The commission split is the fee a brokerage collects from an agent it employs on each real estate transaction. It is typically expressed as a percentage of the gross commission income that the agent receives (i.e. 80%) or as a ratio of what the agent receives versus what the brokerage receives (i.e. 80/20). Some brokerage charge fixed fees. Others have no splits at all.
The commission split also represents the gross margin for the real estate brokerage. This is the total amount of money the brokerage receives after collecting commissions and paying them out to agents after splits.
Splits can be fixed or graduated. A fixed split is the same regardless of the agent’s gross commission income. For example, a fixed 60/40 split would mean the agent receives 60% of their gross commission income whether they generate $1,000 in commissions or $1,000,000 in commissions.
A graduated commission split changes based on the production of the agent. This mean that an agent has a certain split up to a certain amount of earnings. This split then changes when the agent earns beyond that amount. Typically splits become more favorable to agents as the agent earns more. This is because the brokerage is generating more margin from that agent and wants to retain them. There is less competition for lower-performing agents and these agents might not generate enough commissions to cover their costs.
Some brokerages put a cap on commissions. The cap is a fixed dollar amount that the split cannot exceed. This is fundamentally a variation of a graduated commission. The agent’s total payment to the brokerage is lower as a percentage of their earnings once they exceed the cap. But the math can be easier. Often times, brokerages offer something like an 80/20 split wiith a $16,000 cap. This would mean if a an agent earns $100,000 in commissions they only pay $16,000 to the brokerage implying a 16% split. But if they earned $50,000 they would be below the cap and pay 20%, or $10,000 to the brokerage.
There is no typical real estate split. Splits can vary significantly by brokerage. Here are a few examples:
Many modern brokerages pay their agents salaries. As a result, there is no traditional split to the agent. Because Redfin’s cost of revenue includes their personnel costs, bonuses, and expenses that agents often cover, you can use their gross margin as a shortcut to determine a split-like number. In 2018, Redfin’s gross margin as a percentage of their revenue on real estate services was 28.5% (Source). Therefore, Redfin pays out around 71.5% of its gross commissions to agents and agent-related feeds. While it’s not technically a split, it’s the closest we can get to that calculation.
Real estate agents negotiate the split with their brokerage when they’re hired. This is usually part of their independent contractor agreement or ICA. Often the split is renegotiated each year or every few years. For some brokerages that have standard splits, such as eXp Realty, there is no negotiation process.
Some brokerages offer 100/0 splits to agents. Often these brokerages charge steeper monthly fees or per-transaction fees. This still means the brokerage is generating some margins from its agents but simply not as a percentage of each transaction.