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Monday, May 29, 2023

Realty Firms Splitting Away From Old Commission Models

Drew Burks, owner of Dream Design Realty, is using an alternative commission model between brokers and agents. He has established a $6,000 flat fee to allow licensed real estate agents to sell under his broker’s license and keep all of the commission.

Burks and partners Atul and Kalpana Thakkar say they saw an opportunity in 2005 to eliminate the traditional commission split structure, which can be 70 percent for the agent and 30 percent for the broker, with a limit of $25,000 to $30,000 per year.

The upside is it brings in agents who are dedicated to working hard and offers a way to project income for the year, Burks says.

“I wanted to provide licensed real estate professionals a better way of doing business for themselves,” he said.

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In a traditional sale of the median $350,000 home in San Diego, a real estate agent might keep $7,000 of a $10,000 commission, with the broker getting the remaining $3,000. But with Burks, the agents keep all $10,000 of the commission.

Just Sell 2 Houses A Year

Joshua Barton, an agent with Dream Design Realty, says the model makes sense if an agent sells at least two houses a year. Barton estimated last month that he would close 10 houses in 2008.

“I thought, how can I work under a quality name and at the same time reduce my overhead, with each commission being so important in these crazy times in the real estate market,” Barton said. “I see my benefit of paying $6,000 rather than a broker keeping a commission split.”

Dream Design Realty has grown from just a handful of agents in 2005 to 25 as of last month. Sales volume increased 674 percent in 2006 compared with its startup year and grew an additional 158 percent in 2007. Burks estimated in late December that 2008 would end even.

Dream Design Realty’s 25 agents bring in $150,000 in fees, and the agency hopes to double in size by mid-2009 as more agents try to keep more of their commissions, Burks says.

“The flat rate model allows the company to provide unconditional support, training and services to all of the agents regardless; if they are top producers or someone who is struggling,” said Burks, adding that he expects most real estate agencies to use alternative models at some point.

Dream Design Realty clients are 80 percent residential and 20 percent commercial. Burks estimates that the percentage of commercial transactions will increase to 40 percent in 2009.

95 Percent Split

Independence Realty of La Mesa has offered a commission split of 95 percent for agents and 5 percent for brokers since it opened in 1991. Emile Misiraca, president and founder of Independence Realty, was able to offer this split by cutting overhead. The agency operates as a virtual office, with its agents working from home.

Independence started with one agent and now has a work force of 150. At the height of the market in 2006, Independence closed 800 sales totaling $350 million. Sales in 2008 totaled $100 million, according to Misiraca.

He says most of the agents at Independence joined because there are no royalty or franchise fees, administrative fees, training or large broker fees.

“Because we do not provide those services, Realtors can keep 95 percent of their commission,” said Misiraca, explaining that his model is designed for experienced agents who don’t require much training.

Lori Staehling, San Diego Association of Realtors president, says that every time shifts occur in the residential real estate market, business models also shift. Many brokers and agents are now looking at flat rate fees and caps on commissions.

“Companies right now are talking about ways to cut back on brick and mortar space expenses,” Staehling said. “They don’t want to spend as much on rents.”


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