Out of Curiosity, What Percentage of Agents ACTUALLY Reach the Cap for Each Firm That Has That Model?
That is the question I posted recently on a very large social media group after trying to find the answer to the question online. Within about 4 hours we had almost 1,000 comments to the question, but still no answer with supporting data. The responses were fascinating. Then, the moderators shut the thread down!
What is a “cap" in terms of real estate commissions? Some companies start agents out by taking 20-50% of the agent’s gross commissions until a certain number, or “cap” has been reached where the real estate agent will then no longer have to give up so much of the commission split. Some firms even go to 100% after “capping”. However, there are usually still additional desk, transaction, royalty, marketing, technology or other fees that the company continues to charge on an ongoing basis even after an agent has “capped”. Caps usually follow the agent’s hire date and reset every 12 months. So, if it takes an agent 9 months to reach the companies cap target, they would have the higher commission split for the remainder of their anniversary year and then it would reset to whatever lower rate it was at previously. Some companies provide caps as low as $5k while the majority are in the $16-23k range. I have even seen some as high as $30k/year.
There are a lot of different factors in determining an agent’s ability to reach the cap including:
• Split before the cap
• What the cap number is
• Local market conditions
• The average price per sale
• Individual agent factors
• Company support
While several of the responses were from agents just saying that they capped, NOBODY could provide me with actual data. Many agents threw out wild guesses ranging from 3% to 80%. Several stated it “probably” followed the 80/20 principle but again, NOBODY had any data to back it up. The most surprising comments were from a particular brand that was very aggressive and defensive of their company’s $23,000/year cap.
I still haven’t seen any data to answer my question and I have a theory as to why. My guess is probably less than 15% of agents that are on a cap model actually hit their companies target. That means 85% of the agents working for these firms spend the entire year giving up 20-50% of their hard-earned income in the form of a split on top of the additional fees they pay. I believe these companies mask this data because if the agents knew the true numbers, they would look hard at their business and take it somewhere else. I also believe that hiding these numbers is a recruiting tactic with newer or less experienced agents not presenting the full picture in an accurate way. For a very small fraction of less than 1% of agents, the cap model will work when factoring in profit sharing, stock, etc. but for the majority, it is very unfavorable.
I chose HomeSmart because I can give my agents the same (or better) service and support of traditional brands, that charge crazy splits, and fees, and they start (and stay) at 100% split. No caps. No resets. No BS. I give more, and take less, because I believe individuals know better how to build their own businesses rather than large companies trying to do it for them with a one-size-fits-all approach.