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Building compensation models is complex and oftentimes based on a specific need that is short-term. For example, an agent gets a bunch of deals in a short time and they don’t have the bandwidth to do all of the work, so they hire a friend or family member to help and pay them a percentage of the transactions or a big bonus on closings.
This is how most teams start; they are situational — not strategic. I’d like to break down a proven strategy for building a highly profitable team that allows growth for the leader and the team members.
The ultimate goal in building a team for most is that they want greater life balance, and they believe that getting help in specific areas of business will make that possible. For most, it’s a reality that is never achieved because they simply don’t do it right.
Allow me to write this as if I were coaching you as I can be direct and clear with my recommendations. Keep in mind that I am not dictating, only suggesting, best practices based on years of coaching high-performing teams worldwide. It is always your choice to run your business as you see fit.
In a lot of industries, and real estate in particular, teams have become the backbone of an overwhelming number of successful brokerages. These teams, much like the Avengers of the housing market, bring together individuals with different “superpowers”: unique skills and specializations to create exceptional client experiences.
Understanding how these teams work, particularly their compensation models, is crucial for anyone looking to join or form a real estate team.
The structure
Real estate teams are more than just a group of agents working under a single leader. They are collaborative units where each member plays a specific, and crucial, role, contributing to the overall success of the team. The key positions typically found in a real estate team include:
Team leader
The visionary who sets the goals and direction for the team. They focus on business development and supporting team members to achieve both their personal and professional goals. The role of the team leader is simply business development and people development. Everything else should be delegated to the team.
Listing partner
Responsible for prospecting, listing and negotiating contracts. They conduct market analyses, advise sellers on pricing and staging, and ensure properties are marketed effectively. Once a contract is signed, the workload moves to the client care coordinator.
Buyer’s agent
Specializes in working with buyers, from prospecting to showing homes and negotiating contracts. Their role is crucial in understanding client needs and finding suitable properties. Both buyer’s agents and listing partners should spend each day looking for new business. If they are not listing or showing a home, they should be prospecting.
Client care coordinator/transaction coordinator
Manages transactions and marketing efforts. They ensure smooth operations and handle everything from paperwork to client communications.
This is a simple team structure. Teams get more positions and become more complex as they grow. The only difference between an individual agent and a team is who does what tasks or jobs. As an individual agent, you do all of it. I always say, “If you don’t have an assistant, then you are one.”
Many team leaders fall into the trap of inability to delegate, so even though they hire support staff and buyer’s agents, they can’t let go of the tasks associated with those roles. That means their team ultimately has high turnover and low production.
If a team leader has four agents on the team, then the leader should make up less than 50 percent of the total production. If the team leader is doing more than that, they are not developing their people to be great.
Compensation models
Compensation models in real estate teams can vary widely, depending on the team’s structure, market conditions and individual roles. I’m very specific in creating compensation.
Our compensation model is based on the principle that as a team leader, your gross operating margin should be 50 percent after the cost of sale. That means that after you pay your agent, and reimburse client care, leads, marketing etc. you should be at 50 percent. So paying a buyer’s agent 50 percent and then covering all of the expenses won’t get you there.
Commission-based compensation
This traditional model involves agents earning a percentage of the commission from each transaction they close. The commission is typically split between the agent and the team leader or brokerage.
The advantage of this model is that it incentivizes agents to close more deals, as their earnings are directly tied to their performance, and it can be highly lucrative in active markets.
As far as commissions go, the split can vary significantly. Team leaders often take a higher percentage to cover administrative, marketing and operational costs. It’s crucial for agents to understand the split and any additional fees that may apply.
Salary plus bonus
In this model, agents receive a base salary along with performance-based bonuses. The bonuses are typically tied to the number of transactions closed or the total sales volume achieved.
This model provides financial stability for agents, ensuring a steady income regardless of market fluctuations, while the bonus structure still incentivizes high performance.
Often, the base salary may be lower than what agents could earn in a commission-only model, but the added security can be appealing, especially for newer agents or those in slower markets.
Tiered commission splits
This model features a commission split that changes based on the agent’s performance. For example, an agent might start with a 50/50 split, but as they close more deals or reach certain sales milestones, the split could increase in their favor.
This model rewards agents for their success and encourages them to continually improve their performance. It also provides a clear path for agents to increase their earnings as they gain experience and close more deals.
Agents, however, need to be aware of the thresholds required to achieve higher splits and ensure they are attainable within their market and team structure.
Flat fee per transaction
In this model, agents pay a flat fee for each transaction they complete, regardless of the sales price. This fee covers the team’s administrative and marketing support.
This model offers predictable costs for agents, allowing them to keep a larger portion of their commission. It can be particularly appealing for high-volume agents who prefer to manage their own expenses; however, agents must be confident in their ability to close enough transactions to cover the flat fees and still achieve their desired income level.
Profit sharing
In a profit-sharing model, team members receive a share of the team’s overall profits. This model is designed to foster collaboration and teamwork, as everyone benefits from the team’s collective success.
Profit sharing encourages a team-oriented culture, where members support each other to achieve common goals. On the positive side, it can lead to increased motivation and a sense of ownership among team members.
One note of caution: the distribution of profits should be clearly defined and transparent. Team members need to understand how profits are calculated and distributed to ensure fairness and alignment with team objectives.
Essential team members and roles
Here are my recommended commission amounts for a profitable, well-run team:
Buyer’s agents
- 40 percent to 60 percent, with 60 percent going to the team for the first two closed deals in a month
- 45 percent to 55 percent for deals three and four
- 50 percent for deals five and up
And then it resets each month.
Listing partner
Listings have a much higher carrying expense in a balanced market, so paying a listing partner different than a buyer’s agent is reasonable and recommended.
- 30 percent to 35 percent should go to the listing partner. Their role is to simply prospect, present on listings, and negotiate the contract through the closing. The team handles the rest.
Showing assistants get paid $25 per hour, with a cap of 20 hours with one client. That caps the exposure of the buyer’s agent to $500 if they need help getting their client indoors when they are busy.
Client care coordinators (CCC) or administrative assistants are more complex, and salaries and bonus structures are directly related to market conditions and skills. My recommendation here is to err on the side of paying at the high end of the market and hire ‘A’ players for this role.
A great CCC is often the difference between an average team and a high seven-figure business where operational excellence is directed by the CCC. There are systems created to identify the right people for the right role in every team, and if you hire slowly and fire quickly, then develop your people to be amazing, you will soon realize that you don’t have to do it all. You can have great life balance and, as a leader, you can make a difference in the lives of the agents and staff you serve.
Regardless of the compensation model, clear agreements are essential. Team leaders should outline expectations, commission splits and any additional responsibilities in writing. This transparency helps prevent misunderstandings and ensures everyone is aligned with the team’s goals.
Real estate teams are powerful entities that leverage the strengths of individual members to achieve collective success. Understanding the various compensation models is crucial for anyone involved in, or considering joining, a real estate team.
By aligning compensation with team goals and individual preferences, real estate teams can create an environment where everyone thrives, leading to increased productivity, client satisfaction and overall success.
Verl Workman is founder and CEO of Workman Success Systems. Connect with him on LinkedIn or Instagram.
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