This is a two part question, considering the SPLIT vs. 100%er lecture. First, starting with equations 5 and 6, algebraically solve for the D* (periodic fee in terms of dollars) that will drive brokers with high conversion ratios to self-select into the 100% compensation arrangement. Second, from equations 4 and 5 and assuming that you are an agent and your firm is offering you a 100% compensation agreement with an annual D = $15,000 or a 50/50 split compensation arrangement, which compensation package should you choose and why?
The two traditional methods of compensating real estate agents include 100% compensation and 50/50 split compensation arrangement (Kimmons 1). Most real estate agents obtain a commission on the gross amount from the broker. This does not include the percentages that clients are charged. However, it includes only the manner in which the agent is eventually compensated. For instance, if the gross commission is $12,000 and there is a 50/50 split between the broker and the agent, the real estate agent will get $6,000 similar to the broker. Often the agent and broker have to agree on a percentage of the split to reflect on the services as well as support provided by the broker. The percentage can also be based on the volume of business brought by the agent.
The 100% commission split model is another form of compensating real estate agents. This compensation involves the agent obtaining the full commission. This happens when the agent pays desk fee as well as office fee. These costs can be highly significant per month and only experienced producers use it. Depending on the size of the office, the desk fees may be high or low per month. This method is not particularly attractive to new agents due to the fixed monthly costs to be paid. The method is not preferred by brokers also as it exposes them to stressful moments in case they do not make sales in some months. Clearly, a 50/50 split package is preferable than 100% compensation.