Disclaimer: The contents of this article are industry best practices which were sourced from StreetEasy data and interviews with our Agent Advisory Board, unless noted otherwise. Any scripts provided are only meant to act as examples and are not required. Nothing in this presentation is intended to be legal advice. For specific questions about any duties or obligations arising out of a real estate transaction, check your local and state licensing laws and regulations, contact your broker, or an attorney.

Previously, we explained how commissions work for NYC real estate agents. Now let’s talk about the different ways agents get paid through “splits” and commissions.

You may be an independent contractor, or “1099”

While an office manager or receptionist at a real estate firm may be a salaried employee, most real estate agents in New York City are not. Instead, many brokerages typically hire agents as independent contractors or “1099,” which is shorthand for the IRS form independent contractors use to report their earnings. According to the IRS website, “If you are a business owner or contractor who provides services to other businesses,” you’re generally considered self-employed (aka an independent contractor).

How commissions are split

When you get hired by your firm, you may be able to negotiate your “splits,” shorthand for the percentage of commissions you get to keep. Let’s say you represented the buyer of a $1.5M apartment, and the listing agent agreed to a negotiated commission of 6%. (Note: commission rates are not fixed by law and are fully negotiable.) The total commission on that sale would be $90,000. If the listing agent agreed to a 50-50 co-broke, that means 50% of the total commission ($45,000) would go to the buyer agent’s brokerage, and the other 50% goes to the listing agent’s firm.

If you were the buyer’s agent, will you make the entire $45,000 buy-side commission? It’s more likely that your firm will define the $45,000 as “gross commission” and pay you a portion based on your “split.” For example, if your split is 40%, the firm will pay you 40% of $45,000, or $18,000. If your split is 45%, the firm will pay you 45% of $45,000, or $20,250. If your split is 55%, you would make $24,750.

Can your split increase?

Split percentages typically go up as you increase your volume of business. In other words, as you make more money for the firm, you keep a larger chunk of it. Often there’s a compensation system where agents make more money as they pass certain commission benchmarks. Likewise, depending on what you negotiate with your brokerage, your split could go down if you fall under these benchmarks. Many agents who become more and more successful negotiate their split every year, and may jump to another brokerage if they’re not able to negotiate a better split.

As a new agent, you might start at a 40% split, but then find your splits increase as you do more deals. Imagine you have a split schedule where you make 40% of the first $50,000 in gross commissions that you bring in, but then your splits go up to 50% for the next $50,000. As mentioned, when you close that first $1.5M deal, you’ll make $18,000. But on the next $1.5M deal, even if you bring in the same $45,000 gross commission, you’ll make $22,000.

If you want to break down the math, you’d be getting paid at two different levels: 40% of the remaining $5,000 that takes you up to $50,000 in gross commissions (which pencils out to $2,000), plus 50% of the $40,000 after that (which pencils out to $20,000).

Many agents and firms try to keep their split schedules confidential, so you’ll likely need to ask when you’re looking at brokerages to partner with.

Is your brokerage on a calendar year or rolling calendar?

One important consideration with splits is how much time you have to pass each benchmark. For example, let’s say Firm A and Firm B each increase your split percentage once you pass the benchmark of $100,000 gross commission in a year. However, Firm A might run on a calendar year, meaning they reset your gross commissions back to zero every January 1. Firm B might run on a 12-months-previous basis — also known as a “rolling” calendar — to calculate your gross commissions based on what you’ve made over the last 365 days. In our example, if it’s June and you’re thinking of joining one of the two firms, Firm B would be the more lucrative option in terms of splits than Firm A.

Another consideration would be the “hold period”: how long it takes after a deal closes for you to receive your check. Some firms have no hold period, meaning agents can theoretically get paid the same day a deal closes.

Lowering your split for more support

Of course, there are expenses involved in running a brokerage. Under a traditional split system, the portion of commission the firm keeps is used to pay operating costs like management salaries, office rent and utilities, advertising and marketing expenses, website development and maintenance, trade association memberships, licensing expenses, agent training, insurance costs, and more.

Therefore, some agents prefer a brokerage that pays them a lower split, but provides a higher level of support in some of these categories. For example, an agent might believe a firm’s advertising and marketing support is so strong that it will help them sell more apartments, and be willing to forgo part of their split in exchange.

What to know about 100% commission firms

Other firms, known as 100% commission firms, cover the aforementioned expenses by charging agents fees, and then allow agents to keep the full commissions they earn. For example, for a $1.5M deal where the commission is $45K to each brokerage, an agent at a 100% commission firm might keep all $45K, minus perhaps a “transaction fee” of $3,000. These firms often charge monthly fees (known as “desk fees”) for agents to maintain their affiliation with the brokerage. They may also charge agents for expenses like business cards or insurance.

Whether a 100% commission model is right for you will depend on the volume of business you think you’re likely to do. Agents who expect long periods without business might not be a fit for having to cover a fixed expense each month.

Things to ask a brokerage before joining

Before you join a brokerage, make sure you understand how their commission structure works, as well as your splits and monthly fees you may be charged. For instance:

• What is the starting split?
• What will my split be after [$X] gross commission?
• Do I need to pay desk fees?
• Do I need to pay to have my listings or photos on the website?
• Can I work part-time?
• Does the brokerage provide a standard buyer representation agreement, and what are its terms? (This is required under the NAR settlement and its rules, effective as of August 2024.)
• Do I have to do floor time (i.e. fielding inquiries at the office)?
• Do you have a subsidized group insurance plan?
• Do I have to pay for trade association memberships?

Compensation structures for real estate agents can be complex, but with an understanding of the finer points, you can feel confident about finding the best brokerage and compensation plan for you. For more information and tools to help you navigate the latest industry standards in the NYC market, visit our resource hub for agents.