Splitting the difference

How residential brokerage teams deal with divvying up commissions

Jan.January 01, 2019 10:00 AM

How broker teams divvy up their commissions — and deal with other issues. (Credit: iStock)

Commission splits are always a high-octane conversation in the residential brokerage world. And in this competitive market — one in which firms are being squeezed every which way — companies are facing increased pressure to lure and retain top-producing agents. Upping their splits is one quick and dirty way to do that.

But not all agents hammer out their splits with the companies they work for. Many have those negotiations with their team leaders. And with the rise of mega residential teams, that’s happening with more frequency. Here’s a look at how teams divvy up their commissions — and deal with other issues.

Breaking down splits

In almost all cases, splits are for teams and their agents to sort out. The brokerage generally stays out of it.

Stuart Siegel, CEO of Engel & Völkers, said his firm treats teams as their own businesses that just happen to share a brand with the parent company. Once a team makes a sale, the commission goes directly to the team leader. It’s up to that leader to determine how to distribute it.

While every team has its own system, sources cited three common types of splits employed by teams: procured, shared and showing splits.

Procured splits are the gold standard of the bunch. They are reserved for agents who find and secure business by themselves. Brown Harris Stevens broker Danny Nassi — who was a top agent on Ryan Serhant’s team at Nest Seekers International until striking out on his own in 2017 and then moving to BHS this past October — said he generally gives a newbie agent 50 percent of his 70 percent split with the firm on a procured deal.

There are, however, no guarantees. “There are a lot of top agents who take advantage of new agents, and they just leverage the shit out of them,” said Nassi, who was speaking generally and not about any specific team. “They leverage their time. They leverage their effort, and they get paid very little.”

Shared splits are often used when the team leader lands the listing but then farms out the rest of the work to team members. While those splits vary, they are generally between 20 and 25 percent of the leader’s split with the firm.

Finally, showing splits are given to team members who get lucky enough to handle a showing on a property that happens to sell. Those can run around 10 to 15 percent.

Nassi said he views splits as a way to motivate his team members to become standalone agents. “I want them making money. I want them feeling good. I want them inspired,” he said.

Mixed methods  

While some use the above-described system, there are no rule books when it comes to these relationships. For example, some agents sign contracts, while others don’t.

“It varies by agent team,” said Terrence Oved, a partner and chair of the real estate department at the law firm Oved & Oved, who has worked with multiple residential teams.

Engel & Völkers’ Paul Gavriani, who heads the Gavriani Falcone team, said he sets extremely clear expectations for his team members. “We have a written agreement when they start with us that lays out pretty much every scenario under which they could earn some money,” he said.

Douglas Elliman’s Richard Steinberg, meanwhile, said his three team members get the same splits on each deal regardless of who did the most work. “They’re incentivized to help each other out,” he said. “They’re incentivized to cover for each other.”

Although Siegel said he is not privy to the specifics of how his team leaders handle their splits, he said the system appears to be working.

“It seems to have been a pretty equitable arrangement,” he said, “because we have some high-producing teams, and I don’t sense that there’s discord.”

To join or not to join?

Kathy Braddock, managing director of William Raveis’ New York City office, said that while celebrity brokers might make teams look easy, running one can be complicated.

“You get these teams, and then people who are part of the team fly too close to the sun,” she said. “Then all of a sudden, they want more of this or that, and they fly off on their own.”

In addition, she said, top-producing agents don’t always make the most effective team leaders, because managing staff and selling properties require different skill sets.

“Most good brokers, quite frankly, are good brokers,” said Braddock, noting that her office doesn’t go out of its way to promote teams. “They’re not necessarily good managers of teams.”

But other firms are more pro-team.

Mark Chin, who runs Keller Williams’ Tribeca office, noted that many firms limit how large teams can grow because they are worried about those teams getting too big and strengthening their negotiating hand when it comes to demanding even larger splits from the firm itself.

“We’re not like that. We’re used to a lower net payout for our people,” he said. “Our view is that the big teams tend to generate a lot of inventory, and it’s good for the firms, so we don’t mind large teams.”

Elliman is one firm that has historically limited teams to 10 members. But the Eklund-Gomes team — headed by Frederik Eklund and John Gomes — recently got permission from chairman Howard Lorber to grow far bigger. It is now expanding to its own 10,000-square-foot office at 936 Broadway and to Los Angeles. But it is the firm’s top-producing team, so losing it would be a blow to the company.

Serhant’s team at Nest Seekers, meanwhile, has more than 50 members.

Chin said Keller Williams offers classes to teach agents how to build teams. Some of the teams are already doing more than $400 million a year in deals, and Chin predicted that over the next few years, some will be cracking the $1 billion mark.

BHS’s Nassi, however, said that getting too big can create problems, as the team leader can give clients the impression that he or she will do most of the work, only to end up farming it out.

“They’re expecting to get you, the top producer, and they’re getting someone with a year or two experience,” said Nassi. “That’s why it’s hard for the top agents when they get too big, because there’s so much business and volume coming their way. They can only stretch themselves so far.”

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