The percentage co-brokers offer as compensation through the MLS has recently come under considerable debate in markets across the country, including New England where I have sold real estate for the past 17 years. It has been suggested that uneven splits are designed by large brokerage firms to drive smaller brokerages out of business. I don't see that as any more likely than suggesting that smaller brokerage firms are attempting to drive out larger brokerages by discounting commissions.

Although the issue is not a new one, the focus appears to have changed and several suits have been filed in an attempt to control the way co- brokers are compensated. This kind of maneuvering treads very close to restraint of trade and certainly defies current rules and regulations of the Multiple Listing Services.

At issue are compensation splits at 50/50 versus variations which can range from 60/40 and down. The days of the 50/50 split, which used to be the norm, appear to be long gone. How should commission splits be based - on the selling broker's costs or what is fair as presumed by the co-broker? Examining some trends in the industry may explain why the 50/50 split may not be as fair as it looks.

Fairness

Although it may be easy to get swept up in the idea that the only "fair" commission splits are 50/50, closer examination shows a serious flaw with that way of thinking. Take for example a company whose standard commission rate is 6%. Co-broking at 50/50 means offering out 3% to other Realtors.

But what about the company whose policy is to take listings at 5% or 4%? Obviously, the offered co-broke fee at those rates would be 2.5% and 2%, respectively, which represents differences of 17% and 33% less than the amount offered by the 6% company. Is it "fair" for the first company to be expected to always pay out 3% to co-brokers who in return reciprocate with fees of only 2.5% or 2%? What possible justification can a company who offers 2.5% or less have to expect to receive 3.0 or more from another company?

One company I know has gone so far as to demand with the presentation of an offer by their buyers: 3% or one half the commission amount offered by the seller, whichever is higher! Of course in order to comply with MLS rules and regulations, they make it appear as if it is a request from the buyer to the seller. The intent, however, is clear, and the issue of fairness, clearly, has nothing to do with splitting fees at 50/50.

Have you ever been in the position where you have received a commission split of less than 50% and questioned the listing broker only to find that he/she had to pay a referral fee which in essence meant that they actually received less than you?

If you're like me, you understand and the issue ends right there. This situation is happening more and more, particularly with the advent of affinity groups and relocation networks.

How about when you list an expensive or unique property and the marketing costs are particularly high? Is it unfair for the listing office to offer something other than 50/50 to make up for the additional expenses? And what if you know your services are significantly superior to those offered by a competitor? Certainly these are all reasons that can justify something other than 50/50 splits.

Cost

Anyone who has a measured success in the real estate industry knows that the margins of profit in our business are very small. With rising costs for marketing and agents wanting ever higher commission splits, the amount left for company profit is less and less. This is the very reason so many small companies have folded or joined with larger regional firms or franchises. It is therefore very important for each individual firm to review its costs and make the necessary business decisions to assure a profit and survival.

If a company makes the decision that its marketing expenses necessitate charging a higher commission fee than competitors, and that fee is acceptable to the seller, why should that broker be required or expected to split his fee 50/50 with his competitors? The decision to offer any fee split is, and should remain, at the sole discretion of the listing office.

To suggest otherwise comes very close to price-fixing, in my opinion. Also, let's keep in mind that a company's decision to charge a fee that may be considered higher than normal does in fact allow competitors to capture business opportunities by charging less.

Who Works Harder?

Some will argue that the listing broker works harder and has higher costs. Others will argue that the selling broker does more of the work and has higher costs. I've always felt that it's pretty even. After all, a transaction does require both sides. But even if we all agreed that the work load for both sides is even, that still does not justify the argument that all co-broke fees should be split 50/50. What we charge our clients, whether it be 4% or 20%, is simply a business decision between client and agent and should never form a basis for a "standard" for commission splits. The only time this could conceivably be fair would be if every single real estate firm charged the same amount 100% of the time. And we all know that commission fees are negotiable so that is not likely to happen without collusion and price-fixing.

Half isn't always fair

Business practices have a way of leveling the playing field, given a period of time for those practices to be absorbed by the consumers. Let's not try to regulate what is fair by insisting that only 50/50 splits are fair. As I've indicated above, 50/50 at one commission rate is not the same as 50/50 at a different commission rate. Let's keep an open mind and recognize what's fair and what the costs are to remain in business. And then let's get back to business and think more about serving our customers and clients.

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Published: May 25, 1999

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Editor's Note: This article reflects the opinions of Jay Burnham only and not necessarily the views of this or any other publication, organization or Website owner.