As the business model for real estate brokerages continues to evolve, commission structures have emerged as a hard line of demarcation. Essentially, there are two different types of brokerages today: those that split commissions with agents, and those where agents keep "100 percent."

The 100-percenters are picking up steam fast with more and more companies taking on this model. Additionally, the ones that have been around a while are taking marketshare from traditional "splitters" as agents seek to make more money with the new model. Though they still charge fees, the lure of 100-percent brokers is undeniable. Agents see it as a more level playing field and a more fair system in cases when they feel exploited by brokers taking a cut of their hard-earned commission.

This is not to say that one arrangement is empirically better than the other. Usually, it comes down to the agent's preferences and which model is better for them. For a traditional broker, though, there is a new challenge to make the case to agents why their particular commission-splitting structure could be beneficial for an agent.

"There will always be competitors whose main value proposition is price. In this case, commission splits. It's safe to say, now, that any agent, at any time, anywhere in the country, can find a brokerage that will offer a higher commission split and lower fees than the agent currently pays," says Matt Beall, principal and owner of Hawaii Life. "So for those of us whose product is not solely valued based on price, our focus must be on the product itself: services, culture, exposure, lead generation, philanthropy and our respective networks and databases."
 
Engel & Volkers studied this issue in its recently published Insight Report: The State of Real Estate Recruiting. According to the report, the top reason agents would leave their brokerage is for a better split; however, it also found the top three benefits that agents cited with their current brokers to be:

• The physical infrastructure - 86 percent said they have a physical office space and 79 percent said they have a desk
• Access to the broker - 86 percent said they have "easy" access to their broker
• Technology - 65 percent said they are using innovative platforms

These advantages are critical because often the tradeoff from getting to keep your whole commission is that you have to spend a lot of it on such things as marketing, technology and office space. The fact that these aspects are valued so highly supports the case for the splitter. Then again, many agents prefer to manage these aspects of their business and adopt a more entrepreneurial approach to their work.
 
"Agents who go to 100-percent brokerages are mostly either part-timers or investors that want to do a deal or two annually for themselves or their sphere and want to maximize their take-home, or they are top producers who have their own rhythm and want little to no guidance," says Sep Niakan, broker of HB Roswell Realty in Miami. "So you can compete with them by catering to all the other profiles of agents, which means either provide leads, a very accessible broker or manager who can provide guidance, useful ongoing training, a brand name that gives agents confidence when working with clients, or a great culture."
 
The Engel & Volkers study found that 35 percent of agents consider leaving their brokerage once a year, and it concluded that brokers need to educate agents about the commission splits and fully explain what they are getting for that money. Ideally, for the broker, the investment will produce a bigger pool of commissions that equates to a larger post-split amount than the agents would get as a 100-percenter. 

Niakan says that leads are the most important thing a broker can provide an agent, and if done properly, the value from lead generation will far outweigh any cut of the commission that the broker takes through a traditional structure.

"Except for the most successful agents, what agents want are leads," Niakan says. "If you can provide them leads that turn into at least a few deals a year on top of what they can produce themselves, they will come to you and will stay with you."

Of course, the leads need to be converted into sales, and a close relationship with a broker can be very helpful, especially when local issues come up. David Ranish, broker/owner of Ethos International in Southern California, says splitters tend to have stronger relationships and more resources for agents than most 100-percenters.

"I'm a big believer in relationships. I think building great relationships is key not only for the consumer, but also for REALTORS®, as well. The 100-percent commission model has been out there for years. What a lot of the 100-percent companies don't do is provide training," Ranish says. "When you have deep, trusted relationships, great training and support with your agents, then you don't have a problem attracting, and, more importantly, keeping your agents."

Eric Engelbert of Orange County Real Estate, Inc. in Southern California notes that technology and culture go a long way in keeping agents happy, but that it ultimately has to produce more money for them than they could get from a competitor, particularly one with an enticingly different business model.

"This is not enough for agents looking at the commission splits only," says Engelbert. "When we can show agents that their bottom line is likely to grow with the environment we created versus the highest commission splits, it makes sense."

Andrew King is an RISMedia contributing editor. 

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