A shop offered me 100% commission for $199 a file. Where does the brokerage actually make money?

Been talking to three brokerages while I finish my coursework and one of them pitches 100% commission, $199 per transaction, $99 a month. Another is a 70/30 with a cap. A third wouldn't give me numbers until a second meeting, which told me something.

The 100% one confuses me. If I close 10 deals at $8,000 average, they get $1,990 plus $1,188 in monthly fees. That's about $3,200 off me for a year. The 70/30 shop would take $24,000 off the same production, and they cap so really more like $16,000.

So either the first place is dramatically better for me, or there's something in the model I'm not seeing. I asked what happens when a deal goes wrong and the recruiter said "we have a broker on call." That was the whole answer.

Still deciding. Genuinely want to know what the $3,200 shop is selling that I'm not paying for.

Answer

1Rena Expert

The two models charge for different things and you're comparing them on price alone.

A fee-based or capped-fee brokerage prices near its marginal cost of carrying a licensee. That cost is mostly compliance overhead, insurance, and a share of the supervising broker's attention. At $3,200 a year, the amount of supervising broker attention you can expect is small, because the math only works at high headcount and low touch. That is a coherent business and it suits a productive agent who already knows how to run a file.

A split brokerage is charging for the difference between what you can do alone and what you can do with support. Whether that difference is worth $16,000 depends entirely on your closing rate and error rate in year one, and you have no data on either yet.

The compliance load is the part worth pricing carefully. Since the NAR settlement, agents have to handle written buyer agreements before showings and be clear about how compensation is disclosed and negotiated, including where offers of compensation now sit outside the MLS. The specific requirements vary by state and by MLS, and they've been moving. A brokerage that has built templates, file review, and training around that is doing work you would otherwise do yourself, badly, at first.

So ask both shops the same four questions. Who reviews my files and how fast. What buyer agreement forms do you provide and who updated them last. How many of your agents closed nothing last year. What happens to my pending files if I leave.

The answer to the third one will tell you more than the fee schedule does.

3 replies

1gregpowell66AG4BPRO8

They're selling desk space and a license to hang, and the model works for them on volume. 200 agents at $3,200 each is $640k a year and their cost per agent is close to fixed. That's a real business. It just isn't a training business.

Coming from construction I think of it like a tool rental yard versus a general contractor. Both are legitimate. Only one of them is going to catch your mistake before it's poured.

At zero deals closed, ask yourself who reads your first purchase contract before it goes to the other side. "Broker on call" means you call and hope. Some people thrive on that. Most brand new licensees don't.

1devon_pierce Get yoursPRO5

The question that got me a straight answer when I was shopping: "how many agents did you add last year and how many left?" One place answered instantly with both numbers. The other two did not have the second number handy, which is its own answer.

Also the shop that wouldn't talk numbers until meeting two is running a sales process on you. Doesn't make them bad, just means you're the product until you sign.