Commission Splits Explained For Real Estate Brokerages

Running a real estate brokerage means balancing people, performance, and profitability. Few topics sit at the center of all three quite like commission splits. They affect how much your agents earn, how competitive you are in recruiting, and how predictable your brokerage’s revenue will be month to month.

Commission splits can also feel deceptively simple. A percentage here, a payout there, and everything seems straightforward until production grows, team structures evolve, or margins start to feel tighter than expected. At that point, understanding how splits really work becomes less about compensation and more about running a sustainable business.

This guide breaks down how commission splits work for real estate brokerages, the most common models in use today, and what brokers should think about when structuring or revisiting their approach.

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What A Real Estate Commission Actually Is

In a typical residential transaction, the seller agrees to pay a total commission based on the final sale price of the home. While percentages vary by market and agreement, this total commission is usually split between the listing side and the buyer side of the transaction.

Importantly, commissions are always paid to the brokerage first, not directly to the agent. From there, the brokerage pays the agent their agreed-upon portion based on the commission split structure in place. This distinction matters because it means commission income flows through the brokerage’s books before being distributed, which has real implications for cash flow, reporting, and financial planning. Understanding this flow is the foundation for understanding commission splits themselves.

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How Traditional Commission Splits Work

The most familiar commission split model is the fixed percentage split between the brokerage and the agent. Common examples include 50/50, 60/40, or 70/30, with the larger percentage going to the agent.

For example, if a home sells for $500,000 with a 6% total commission, the total commission is $30,000. If your brokerage represents the listing side, that $15,000 comes into the brokerage. Under a 70/30 split, the agent receives $10,500 and the brokerage retains $4,500.

This model is straightforward and easy to explain, which is why many brokerages use it, especially for newer agents. It also provides predictable income for the brokerage as long as transaction volume remains steady.

However, as agents become more productive, fixed splits can start to feel limiting to agents and misaligned with the brokerage’s long-term growth strategy.

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Tiered And Graduated Commission Splits

Tiered commission splits are designed to reward higher production. Instead of one fixed percentage, the split improves as the agent reaches certain production thresholds, either in gross commission income or number of closed transactions.

For example, an agent might start the year on a 60/40 split. After generating $100,000 in gross commission income, their split increases to 70/30. After $200,000, it moves to 80/20.

From a brokerage perspective, tiered splits encourage productivity while still allowing the brokerage to recover onboarding, training, and support costs early in the year. From the agent’s perspective, the structure feels more motivating and performance-based.

Tiered splits do require more careful tracking and reporting. Your bookkeeping needs to clearly show where each agent stands relative to their thresholds to avoid disputes or confusion.

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Commission Caps And Why They Matter

Commission caps take tiered structures a step further. Under a capped model, the agent pays the brokerage a certain percentage of their commissions until they reach a predefined dollar amount for the year. Once that cap is met, the agent keeps nearly all of their remaining commission income, sometimes paying only a small transaction fee.

For example, an agent may operate under an 80/20 split with a $25,000 annual cap. Once the brokerage has received $25,000 from that agent’s commissions, the agent keeps 100% of their commissions for the rest of the year.

Caps can be highly attractive to top producers and are often used by growth-focused or cloud-based brokerages. For brokers, caps make forecasting more complex. Revenue from high producers may drop off significantly later in the year, which means strong cash flow management and budgeting are essential.

Looking at actual numbers often makes these structures clearer.

• Imagine an agent closes a $400,000 transaction with a 3% side commission, generating $12,000 in gross commission income.
• Under a 70/30 split, the agent earns $8,400 and the brokerage earns $3,600.
• Under an 80/20 split with a cap already met, the agent earns the full $12,000 and the brokerage earns nothing from the split itself.

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Multiply these differences across dozens of transactions, and it becomes clear why commission structure decisions have such a significant impact on brokerage profitability.

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Factors That Influence Commission Splits

There is no universal right split. Commission structures vary widely based on several factors.

Agent experience plays a large role. Newer agents often accept lower splits in exchange for training, mentorship, and lead support. Experienced agents typically command higher splits because they generate consistent production with less oversight.

Brokerage support also matters. Firms that provide office space, administrative support, marketing, CRM systems, transaction coordination, and leads often justify lower splits because of the value provided.

Market competition is another factor. In competitive recruiting environments, brokers may need more flexible or aggressive split structures to attract and retain talent.

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Alternative Compensation Models Brokers Use

Some brokerages move away from traditional splits entirely.

In a 100% commission model, agents keep all of their commission but pay the brokerage a monthly desk fee or per-transaction fee. This shifts revenue from variable to more predictable for the brokerage but increases risk if agents leave or production slows.

Flat fee per transaction models charge agents a fixed amount per closing regardless of price point. These can work well in high-volume, lower-price markets but may feel less attractive for luxury-focused agents.

Hybrid models combine lower splits with modest fees and are often customized by production level or team structure.

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How Brokers Should Think About Structuring Splits

When designing or reviewing your commission structure, it helps to step back and look at the full picture.

You need to understand your true cost of supporting each agent, including staff, technology, marketing, and overhead. You should also model how different split structures impact your cash flow throughout the year, especially if you use caps or tiered systems.

Clear documentation is essential. Agents should always understand how their split works, when it changes, and how it is calculated. Ambiguity leads to mistrust and disputes, especially as production increases.

Most importantly, your commission structure should align with your brokerage’s long-term goals, whether that is steady profitability, rapid growth, or building a high-producing but lean operation.

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Where Bookkeeping Comes In

Commission splits are not just a compensation decision. They shape your revenue model.

Poorly structured splits can leave brokerages struggling to cover fixed expenses during slower months. Well-designed splits create predictability, support reinvestment, and allow brokers to plan confidently.

Without clear bookkeeping and reporting, it is nearly impossible to know whether your current structure is working. Many brokers only realize their margins are thinner than expected after a year of strong production. As your brokerage grows, your agent mix changes, and your market evolves, the structure that worked three years ago may no longer serve you well today.

At Bookkeeping for Brokers, we work exclusively with real estate brokerages to help them understand how money actually moves through their business. When your commission income, agent payouts, and operating costs are clearly tracked, evaluating and refining your commission structure becomes far easier and far less stressful.

If you want support building financial systems that give you clear visibility into your brokerage’s performance, we are here to help.

Strong bookkeeping can turn commission splits into a strategic advantage.