Structuring split plans strategically is critical to recruiting and retaining top talent in the industry. For example, if a top producer feels insufficiently compensated for the business they generate, they will be much more likely to switch to another brokerage willing to hold their license with a more favorable split plan.  

CommercialEdge Commissions has analyzed hundreds of unique split plans across thousands of commercial real estate agents. Having processed over $125M in gross commissions and distributions to the house and agents, we found five common split structures worth considering. 

Flat Rate Plans 

Flat rate plans are commission structures with a fixed percentage share between the house and each agent on their gross. These splits are widely used because they are easy to calculate and forecast for the brokerage. However, top producers might become frustrated as regardless of how much they produce (while also covering their desk cost), they still give the brokerage house a percentage of their gross commissions. 

100% Commission Plans 

The 100% commission plan was first popularized by RE/MAX. With this split, the broker receives 100% of the gross commission they bring in. This plan may sound great on the surface, especially regarding agent satisfaction, but it limits revenue for the brokerage house. In these situations, the firm collects expenses and desk costs either as an annual or monthly fee but doesn’t participate in the actual share of the commission. 

50/50 Split Plans 

The 50/50 split plan’s adoption rate also relies on ease of implementation. For every dollar of gross commission an agent produces, $0.50 goes to the house, and $0.50 goes to the agent. Typically, with these plans, the agent does not pay for any of their desk costs, and the brokerage covers operational expenses like signs, marketing materials, administrative assistants and more. 

Other Flat Rate Plans 

Of course, brokerages will often use different rates than the standard 50/50 plan. Some will incentivize top producers to join their businesses by offering better flat rates than their current brokerages, with these plans ranging from a 60/40 split all the way to 90/10.  

In the latter example, if a broker brought in $100K in gross commissions, they would keep $90K while the house would receive $10K. When considering plans with that high of a percentage, it’s recommended to assess the desk cost for each agent and whether you will need to bill your brokers/agents for expenses. 

Tiered Commission Plans 

To remain competitive in the job market, brokerages have become more and more sophisticated in structuring their commission plans. And with tiered split plans, brokers keep an increasing amount of their gross commission throughout the year — provided their productivity rises during this time.  

Tiered split plans typically start with the broker keeping 50-60% of their gross. This share then increases as brokers hit new tiers or breakpoints. The most common breakpoints are tied either to the agent’s overall gross production or the net they keep.   

Essentially, tiered commission plans allow brokerages to keep a high percentage of the commissions until the broker has covered their desk costs. Then, the share earned by the broker increases as they create more and more income for themselves and the business.  

To illustrate how tiered commission plans work in practice, we simulated a four-tier scenario in two situations, tying the breakpoints first to gross commissions and then to agent net: 

Gross Commission Breakpoints 

The most common breakpoint is based on the gross commissions created by agents. With this type of tiered plan, a brokerage will distribute all revenue collected through a particular deal according to individual agent split plans applied to their gross earnings. In practice, if a broker brought in a $750K gross commission deal, the split would be calculated as follows: 

House Net Breakpoints

The house net plan is distributed similarly to the gross-tiered structure, with one key difference: agents reach different breakpoints based on how much net they produce for the house as opposed to the overall gross of the deal. As such, a $750K deal would be distributed quite differently according to this plan, with the brokerage keeping more of the commission over time: 

Impact of Tiered Split Plans 

Overall, tiered split plans are an efficient method of revenue distribution that incentivizes agents to maintain productivity and speed up deal cycles. However, they can come with operational challenges. For example, if a brokerage has 15 agents on board and uses different tier structures for junior agents, senior agents and principals of the firm, keeping up with distribution calculations and updating agents on their split plans can become a daunting, resource-burning task. 

Other Ideas to Consider 

With or without tiered plans, some brokerages are also using more complex types of distribution to remain competitive. For example, some firms employ manager overrides, bonuses and other incentives to motivate their team. Others offer a recruitment bonus adapted to the CRE market: when an agent brings in someone new, they will get a bonus whenever the broker they recruited commissions.  

However, bonuses can be painful to manage, especially as each agent statement needs to offer complete transparency. Brokers want access to a full breakdown of their earnings on each deal, including how the calculations were made.   

Including Expenses 

Expense calculations should also be considered regardless of the commission plan a brokerage chooses, as there may be times when agent earnings are reduced by the resources they consume. Providing brokers with a detailed statement or a portal where they can view past statements and income will increase transparency and trust, especially when complex split plans are in place. 

Transparent Agent Statements 

To illustrate a fully transparent commissions process for an agent, we simulated a statement that includes bonuses and expenses. Agent statements should be clear and detailed and have references for each item, so brokers can see why they were paid a certain amount — and cross-check any expenses if need be. 

Efficient Commission Management 

But what’s the best way to increase back-office efficiency and transparency simultaneously? Many brokerages are taking operations one step further by implementing a dedicated commission management platform, such as CommercialEdge Commissions. Solutions like Commissions offer agents a place to view and evaluate all of their statements, receivables and more. These platforms will also eliminate the need for spreadsheets and manual calculations, automating every step from the initial voucher and distribution to the final invoices. Commissions, for example, supports any type of split structure, including the most complex of tiered plans.

Furthermore, to save time and resources in both the accounting and management teams, the platform offers customizable approval workflows that are easy to set up and apply to individual deals. Commissions also includes a real-time, global analytics dashboard with vital revenue and production information, as well as customizable, downloadable reports. 

When upgrading your technology stack, remember to ask the hard questions of your potential vendors. Careful consideration is especially important when operations that include broker finances are involved. Commissions platforms should centralize and accelerate processes, support complex calculations and integrate with accounting platforms seamlessly. With the right software, distribution workflows that generally take days of individual calculations in spreadsheets can be reduced to a couple of hours of work. 

The post 5 Effective Commission Split Plans for Commercial Real Estate Brokerages to Consider  appeared first on CommercialEdge.

I moderated a recent roundtable discussion with industry experts to answer these and other questions. Brought to you in collaboration with CommercialEdge and Bisnow, the seminar covered a rich landscape of data and behavioral points.  

How Have Interactions with Tenants Changed in the Last Few Years?  

The most significant change seen by Allison Marsales, Managing Director, Office Leasing, Canada, Cushman & Wakefield, is in the influencers making business decisions regarding leasing. In the past, it was the CEO or other head of business, while today, she’s seeing COOs and operational sides of businesses, such as Human Resources, taking the lead.  

Nadir Settles, Managing Director, NY, Nuveen, agreed with Alison and added that many tenants or potential tenants have many more questions today than they did in previous years about building health and wellness protocols. They want to know what landlords have done to enhance air filtration and other steps taken to make offices safer. These were conversations he did not see in the past.  

Likewise, Settles has seen an increase in the conversation about amenities. Pre-COVID, people were interested in gyms. Today they want to know about outdoor spaces, rooftop access, and flexibility.  While co-working as a part of a sub-operation had been part of the landscape pre-COVID, now flex space is being integrated into spaces and has become a bigger amenity.  

From the perspective of Charlie Musgrave, Senior Director, Office Leasing Investments, Ivanhoé Cambridge, the historical role of the owner was to be a service partner and true partner. The landlord’s mission is today to enable the individual and collective performance of its tenant partners. He points out that this was not new thanks to COVID, but the thinking and discussion about landlord/tenant partners and landlord role and responsibility in enhancing the overall business and performance of its tenant partners have increased.  

For Spencer Levy, Global Chief Client Officer & Senior Economic Advisor, CBRE, the bottom line of all of this is agile spacing, flex space, and short-term leases. However, he hasn’t seen a shift in the capital market’s position on the asset’s impact and value and whether this flexible route is only an advantage in the short term. 

Marsales points out that she has not seen commercial clients going for flexible space as much as was predicted in Toronto but believes it’s too early to tell where the trend is truly going. Spencer has not seen this in the U.S. and says he sees companies still prioritizing shorter leases.  

When analyzing the competitive set of your property, commercial real estate professionals must consider the changes in tenant priorities and the tenant approach to leasing new space. You should start with a quantitative base for competitive sets and then layer on top the qualitative understanding of tenant behavior in that market. 

Environmental Concerns Are Still a Top Priority  

Prioritizing environmentally-friendly builds is nothing new, but Levy believes that it is changing. In the past, if a company was LEED or EnergyStar certified, the client was “good to go.” But he believes that is no longer the case. Today, companies must be sure they pass U.N. Standards, the Paris Accord, and other measurements, especially if they want to get international investors interested. This is true beyond the office sector into industrial and retail, too.  

Charlie believes that this is happening largely because younger generation employees prioritize sustainable features in the buildings they work in. For him, it is a very progressive trend in the market that he’s glad to see.  

Again, eco-friendly considerations are not new, but what Spencer says is new is that tenants and employees drive the need for further greening of buildings. Nadir brought local law into the conversation and discussed the importance of buildings complying with state and city laws, another big driver. Spencer agreed and further pointed out that today’s building owners are calculating the cost of making their buildings compliant versus the downsides and costs of not doing so. 

Owners, brokers and asset managers would do well to consider adding in environmental impact and sustainability factors into their competitive sets. It’s also important to approach a possible acquisition with this in mind; will this asset become obsolete if it’s not environmentally friendly enough for modern tenants.  

The Economics of Modern Leases 

We also asked our panelists to discuss the impact of actual economics of how space is leased at the deal level. This is an important thing to consider in the context of competitive sets and building analysis. Spencer began by saying it all comes down to costs and who pays for what. He doesn’t believe it should be looked at on only a cost basis – that is binary. He describes it more as a gating issue and notes that some buildings will be “personal non grata to some tenants.”  

Nadir discussed how not doing something can impact liquidity pointed out that if a company wants to future-proof their building, sustainability is the way to go. Alison sees a “mass flight to quality.” Buildings that are fully built out and “activated” are getting multiple offers while the same space across the street sits vacant.   

What Can a Building Offer to Help Companies Attain or Retain Talent? 

Nadir suggests that companies should look more at becoming “lifestyle brands,” which are somewhat insulated from market ups and downs. Yes, he acknowledges some increase in remote work, but points out that this is an excellent time for companies to stress what makes it worth coming into the office: culture, mentorship, amenities and development.  

He also wants office space to accommodate the lifestyle of the workers. He imagines scenarios in which a worker can wake up and web conference into a morning meeting, then head to an office space in a different market or even country owned by the same landlord that owns their own office space. On a micro level, it could be as simple as allowing talent access to conference room Uptown when their main space is Downtown. Nuveen has begun experimenting with “portfolio access” to enable tenants to lease a primary space but offer other Nuveen building access to their employees to meet evolving needs and employee locations.  

As Charlie put it, the workforce has become “nomadic” and landlords that help tenants offer this lifestyle to their employees will win. Understanding what your asset offers your prospective and current tenants vs its competitive set is critical to understand.  

Charlie went further into ideas on how to get people to choose to go to the office over working at their dining room table. His ideas focused on outdoor space, parks, and food and beverage offerings. He suggests engaging occupants from the moment they set foot in the building until they leave.  

From Spencer’s perspective, none of this is new – he points to the tech companies that brought in bars and other food and beverage options a years ago to recruit and retain top talent. The main difference is that these were amenities that the tenants provided in the past, while now the landlords are starting to provide them. 

All panelists agreed that while data is an essential part of making decisions on which assets to invest in, the human aspect cannot be overlooked. Says Spencer,” Why do people want to go back to the office? Because it makes them better and happier. People go to restaurants when they could cook at home. Why? The human element.”  

When it comes to creating, maintaining and utilizing your competitive sets and market intelligence data, my biggest take away from my roundtable discussion with these panelists is the importance of layering together quantitative data with a real qualitative understanding of the market your assets are in. That means working with local brokers, visiting your buildings and engaging in the market and listening closely to what tenant trends are telling you.  

As Spencer put it, “data is a tool, it is not the answer” but without the right tools how can we arrive at the optimal answer? 

The post Your Building’s Competitive Set: Industry Experts Meet to Discuss How to Use Market Intelligence to Make Better Decisions appeared first on CommercialEdge.