad year.[Unknown A1]
[Unknown A1]Putting the situation into a realistic, tangible scenario like this seems pretty valuable:)
Again, we want to reiterate that these are averages. They’re meant to give perspective, not to provide absolutes. The point is, even if you’re below average on both home price and transactions sides, you’re still making a decent living. Let’s take the case of six sides at only 500K per home:
• 500000 * .03 = 15,000. 95% of that is 14,250. Sell 6 sides (half of the typical number provided) and you’re still looking at 85,500.
Are these numbers realistic in King County?
The Seattle Metropolitan area has gained are putation for being a fiercely competitive housing market, even by the inflated national standards of the last two years. But that’s the cost of being in a market that has so much to offer.
As Larry Kendall pointed out in this Real Trends article back in June, agents can’t afford to think of competitive markets as being “low on inventory”. They need to realize that what’s really happening is that inventory is moving fast – really fast. Which means you, as an agent, need to get on your horse and do what you can to put buyers in front of desirable properties before they’re snatched up.
It can be tough here, but even selling a handful of properties in the Puget Sound market is a respectable living. When you’re ready to move into a more independent environment and start taking home the lion’s share of the commission, you can contact us here.