Rookie Agents Often Get the Smallest Cut of the Sales Commission

Real estate agents don't like to talk about how much money they make (who does?), but typically newcomers get the smallest cut in the sales commission.

Typically, commissions have been in the 6 or 7 percent range nationally. But lately there's been a lot of pressure to cut them, especially in the hottest markets, because prices have risen so high and the market has been so strong that sellers came to believe their houses could almost sell themselves.

Adding to the pressure has been the entrance of Internet-based discount firms that charge a flat fee or as little as 1.5 percent to get the listing into the area's multiple-listing service.

In other parts of the world, commission rates are about 1.5 percentage points lower, according to the American Homeowners Grassroots Alliance, an Arlington group. The Web site for CNN/Money in October quoted University of California at Berkeley economics professor Chang-Tai Hsieh as saying that commissions in the United Kingdom average just 2 percent.

Lawrence Yun, a National Association of Realtors economist, has cited findings by research group Real Trends Inc. showing the average commission dropping to 5.1 percent in 2003 from 5.5 percent in 1998. The NAR has been citing the growth in the industry and the reduction in commissions to show that the industry is competitive, contrary to allegations by critics.

Typically, in a traditional, full-service agency, the commission that sellers pay is split between their agent and the agent representing the buyer. Each agent then gives a portion of his share to their broker.

The NAR does not have statistics on how commissions are split among brokers, who own and/or manage the offices, pay the support staff and other overhead, and who must be licensed separately by state agencies; agents, most of whom are independent contractors and pay a "desk fee"; and sales associates, who may be salaried.

Because each agency can choose its business model, statistics can't be easily kept. And, also, said one industry official, "no one wants to say."

Generally understood, though, is that the broker's cut depends on how experienced and productive an agent is.

New agents often have to turn over more than half of their commission to the broker. An experienced agent who brings in new listings and big sales all the time can sometime set his or her own terms. Big producers may get to keep the entire commission.

Agents big enough to have teams of associates working for them determine individually how the pie is split.

-- Sandra Fleishman