Last Updated on February 28, 2020 by Mark Ferguson
Real estate agents can make a lot of money, but it is not easy to become a real estate agent. You cannot simply pass the real estate test and start selling houses. Real estate agents have to work under a broker when they get their license. The requirements vary state-by-state on how long you have to work under a broker, and what you need to do to get your license. Working under a broker does not mean you have to be on a broker’s team or be their assistant. It means you have to hang your license in the office of a broker and they will oversee your activities.
What does “hang a license” in a broker’s office mean?
Each state has different classifications for what they call agents and brokers. In Colorado, any agent who does not have their employing brokers or independent brokers license is a broker associate. Some states use the wording agents and other states use different wording for each classification. I will use the term agent in this article, which will mean anyone with a real estate license who is not a broker in charge of their own office.
When someone becomes a real estate agent they have to “hang” their license in the office of a real estate broker. That broker is usually called a managing or employing broker and oversees all the agents in their office. I don’t know of any states that let new agents oversee themselves. The managing broker is responsible for every agent in their office and every agent’s actions.
In Colorado, an agent must hang their license in a managing brokers office for at least two years before they are eligible to go out on their own as a broker. Each broker has a different requirement for what each licensee is responsible for and what fees they pay.
What are the broker’s rules for real estate agents?
Every broker and every office will have slightly different rules for their agents. It is up to the broker to come up with the rules and decide how little or how much the agent needs to be involved in the office. Some large brokerages will require training, a certain amount of hours put in calling people, holding open houses and other tasks. Those large offices may also offer the agent leads, a mentor, office space, a secretary and other services. Other offices will require nothing from the agent and in turn offer the agent no services either. There are all types of offices from one spectrum to the next that offer all types of different packages for agents.
How much do brokers charge real estate agents?
This again varies widely in each office depending on what the broker offers the agent. In offices where the agent has a physical office with a desk and a secretary, the fees can be very high. Our office has about 35 agents, always has at least one staff person answering the phones, an office manager and about 12 offices for agents. Our office also has a couple of community offices that agents who work at home can come in and use. To have your own private office it costs $500 a month, but if you work at home then you don’t have any desk fee. Agents also have to pay a portion of their commissions to the broker.
We have a number of packages ranging from 50/50 commission splits to no commission splits and base fee paid by the agent to the broker every year. Not only does our broker provide staff and office space, but he provides some supplies and advertising. He has a deal with the local paper and Homes and Land Magazine for advertising and each agent gets to use a certain amount of advertising each month.
Some brokerages only have agents that work at home and they offer no services. The agent is expected to answer all calls, complete all paperwork, do all advertising and do everything themselves. Those brokerages are very cheap but offer very little in service to the agents. Many agents go this route to avoid desk fees and large commission splits to the broker.
What is a commission split on real estate deals?
When you sell a house as a real estate agent, you are paid a commission, which is a percentage of the purchase price. There are no set commissions, but we will use 3 percent as a figure for each side of a commission as an example. That means the listing agent who represented the seller and the selling agent who represented the buyer each get 3 percent of the purchase price when the home sells. If you represent the seller on a home that sells for $200,000, then the agent would get $6,000 if the commission was 3 percent for each side. However, the commission is not paid directly to the real estate agent, it is paid to the managing broker of that agent. The broker then decides how that commission will be paid to the agent. The agreement the agent has with the broker will determine the amount if any of the commission split.
Some brokerages will offer a 50/50 commission split with new agents because those agents need a lot of training, help, and guidance. Brokerages may offer a sliding scale for the number of homes you sell in a year. If an agent sells 50 homes, they get a 90/10 split, if they sell 25 homes they get a 75/25 split, etc. Some brokerages may vary the splits based on who the client is for the real estate agent. If the broker refers a client to the agent, they may only pay 30 percent of the commission, but if the agent sells to one of their own clients they may get 80 percent of the commission.
There are many different scenarios for commissions splits and some no service brokerages will offer 100% commission splits to the agents and only charge base monthly fees. Again these companies do not offer any services and the agent is pretty much on their own to figure everything out.
What would I suggest for new real estate agents looking to find a broker?
This is tricky because everyone has different goals and different reasons for getting the real estate license. For people who want to be full-time agents and make that their career, I highly suggest choosing an office with a mentor and training program. That training and experience will more than make up for the extra costs and lower commission splits. The ideal situation may be to join a successful agent or broker’s team who will pay you as an assistant while you learn from them. If you are an investor who only wants to use their license for their own deals, you may not want a training program that takes up your time. I would look for an office that offers high commission splits with no hourly requirements, but still offers training. As a new agent, you are going to need some training and guidance even if you only work your own deals. There is a ton to learn about real estate and it is not easy to figure out all the paperwork and requirements. I would stay away from the no service brokerages until you have a solid idea of what you are doing and know the basics.
There are many things to consider before becoming a real estate agent. You must take classes, pass a test, and find a broker before you can get your license. Getting your license is only the first step in actually selling houses. I think it is a good thing that agents must work under brokers for a couple of years. If agents are smart, they will choose to work under a broker that offers the best training and will show them how to sell houses.