How a Brokerage makes Money

A Real Estate Brokerage is a corporation that puts buyers and sellers in contact. Agents of the Brokerage may help by putting in writing the price, terms, and conditions of the Real Property transfer. The Brokerage collects a fee, in many cases in the form of a commission, which in many cases is a percentage of the sales price. In some cases the fee, or fees, are a set price.

The Brokerages can either be for the buyer, or seller, and in rare cases both. Even though the principles, the buyers, or sellers, may have the most contact with the agent, the Brokerage is the responsible party in the transaction. The agent is an independent contractor who is licensed to a Broker. The fees or commissions are paid to the Broker who in turn pays the agent on an agreed upon fee split. In most Brokerages the agent and Broker split 50/50 or 60/40 up to $24K before the agents gets 100% of the commission.

There are brokerage fees at any office or company. A large company may require a monthly fee of about $100 to $150 plus a transaction fee of about $125. The transaction fee helps to off set the administrative cost of managing a Real Estate transaction. Then there are technology fees for web sites, and in some franchises there is a franchise fee for company advertising. When you add in the copier fees, and other office fees, an agent pays about $300 per month to have a license at a split commission office on top of the roughly $24K of split commissions. So an agent can expect to pay about $30K per year to have a license, if they do any business.

The desk fee offices are a set fee per month that rages between $400 per month up to about $1100. The agents pays these fees every month. There are also the other fees, for franchise, copier, transaction, technology, or administrative. For the Brokerage, they know they have a set income. The agents, in most cases, get 100% of the commission.

 The Broker can either be an owner, or a manager. State Law now requires that each Brokerage have both a Designated Broker, and a Managing Broker. The Designated Broker has to have an ownership stake in the Corporation, referred to as the Brokerage. The Managing Broker over sees the day to day operation of the office. The spirit of the law is to have more accountability for the actions of the agents.

In a split commission office it’s important to have happy productive agents. In a desk fee office it’s more about how many agents you can convince to pay the fees each month. There are good Brokerages of both the desk fee, and split commission types. There is also a rivalry between the two types of business models. In a later post I’ll write about discount, and rebate Brokerages, but this should give you a basic idea of how things work.