Robert Freedman is the former director of multimedia communications at NAR.
You May Be Only 2 Percentage Points Away From Profitability
How your real estate company can make more money without agents boosting productivity.
November 4, 2018
A small tweak to a key financial number can have a large effect on your brokerage’s profitability, Dan Elzer, a former broker-owner and president of the Training Academy, said Sunday at the REALTORS® Conference & Expo in Boston. That number is the gross margin on each commission dollar that comes in, known as the company dollar.
For many brokerages, the figure is around 18 percent. That means the brokerage keeps 18 cents on every commission dollar after factoring in the split with the agent and any per-transaction costs, such as a referral fee. Moving this number up by, say, two percentage points—to 20 percent—can mean thousands of dollars in additional company income, even if your agents are still doing the same amount of business. That’s because you’re carving out a bigger slice of income from each transaction closed.
The main way to move this number up is to renegotiate the spilt you pay your agents. Though you may risk losing agents this way, if your brokerage is struggling because of high splits, everyone will lose in the end anyway. You’ll be forced to reduce services or make other cutbacks, which takes a larger toll if you’re heading into a slower sales market.
In any case, it’s a good practice to periodically review your splits because some agents who receive a high split might no longer be performing at the level they were when the split was negotiated. If you lose high-split agents, recruit newer pros who are willing to work at more reasonable splits. Remember, though, that you must give them the training and resources they need to be productive.
The key to any split changes, Elzer said, is to make sure your brokerage offers high-value services and training—what he calls the “winning difference.” That means offering marketing and administrative help that agents would otherwise have to pay for on their own.
Two other ways to improve your gross margin is to charge your agent a transaction fee to offset any transaction fee you pay, as well as to improve the rate of sales that close. Improving that number is important because you’re already paying costs on a per-transaction basis for transactions that never get closed.