Splits grow more crucial as market tightens
A look at the commission splits being used to attract and retain residential agents in an increasingly competitive market
Real estate veterans Paul Purcell and Kathy Braddock spent seven years building Rutenberg Realty into a fast-growing firm that lets brokers keep the lion’s share of their commissions.
But as they launch William Raveis’ first New York City office, they’re turning to a traditional commission structure that pays agents a split based on their productivity.
“We’re taking a very hard look at it to see what makes sense,” said Braddock, noting that they have not yet finalized an exact productivity-to-split breakdown. “That’s the beauty of being able to do it from scratch.”
In New York’s increasingly competitive residential real estate market, the ever-important commission split has become even more crucial and has emerged as a key point of distinction for firms. Though rarely discussed publicly, splits are a way to attract and retain top agents.
“The only way to hire true experts is to allow them to get paid what they deserve to do their craft,” said Gordon Golub, chief residential real estate officer at startup brokerage Urban Compass, which last year switched from a salaried model to a commission structure that gives top producers a larger cut.
In New York, commission structures fall into two basic categories. At firms like the Corcoran Group and Douglas Elliman, the traditional split model is pegged to an agent’s productivity, with agents keeping a fraction of each commission based on their gross sales. The split schedules vary slightly between firms, according to one insider source who provided TRD with the schedules for Corcoran, Elliman and Town (see sidebar for breakdown.)
An agent initially might keep 50 percent of his commissions, and then see his split increase, typically in 5 percent increments, as he racks up deals over the course of a rolling 12-month period. Firms reset splits at the end of the 12 months, although policies differ among brokerages, with some allowing agents to stay at their current split and others pushing agents back one tier or more, sources said.
On the other side of the spectrum, about a dozen firms offering high splits, or 100 percent commission, have opened their doors in the past decade, as The Real Deal has reported. At Keller Williams NYC, agents start at 70 percent. Once they contribute $50,000 in gross earnings to the brokerage, they keep 100 percent of their commissions.
Listing agent leverage
Lately, the market’s low inventory, escalating prices and frequent bidding wars have rewarded brokers on both sides of the divide.
While firms haven’t changed their split schedules, sources say some agents are reaching higher splits earlier in their 12-month cycle because prices are up.
“It’s easy to get to $400,000 gross [commissions] nowadays, because apartments are so expensive in this market,” said Bruno Ricciotti, CEO of Bond New York.
Robert Bernstein, a Rutenberg broker, said he knows some agents who are making “more than they ever have.” In the first quarter, the average price per square foot in Manhattan was at a record of $1,363, according to data from appraisal firm Miller Samuel.
“There are a lot of bidding wars,” with so few available units, Bernstein said, “which makes for an amazing market for a seller and for a listing broker.”
In turn, listing agents have a little more leverage when it comes to negotiating higher commission splits with brokerages, Bernstein said. “People have a little more negotiating power to go to their manager and say, ‘I reached my numbers and we’re in March,’” he said.
However, other industry veterans also said that with so little inventory, a lot of brokers are not able to make deals. Given the competitive market for buyers, listing brokers have the upper hand. “Right now, whoever gets the listing is king,” said one longtime agent.
“It’s not an easy market to be a broker,” said another agent. “Either you’re doing really well or you’re not.”
Bernstein acknowledged that bidding wars are a “nightmare” for the buyer’s broker. “Now they are competing for the apartment and usually need to get their clients to bid higher than they planned on spending and they still may not get the apartment,” he said.
Still, top-producing agents are going strong in the current market, and a handful are striking out on their own, or are using the opportunity to test the waters at new firms.
In the past 18 months, top broker Dolly Lenz left Douglas Elliman to start her own firm and Leonard Steinberg left Elliman for Urban Compass.
“You’re seeing top people moving around in the industry more and more,” said Bernstein, who jumped to Rutenberg from Corcoran in 2010. “If you’re working for yourself, you get a much higher split.”
City Connections, a 100 percent commission firm, opened in 2004, followed by Rutenberg in 2006. Since 2011, brokerages such as Spire Group, Level Group, Titan Real Estate of New York, KIAN Realty NYC, and BLU Realty Group also entered the market.
Kevin Kurland, who previously owned Kurland Realty, launched Spire in 2011, a 100 percent commission firm. Spire currently has 161 agents who pay a $495 monthly flat fee to be affiliated with the firm and use its website, offices and other resources.
Kurland said he only hires brokers with at least a year of experience, and a track record of $100,000 in annual gross commissions.
“Every single real estate agent in the world wants the highest split they can get. That’s a fact,” he said. “The go-getters think that way.”
Something for nothing?
Still, high-split and 100 percent commission models have their detractors.
Industry veterans say the model only works with a high volume of agents and that agents at these firms score fewer listings.
Ardor Realty phased out 100 percent within a year after offering agents the option in 2011. Principal Chris Shiamili said the high-split model amounted to “smoke and mirrors.” With less technology and marketing support, the agents getting 100 percent commission had fewer listings. “It’s an illusion for most people to think they’ll get something for nothing,” he said
Alon Chadad, a co-founder of Blu, said he and his partners wanted their firm to reward agents for bringing in deals. But the company scaled back to a 70 percent split within its first year of operation, according to Chadad, who said the 100 percent commission model worked better for part-time agents. Blu now starts agents at 70 percent and bumps them up to 75 percent when they gross $150,000; 80 percent for $250,000 and 90 percent for $500,000.
“It’s not easy to be in our business. I know that my competition is big out there,” Chadad said.
To that end, the traditional model — which is also more lucrative for firms — isn’t going away.
Urban Compass offered a salary for only seven months before switching to a traditional commission structure. Golub, who declined to disclose Urban Compass’ split schedule, said it is within 5 percent of traditional firms. “It’s really based on agents’ expectations,” he said. “Agents are our No. 1 customer.”
Braddock said at William Raveis, she and Purcell would offer a traditional split schedule since that’s how the company operates its 99 other offices nationwide. She said she still thinks the 100 percent commission model that she oversaw at Rutenberg can be a good thing, but in this case, revenue from commissions will support marketing, technology and training that will set the office apart from its competitors.
“You’re not creating a schedule to say, ‘I’m going to give them $150,000 versus $200,000,’” said Braddock. “If you can’t help them build their business, 100 percent of zero is zero.”