You worked your tail off to close the deal and land your first real estate commission. That’s huge! But keep in mind, a big chunk of that is going to go your brokerage. Only a portion of that, in some cases as low as 50%, will go in your bank account. How much does a real estate agent make, exactly? It all depends on how you negotiate your split. Here we explain how the real estate agent commission works in NYC and how to get the most out of your split.
So, You’re an Independent Contractor
The office manager at your brokerage may be a salaried employee, but most real estate agents in New York City are not. Instead, your firm will probably hire you as an independent contractor — or a “1099,” which is slang for the IRS form your firm gives you to report your earnings.
Your Income Depends on the Real Estate Commission
When you get hired by your firm, you may be able to negotiate your real estate commission and “splits” rate. Splits is shorthand for the percentage of commissions that you get to keep.
For example, take a $1,500,000 apartment, which the seller’s agent listed at a 6% commission. The total commission on that sale would be $90,000. If the seller’s agent is doing a 50-50 co-broke, that means 50% of the commission ($45,000) goes to the brokerage of the buyer’s agent and the other 50% goes to the brokerage of the seller’s agent.
So, what do you actually bring home at the end of the day? Typically, a brokerage would defines $45,000 as the “gross commission” and then pay you some portion based on your “split.” For example, if your split is 40%, you’ll bring home $18,000. If your split is 50%, you’ll bring home $22,500.
How to Negotiate a Better Real Estate Commission and Split
As you do more business, you can usually negotiate for a better split percentage, given the reasoning that the more money you make for the brokerage, the more you get to keep for yourself. Some brokerages will offer a split schedule, which outlines how your split rate will increase as you do more deals. Alternatively, you can try to renegotiate your split as you pull in more cash for your brokerage. Many agents jump from brokerage to brokerage looking for the best splits.
Some brokerages are known for offering more favorable splits. For example, Compass built its whole business around recruiting high-producing agents with more favorable splits. The Wall Street Journal recently reported that some high-earning agents earn the entire real estate commission on as many as eight of their first deals.
It’s important to note that brokerages can operate on different calendar systems. This will impact how your annual gross commission is calculated. This ultimately impacts how you can negotiate for better splits. Some brokerages operate on a calendar year, resetting Jan. 1, while others operate on a rolling calendar. Be sure you understand this before signing with a brokerage. If you sign with a brokerage that operates on a calendar year, your annual gross commission will go back to zero on Jan. 1 regardless of when you started.
Consider the Trade-Offs
There are expenses involved in running a brokerage firm. Under a traditional split system, the portion of the real estate commission that the brokerage keeps is used to cover operating costs. These include management salaries, marketing expenses, website development and maintenance, trade association membership, licensing expenses, agent training and a whole lot more. Some agents prefer a brokerage that pays them a lower split in exchange for a higher level of support.
Other brokerages charge agents fees for the brokerage’s support and services. In exchange, agents keep the total real estate commission. Keep in mind, these firms often charge monthly fees (known as “desk fees”) for the agents to maintain their affiliations. One hundred percent commission models don’t make sense for everyone and will ultimately depend on your deal volume. Agents who expect long fallow periods might not like the idea of having to cover a fixed expense each month.