3:00 Minute Read.
Ever spend a day calling brokers and comparing their programs? Someone just did that and here’s what they found out*. As you would guess, there are two predominate broker programs throughout west Michigan. One is a percentage split. The other is a fixed rate system. My interviewee said every office he contacted charges a per-transaction broker admin fee (BAF) and required agents to pay their own board and MLS access fees. In addition to earning the BAF, here’s how other brokers are making money.
The split system has been around a long time. Many brokers continue to use it and for good reason – it extracts the most money from agent’s pockets. Often, brokers use an adjusted sliding scale to entice successful agents to stay. Even with that, percentage-split agents are shelling out more money to their brokers than anyone else. The most expensive split found was 60/40. Whew! Slightly better, we found a few brokers that started agents at 70/30. However, most of those brokers charge an additional 6% of every commission dollar earned. So, in reality those agents are on a 64/36 split.
Let’s talk averages. If the average home sold is valued around $170,000 and the average agent closes around 12 sides per year, that means the average agent is probably earning around $60,000 per year. Or said differently, the average split-percentage agent contributes around $20,000 annually to their broker.
How much value does your broker bring you?
Rather than taking a percentage of an agent’s commission, some offices advertise a 100% commission program when agents pay an additional monthly, quarterly or annual fee. Many of these programs advertise a flat $500 per month charge but that fee can escalate as many brokers charge extra fees for office administration, desk rental, technology, and risk management. Adding those fees, a monthly charge can increase to $675, which translates into a $8,100 annual contribution to a broker.
Some brokers have adopted a mixture of both systems by charging agents a monthly fee as well as taking a portion of their earned commission. Most offer a generous split of 90/10 to 95/05 and then add a monthly fee ranging from $600 to $1,200 per month. Using the same numbers from the example above, the average agent will contribute approx. $17,000 annually to this kind of broker.
Unless you handle only a few transactions each year (four or less), you are better off avoiding any percentage-split system. Dollar for dollar, fixed-rate brokerages are a smarter choice for most agents. However, money shouldn’t be the only consideration when changing brokerages. Also calculate the proximity to your target market, effective training and worthwhile leads that actually convert to real business. If a broker gives you enough extra business to justify their cost, it might be worthwhile to stay there. But don’t fall for scams meant solely to entice you. My favorite is the multi-level retirement plan – if you give me 30% of your money today, I will give you some of it back tomorrow. No thanks. I’ll take all my cash today. I can always invest it myself for my own return tomorrow.
When talking to agents about changing brokerages, I hear two questions regularly: “Will I suffer if I change brands?” Most likely not. Before becoming a broker, I worked as an agent for both small and large companies. Brokers are notorious for feeding the idea that it’s the brand that sells the agent. Nothing is further from the truth. An agent’s work sells the agent, regardless of the brand. The second question is more humorous. Agents take a deep breath and feel a little embarrassed to ask: “So… how does your brokerage make money?” Truth is, we’ve offered the same program since 2004**. Our brokerage takes zero percentage of an agent’s commissions and charges zero fixed fees. We exist solely on the Broker Admin Fee generated by transactions and paid for by clients. Multiply that BAF by hundreds of times each year and the business model works out just fine. That, and the fact that we’re fairly selective about recruiting keeps our company happy, healthy, debt-free and growing.
Next time you’re at a closing table with an agent from Best Homes of Michigan, consider how much more you’re paying your broker than they are. There is a reason they are smiling. Here’s what we offer:
No hidden fees
Free agent website
Free personal marketing program
Free agent training
24/7 Broker Support
Stellar Administrative Support
Because actual costs for an agent to hold their license and operate as a Realtor is $2,000 annually, our company collects $169/monthly (10% discount for annual payment) and WE pay agents NAR, MAR, local board, MLS access, E&O, and ConEd. Yep, it’s really that simple.
See our client website: http://www.BestHomesMichigan.com.
* This information is based on an interview I had with one agent who contacted several real estate offices. Assuming they connected with a knowledgeable person authorized to discuss their broker program, this information should be accurate. However, I recommend contacting any broker yourself to get the facts. Also, I chose not to publish other company names in this article but rather to give a general view of what’s available. If you have specific questions, feel free to email me and I’ll be happy to share the details with you.
**We changed broker names last year from JT Henderson & Associates to Best Homes of Michigan. We wanted to offer agents a brand they could develop themselves rather than one centered around a person’s name. JT Henderson & Associates is now a website dedicated to the advancement of agents.