Real estate commission splits are always a hot topic in the real estate industry, along with franchise costs and models. Fundamentally the industry needs to change. It’s time agents were free from franchises and agreements and free to keep the commissions they generate.
Traditional franchise model
First, let’s look at the traditional agency franchise model that so many of us know.
Real estate franchise costs vary but typically include an up-front fee, commission payments in the range of 8–11% of gross sales income and fees for operational services. Typically, as the franchisee you pay onboarding costs alongside a monthly marketing fee; training and technology may or may not be included.
Marketing campaigns can be a mixed bag; state or nation-wide branding and promotions offer little direct benefit to the franchise holder, and you have no say on how the funds are spent. This can lead to additional fees being imposed by franchisees on their sales staff, for example, to process sales, or market them and the office.
In terms of real estate commissions, a 50:50 split is common. This can suit newcomers to the industry who can benefit from a wage and marketing costs held on credit until commissions are earned. Stronger sales performers usually command more, such as a 40:60 or 30:70 split in their favour.
Great results are born from incentives and financial rewards for achieving them. Agents by nature will only go the ‘extra mile’ if the commissions are lucrative.
New agents ‘mate’ franchise model
We’re now seeing some new national real estate networks offer commission splits where as much as 80% is retained by the agent, but we recommend caution, as the business may struggle to cover its operating costs with such a small margin.
Every business model is about maximising profits, so these models rely on higher sales volumes to achieve their required turnover. This can leave the model exposed if the market slows. In a real estate downturn, there will be increased pressure to reconsider the model. Commission splits may need to be revised – or, in a worst-case scenario, the business may go under.
If you’re considering joining one of these newer networks, ask plenty of questions about additional fees that may apply. Often these payments tilt the income back towards the franchise, returning a favourable-looking split to a more conventional level.
New ‘fixed commission’ model
In the last couple of years, disruptors from overseas have introduced a flat fee commission model. Following suit, established brands have invested in startups that devalue their existing operating models, causing disenchantment amongst the sales ranks.
These real estate networks, by and large, are still struggling to get their model right. They may have considerable backing from investors (often from outside the industry) but some are unlikely to ever turn a profit.
Internet-based disruptors make sense at first glance but ultimately lack the personal touch which is critical to a good real estate sale. When it comes to selecting an agent the fee is relevant, but the most important factor is the relationship and skill of the individual agent.
There’s also a careful balance to be struck; set the fees too low and as agent’s we’re not sufficiently motivated, which can lead to dissatisfaction and, worse still, detrimental home seller experiences.
Great results are born from incentives and financial rewards for achieving them. Agents by nature will only go the ‘extra mile’ and do a great job if the commissions are lucrative.
New ‘low cost’ membership model
‘Evangelist’ businesses – like One Agency – have simplified real estate fee structures to fit in with more modern business practices. In our case, we pride ourselves on being a very simple model that leaves real estate commissions off the table.
With just one fee to set up, and one fixed monthly fee ongoing, the number of sales you make is ‘none of our business’. With our low-cost membership model you pay for what you need on a subscription basis and have the advantage of our group buying power. As a user-pays system it’s simple and transparent. Our philosophy is to be ‘the best deal’ for the agent, not the network owner.
Our cost-effective brand attracts both agents and established agencies to the group, and together we grow the brand name in numbers. We’ve built our brand slowly, taking a measured approach over the past 10 years. There’s been no overinvestment and our model has been devised by real estate people for real estate people, using common sense and industry knowledge as our guide.
Our members run their businesses however they see fit, whether it's high sales turnover plus rent roll growth, a variety of staff with a retail shop front or a simple business with low overheads operating from a private office. Our goal is to give real estate agents the freedom to grow their business and achieve their dreams and ambitions, without the heavy chains of the traditional franchise model.
About Paul Davies
As founder and CEO of the fastest growing real estate network across Australasia, I offer real estate professionals an opportunity to reap the financial rewards of going it alone with the security and clout of an established brand. Talk to me and my team about your options.
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