Choose a Real Estate Brokerage: Pros and Cons of Every Option
There are dozens, 100s, or even 1000s of real estate companies in many cities. How is an agent with a new real estate license supposed to know how to choose a real estate broker?
Even worse, launching a real estate career is hard enough already. Over 80% of agents don’t make it more than two years in the business. The choice of brokerage can be the difference between success and failure.
I got my license in 2013 and have been with the same broker from the beginning. But my decision criteria aren’t the same criteria for everyone. Narrowing down on the type of brokerage that suits you, and then picking among commission splits, recommendations, and cultural fit should get you to a single choice.
Read more about how to pick a real estate broker that is perfect for your own situation.
Types of Real Estate Brokerages
Something I didn’t know when exploring real estate brokerages: there are a lot of different types!
Knowing what kind of brokerage you’re interested in will narrow the field really quick. There are some interesting business models in this exiting time for real estate! Each model has its own pros and cons which we will explore here.
There may be a lot of overlap, as well. An independent brokerage might have 100% commission splits and salaried agents. A franchise might be virtual. So bear that in mind!
Franchise Brokerage
Franchise brokerages are the big brands that most folks have heard of: Keller Williams, RE/MAX, and the Anywhere (formerly Realogy) brands like Better Homes and Garden, Century 21, Coldwell Banker, and Sotheby’s International.
The difference between a franchise and an independent brokerage is the business model that allows local brokers to become owners of their own, local franchisees.
Pros
- Benefit from an established and recognized brand.
- Often access to a robust referral network for leads.
- Lots of support for newer agents.
- Opportunity for brokers to own their business with strong support.
Cons
- Usually higher commission splits than alternative models.
Examples
Independent Broker
The prototypical independent brokerage is the local “mom and pop” boutique brokerage. But some of the larger multi-state companies that don’t have a franchise model are also classified as independent brokerages like Compass.
Pros
- Often access to a robust referral network for leads.
- Lots of support for newer agents.
Cons
- Potentially less brand recognition than the franchises for smaller independents.
- Potentially higher commission splits than alternative models like the flat-fee.
Examples
Discount Broker
Often also “flat fee brokerages”, “discount brokerage” is probably considered a pejorative by these companies. But it is a descriptive term that I will continue to use.
These brokerages focus on offering services to buyers and sellers at below-market costs. While some insist they offer “full brokerage” services, others like Homelister explicitly offer limited service listing agreements and a la carte pricing, catering to the quasi-FSBO seller.
Pros
- Often salaried roles with a guaranteed income.
- Not responsible for leads and marketing. The attractive USP of discounted pricing earns the leads, and other team members do the marketing and business management.
Cons
- You do not own the lead generation or past client database, meaning you are starting from scratch if you leave.
Examples
100% Commission Broker
100% commission brokerages charge agents a fee rather than a percent of the commission. The commission splits therefore, especially for productive agents, tend to be very generous for agents. Fathom Realty is an example that has grown a lot recently.
Pros
- Keep more of the commission
Cons
- Brokerage has fewer resources for support, staff, and training
- May not have physical office space
- May have up front insurance costs
Examples
Virtual Brokerage
The virtual brokerage model (or online brokerage) does not have a physical office. Instead, agents use their home office, Starbucks, or wherever. eXp Realty is the quintessential virtual brokerage, boasting a virtual office place that agents log into like a video game.
This model is not exclusive to any of others above. For example, Fathom Realty is both a virtual brokerage and a flat-fee brokerage. I have compiled a short list of virtual brokerages.
Pros
- Some cost savings of going virtual are likely passed on to agents in the form of better commission splits.
- A flexible working arrangement where you can attend Wednesday brokerage meetings in your pajamas online.
Cons
- Like other work-from-home business models, replicating the collaboration, accountability, and cultural cohesion of the in-person office environment can be challenging.
Examples
Brokerage as a Service
The brokerage-as-a-service model is one that puts agents’ and teams’ branding first, and operates more in a support capacity than as a “boss”.
This model is ideal for top-producing agents who want to call the shots in their business and own their own brand, but don’t want the hassle of setting up a brokerage themselves.
Pros
- You have nearly complete control of your business, even the branding.
Cons
- Usually designed exclusively for top-producing real estate professionals who want to own their identity but outsource the brokerage operations. Not designed for noobs.
Examples
Salaried Brokerages
Salary brokerages like Redfin pay agents as W2 employees rather than as independent contractors. Most models still have a commission element where your earnings will change depending on your success and productivity, but you have a minimum guaranteed salary with benefits.
Pros
- Guaranteed income and typical W2 employee-type benefits like healthcare and a 401k.
- Usually extremely good support with transaction coordinators, marketing, training, managers, and resources.
- You can take a vacation once in a while.
Cons
- Your earning potential has a ceiling.
- You do not own your business and do not make decisions on behalf of the business. You are an employee.
- Having no ownership means your business is not portable. If you were to leave, you leave behind your leads and database of past clients.
- Salaried roles are fewer and more competitive. While traditional brokers will take any independent contractor who can “fog a glass”, the salary model is much more selective and only for opportunities as available.
Examples
Finding the Best Brokerages
Lender and Title Referrals
Vendors who are deeply involved in the real estate transaction are the most likely to have insight into who the top brokerages are in the area.
Vendors may be a little biased, as they often work with the same brokers and agents who prefer their services. But they can still be a great inside scoop on which agents are succeeding as professionals and which are flailing.
Lenders, title companies, and inspectors all deal with agents on a regular basis.
Local Schools and License Courses
Especially if you take a local in-person licensing class, chances are that the instructor has recommendations on brokerages.
Top Brokerages and Teams
Who are the best brokerages and teams in your area by the cold, hard numbers?
Obviously “quantity” doesn’t always equal “quality”, but if you don’t already know the top performers in your market you should. You can look up your MSA in Real Trends 1000 Report, ranking the most productive agents, teams, and brokerages in America.
Comparing Commission Structures
The commission split is the traditional compensation structure. Below I share what I think is probably typical based on my own experiences.
- Teams. 30/70 to 50/50. If you are a member of a team, perhaps as a buyer or listing specialist, and getting leads from the team leader, you can expect a pretty hefty commission split. Often the team leader will be paying a broker 5-20% of the transaction and then takes 10-50% of your transaction for themselves, depending on whether the lead was theirs or not. That’s approximately the same as a typical referral fee of 25-35% plus whatever other benefits you get from the team.
- Typical. 50/50 to 80/20. If you are a solo agent at a brokerage, your commission split likely scales to your production. E.g. you may pay 70/30 on the first $20,000 in GCI (gross commission income) and then 80/20 on the rest of the year. Your commission bracket may or may not reset at the end of the year. 50/50 is a pretty oppressive commission split if you are not receiving leads from your broker, so be sure you are getting a lot of value in training, transaction coordinators, office supplies, and support.
- Top Performers. 95/5. Top performers have a lot of heft and brokers will often negotiate commission splits to keep them happy. A 95/5 split is not unusual if you are doing $200k GCI or more, I would guess.
Commission Caps
A real estate commission cap means something different than in other industries. Actually, they mean the opposite.
In some sales jobs, a commission cap is a cap on how much the employee can earn in commission. In real estate, it is a cap on how much the brokerage can earn.
Many brokerages have commission caps. Once you’ve paid X amount for the year in commission, you get 100% of the commission for the rest of the year.
For example, eXp Realty has an 80/20 commission split and $16k cap. After you’ve paid eXp $16,000 in commission each subsequent transaction is just a single $250 transaction fee. Instead of earning $8000 on a $10,000 commission, you would earn $9750.
Commission caps incentivize top performers to stick around who would otherwise be hit hardest on a beefy commission split.
Lead Generation
Lead Generation Strategies
When selecting a real estate broker, choose a real estate brokerage that complements your chosen lead generation strategy.
Are you going to dial FSBOs and expireds? A brokerage with top agents succeeding at these methods is better than a brokerage that just works relocation leads and referrals.
Are open houses a central pillar to your prospecting? A brokerage with lots of friendly listing agents willing to let you manage open houses for them is ideal.
Get an idea of what your primary prospecting methods are going to be and select a brokerage that has agents succeeding and will be supportive.
Lead Distribution
If a brokerage does its own lead generation and hands out leads, you need to be very interested in that process. Ultimately, it is your commission dollars that are funding that lead generation. You should see an ROI for that!
A brokerage that is overspending on technology or marketing or tools that you don’t benefit from is likely one that you are paying too much for.
Brokerage Culture
Finding a real estate brokerage with the right culture can be critical for your quality of life and ensuring it is a workplace you will stay and grow roots with.
There are different cultural styles that will appeal to different people: a relaxed and energetic Millennial culture, a buttoned-up expert culture, a techy online culture, an experimental growth-oriented culture, etc. But a few basic building blocks common to all successful cultures to look for include:
- professionalism
- accountability
- competency
Ask about how standards are enforced and how the broker supports keeping agents accountable to their goals. Real estate is no fun when the other agent is outsmarting you in negotiations or you are losing listings because you can’t explain basic paragraphs of the listing contract.
Questions to Ask When Interviewing a Broker
- What is the commission split and does it change based on production?
- [if yes] When does the commission split reset?
- Is there a commission cap?
- Are there any other fees like E&O, transaction fees, marketing fees, desk fees, etc?
- Does the brokerage generate its own leads? How?
- [if yes] How are lead disseminated?
- When are mandatory meetings and what do they cover?
- How many agents would you say are part-time versus full-time?
- Do you know the average tenure of an agent here?
- What are the top 5 methods agents generate leads here?
- Is there floor time available or required?
- What is the median GCI for an agent?
- How is training and continuing education (CE) done?
- When do I have access to the broker?
- What are the brokerage’s goals and where do you see it in 5 years?
My Personal Story
I’ve been at the same brokerage I started with eight years ago, a local independent brokerage with about 20 agents.
I bought a house earlier that year with an agent. I interviewed her brokerage, but it was not the one I ultimately chose.
The one I chose was based on a recommendation from my local lender whom I had used twice on my own home.
At the time, it was a new broker that would grow to the fourth largest in my market in just five years.
When interviewing brokerages, I spoke with the sales manager at a Starbucks and was sold. They had better splits than the franchise options I interviewed and were more open to newbies like myself (I was getting started as a part-time agent).
My brokerage is not perfect by any means and has gone through ups and downs since I joined. There is a lot I would recommend improving. At some point I will get my own broker’s license and consider going it alone. But I am in no hurry!
On the whole, I think I chose well!
Conclusion
Fortunately, choosing a broker that is a poor fit is not an irreversible decision. Agents switch brokerages all the time, and sometimes you just need some experience before you know what is the best fit.
Choosing a real estate brokerage is Step 1 in getting your license. You should consider doing this first before all other steps. A good broker will help you select a good school and provide you the resources to get ahead on your education.
Updated April 14, 2023; Originally published May 22, 2021
