Residential Real EstateIs Your Commission Split Too High For Your Own Good?
I am always amazed at the number of agents who are constantly complaining about what they have to give to their broker. They tell me their broker is not really earning their part of the commission. The funny thing is, it"s the agents who seem to be on the highest splits who complain the most about not getting enough value from their brokers.
I was thinking about this when I was reading economist Richard Mackenzie"s book Managing Through Incentives, when the economic reality suddenly hit me. Most agents are not paying their brokers a high enough split to ensure their broker cares about their success.
It"s Economics 101: The less you pay your broker, the less incentive he or she has to help you grow your business -- especially if at some point your broker does not earn any additional money when you make a sale. This is also why brokers become less and less accommodating as agents ask for more space and support staff as they go up the productivity ladder.
A broker takes the risk and spends the money up-front to open an office and buy furniture, phones and office equipment and then puts their license on the line for everything you do as an agent. For that they deserve a reasonable return on their investment. Over the years I"ve talked and worked with thousands of agents who decided to go out and try it on their own. Almost all of them tell me it ended up costing them more than they expected to open up an office (even a home office), and it significantly lowered their productivity for at least a year, and often two.
The reality is that the more your broker earns from your productivity, the more energy he/she will put into helping you grow your business. This joint partnership of broker and agents is the model that we have been teaching managers at our MegaManaging seminar for years.
Great brokers who are reasonably compensated work to help agents build a strong personal brand, and then help them operate their business efficiently so that as a top-producing agent you have a balanced and happy life. Some brokers are fearful that if they teach agents how to do their own personal marketing, the agents will leave after the broker has made the investment of time and money to help them. I have found that the brokers who are always learning and looking for ways to help their agents be more productive and balanced retain top producing agents who gladly pay them a piece of their commission, because they know it keeps their broker thinking about how to help them.
Now don"t get me wrong. I am not saying that every broker really does earn his or her split. However, as an agent you should not only be willing to give your broker a fair split, you should insist on it so that they have a strong incentive to work at making you successful. The funny thing is that it"s the top-producing agents who can really benefit the most from working with a broker who operates as a business coach for their agents. If your broker helps you grow your income from $150,000 to $500,000 (even on a 70/30 split) and helps you have more time off and a better life in the process, don"t begrudge them their $200,000 dollars. Without a great broker"s support you will not only make less, but also end up working more and enjoying life a lot less.
It"s worth remembering that incentives do matter and you need to make sure you are giving your broker the incentive to help you grow. Also remember that if you give your broker the incentive to help you, you need to insist that they live up to their end of the bargain and really hold your feet to the fire so that you live up to your full potential. Without someone pushing a little bit, most of us won"t push ourselves to our full potential.