Five years ago I was mumbling through my thoughts on Facebook about how average producers talk "split" and how top producers talk about "net" and little did I know that it would be one of the most talked about and re- shared posts I think I may have ever had.
Enough has changed in the industry over the last 5 years that I thought it'd be time for an update. It may be long winded but I think you'll find it valuable (at least Inman did 🙃). So here we go…
In my nearly 20 years of Real Estate brokerage and team leadership, I have been involved in hundreds of conversations with agents who are constantly chasing companies that will give them a higher "split." Anytime an agent asks what my thoughts are on the topic of splits, I sort of chuckle inside and think to myself "Wow, do you have a lot to learn." You see, the question the agent should be asking the broker or leader of a company is not "what is my split," but instead they should ask "what is my net?" And, quite frankly, I am not just talking about money. The real estate veterans and the most successful business people understand that “net” is much more important than just money. Net is a more complicated datapoint to calculate, and split or cap is surely a factor in the calculation, but net is a combination of both the income you earn AND the life you live.
Time and time again, I see agents make the decision to leave a successful company or team to "do their own thing" or to "build their own company" and what I have observed is that in 90%+ of those cases the agent actually ends up netting less money, or even worse, spending less time with their family AND making less money! This brings me to my next point with the agent who thinks this way; are they making a move because it makes business sense or is it because their ego is being stroked during the recruiting (a.k.a. courting) process? Unfortunately, ego is a major player in the decision making process today, as too many agents are focused on the recognition they’ll get versus the headaches they’ll acquire. One of my first mentors used to say, “you can feed your ego or you can feed your family - pick one.” As a leader, before I get too far in the weeds with an agent about why a higher split is important to them, knowing full well that they think higher split equals more money, I walk them through what I mean by “net” and why it’s critical that they shift their focus from split to net.
Here are 5 reasons why NET is more important than SPLIT or CAP:
1. Your Taxable Income at Year's End
Not what your 1099 says, but your income minus your expenses. This is an important one because many agents who chase a higher split are so desperate in their attempt to find it that they forget to calculate what everything else will cost them. You see, if you are paying a split to a company, you are generally getting something in return, either in terms of marketing, office space, training, or some mix of perks. If a company offers a higher split to the agent, as a general rule the company has less money to offer the agent anything in return, thus increasing the agent’s actual business expenses.
I'll never forget the first time I had this conversation with an agent several years ago. He was sitting in front of me asking what his split would be, given his years of experience. Not surprisingly, the gentleman asked the question in an entitled way, expecting that he should be favored. Before I responded, I asked him what his current split was and he responded with the following; "I pay my broker $15k and after that I get 100%." I said okay that's fair and then asked him what his GCI was the previous year and he responded proudly with "$240,000.” I congratulated him and then asked if he pays taxes, of course his response was "yes," so I followed it up by asking him what his taxable income was after paying all of his expenses. He responded with a little less enthusiasm this time, “about $120,000.” I said, “okay great” and then I pointed out to him that he's essentially on a 50/50 split. As he shrank in his chair, the pieces started falling into place. He asked, “okay, what would my net be here?" Now, he was beginning to think like a true business person.
2. Your Ability to Learn and Grow
I have yet to find a high split, low cap commission model that also offers a training and coaching program designed to increase your net. Want to know why? Because it doesn't matter how much you sell, they will never make more so what's the incentive for them to make sure you succeed? That's right, there isn't one. You want to be with a company that has a vested interest in every transaction you do - it’s called the lattice effect.
The lattice effect in the real estate industry means that you will go further, faster when you have something to wrap your “stems” around. In this case, the fencing is the brokerage or team that is continually offering training and coaching (because they have a constant vested interest) and the plant is the agent. The more training and coaching, the higher the fence, which means the taller the plant. The taller the plant, the more net for the agent.
3. Your Support & Resources
I don't care whether you've completed 100 or 1,000 transactions, you will always have a situation where you need questions answered or help with a task. Generally speaking, companies that offer a higher split have a very lean budget and therefore one of the first positions to go, or to not get filled at all, is in the support department. Salaries are the largest cost of a successful Real Estate company and if there's no money to pay talented staff, unfortunately you are on your own. By the way, this is not just limited to administrative help, I am also referring to your wealth determiner.
One of my first mentors, Gary Keller, has always said that in order for an agent or leader to achieve their highest potential, they need to pick the right wealth determiner. Meaning, does the person you generate revenue for, pour into you to live your best life? Does the person you determine wealth for have the type of life or lifestyle you’d like to have? Are they considered successful in their field and therefore can help you to become successful? If the answer to the above questions is “I don’t determine wealth for anybody, I determine wealth for myself”, we’ve got bigger problems.
4. Your Conversion Rates
Everything we do in this business, including the company we affiliate with, impacts our conversion. I am referring to contacts to appointments set, appointments set to appointments gone on, appointments gone on to contracts signed and closings to future referrals gained. Of course, most experienced producers will look at this one and say no way, it makes no difference, while the greats all know that it does make a difference today more than ever. Why now more than ever? Because today social media is the new pre-listing package and consumers aren’t just checking you out before agreeing to meet with you, they are also stalking your company and digging deep to explore your company or team’s reputation.
So what does any of this have to do with split vs net? Generally speaking, the companies that generate more revenue from agent commissions (or franchise fees) take a large portion of that income and they put it right back into advertising, branding, community events or things that lead to positive PR, thus putting more net money into their agents pockets from their higher conversion rates. Every study under the sun tells us that consumers prefer to do business with local or national brand names they know or have heard positive things about in the past and companies or teams with larger advertising budgets use this to their and their agents' advantage.
5. Your Time
Companies that promote the high split/low cap model just simply do not have the resources to provide world class systems, technology, marketing and people to help you be more efficient (and effective). Many teams or companies that use the high net model put you in a position to actually work smarter and not harder because everything has been put into place to make your life easier and ultimately give you back more time. What I have found is that instead of just spending time working IN the business, you end up spending time working ON and IN the business and both lead to more hours worked in the split model.
In the high split model, you will spend anywhere from 20-50% of your time each day, completing low dollar per hour tasks, taking more money out of your pocket. Sure, you can hire an assistant but who's going to train them? Who’s going to manage them? Who’s going to spend time retaining them in today’s job market? All of these take precious time and while I do believe hiring staff and building a team is meant for some, it’s not meant for most. Leave that for those that actually enjoy hiring, training, developing and managing others in the industry. When you do the math and look at what you’re worth per hour (for most of you reading this probably somewhere between $75-$200) you’ll discover that taking on all of the above is not worth the extra ten, twenty or even thirty percent in your split.
Even after considering all five points above, in rare occasions a higher split does lead to netting more money, and in the end it might just make the most sense for an agent to consider that model, but as a leader you’d be doing the agent a great disservice by not opening their eyes to all the factors at play as it relates to their personal and professional life.
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