If there’s one constant in life, it’s that nothing stays the same. What used to work no longer works as well. What used to be necessary is no longer required. Change comes to every industry and is usually a good thing. As we examine the real estate industry’s evolution, we must ask ourselves: Should commission splits be a thing of the past?
The real estate brokerage of the late 20th century is vastly different than today’s modern brokerages. In the past, brokerages used commission splits and office fees to pay for brick-and-mortar locations, office equipment and other expenses that are often not necessary for a thriving business today.
Agents are increasingly conducting business at a coffee shop versus a conference room or in a home office versus the brokerage’s office. Technology has enabled agents to run their businesses wherever they are. If you can (and currently do) conduct business anywhere and everywhere, why are you paying for an office you never utilize? A desk fee for a desk you never sit at?
If fewer agents utilize the “benefits” offered by a traditional split brokerage, why are they still paying a large portion of their hard-earned commissions for those “benefits?”
Fathom Realty Founder and CEO Josh Harley sought to answer this question when he started Fathom.
Giving agents a way to invest in themselves
“I couldn’t find a brokerage that worked the way I believed a brokerage should work, so I challenged myself and my team to build it,” explains Harley. “I founded Fathom with the belief that we could build a cloud-based, technology-driven, full-service real estate brokerage that provides our agents with the industry’s best commission plan without compromising on technology, training and the highest level of support our agents deserve. To me, giving agents a chance to keep more money so they can reinvest in their own business is paramount.”
In a recent National Association of REALTORS® (NAR) quarterly report, most metro markets had home price gains in the third quarter of 2022, even with increasing mortgage rates and declining sales. Also, per NAR, the national median price for single-family existing homes climbed 8.6% from last year to almost $398,500.
What does that mean for agents? An agent earns higher commissions per sale as home prices rise, but so does the brokerage. Over the past two years, commission-split models have generated significantly higher commissions paid to the brokerage without agents realizing it since the percentage split stayed the same.
Let’s revisit the question. Should commission splits be a thing of the past? The agent is doing the work to close a sale, and outside of a minimal incremental increase to the Errors & Omissions cost based on the sales price, the brokerage’s role does not change, regardless of whether the property is $300,000 or $600,000. So, why does a percentage split between the agent and the brokerage make sense?
As the real estate industry moves past the pandemic fluctuations and into uncharted territory, now, more than ever, agents should be looking for ways to increase their income.
There are two ways for an agent to increase their income: sell more homes or lower their expenses. The easiest way to reduce costs in this shifting market is to reduce fees and commission splits paid to the broker. Enter Fathom Realty’s 100% commission plan, with no monthly fees, small flat fees per transaction and an annual cap of 15 sales. Fathom’s commission model generates the added income agents need to take their business to the next level and close even more homes.
Take a moment to consider a $430,000 sale with a 2.8% commission at a 70/30 split versus the Fathom flat transaction-fee model. The closing would generate $12,040 in commission, leaving those on a 70/30 split with $8,428. However, a Fathom agent earns $11,490 after a flat transaction fee of $550. That’s an additional $3,062 per sale they can reinvest in their business or put back in their pocket.
Expanding beyond Fathom’s 15-transaction cap, the capped Fathom agent now earns $11,890 after paying the reduced $150 capped transaction fee per sale for the remainder of the year. The only additional cost is the $600 annual fee. Fathom has no added franchise, desk, technology or E&O fees. So, what would the extra income mean to you during this market uncertainty?
Prioritizing agents in shifting times
Even with one of the best commission plans in the industry, as part of Fathom’s deep-rooted culture of serving and prioritizing its agents, Fathom’s leadership challenged themselves to do even more.
“As we listened to our agents’ concerns about rising mortgage rates, inventory issues, declining sales across all markets and economic shifts, we stepped up. Because our agents matter to us, we wanted to provide a way for them to keep even more of their commissions,” says Marco Fregenal, Fathom’s president and chief financial officer. “We created our FREE4Life Agent Referral Program with that in mind.”
Fathom’s FREE4Life Agent Referral Program rewards Fathom agents for referring other agents to the company. Fathom agents earn $250 in stock grants for every agent they refer who joins Fathom, and it only gets better from there.
With Fathom’s FREE4Life Agent Referral Program, when a Fathom agent refers four other agents to Fathom Realty, they will be capped for life at the CAP4Life status. This means that their transaction fee will remain at the lower capped fee of $150 per sale for as long as they are with Fathom, even if one of those four agents leaves Fathom in the future. Better yet, when they refer an additional four agents, they will become FREE4Life, never paying another fee to Fathom (excludes commercial and third-party related fees such as MLS dues).
The FREE4Life plan is on top of the stock grants agents already receive for each agent they refer to Fathom. One caveat is that referred agents must have completed at least two transactions in the past 12 months and stay with Fathom for a minimum of two months to count toward CAP4Life or FREE4Life status.
“With the current market conditions, our FREE4Life Referral Program could not have been more vital, as it puts more money back in our agents’ pockets. Over 35% of our agent growth comes from our agents’ referrals. Therefore, we wanted to thank them by providing them with greater and more permanent benefits for their referrals. We have already seen an increase in agent referrals and look forward to seeing how our agents take advantage of this new program,” adds Harley. “We believe an agent should receive the highest commission possible for their transactions and be immediately rewarded for their referrals rather than depend on others.”
Another benefit of Fathom’s FREE4Life Agent Referral Program is that it also applies to team leaders. When a team leader joins Fathom Realty, they immediately receive credit for the agents on their team. That means a team leader with four agents will be capped for life from day one. Any agents with over four on their team will count toward stock grants.
Although many brokerages provide incentives for agent referrals, none are as direct and immediate as what Fathom offers. By offering lower transaction fees and stock grants for referrals, Fathom is living its guiding principle of service by significantly improving its agents’ lives. In fact, the typical agent who joins Fathom saves an average of $12,000-plus per year and increases their business by an average of 49%, thanks partly to the significant savings in their commissions.
“A recurring theme we hear from agents is that they came for Fathom’s commission plan and stayed for the culture. At Fathom, it’s more than a business; it’s a family,” says Samantha Giuggio, Fathom Realty’s chief operations officer.
“At Fathom, you matter. While most brokerages talk about having a heart for people and caring for their agents, Fathom lives that value day in and day out. Over the past 12 years, I’ve spoken with thousands of agents who have echoed that sentiment. Our culture of truly serving our agents is unique in our industry and guides every decision we make. Before any decision is made, as leaders, we ask ourselves, how will this impact our agents? In any economy, one of the best indicators of success is being with an organization that believes in and supports your success. In today’s economy, having a company like Fathom in your corner is critical to support your growth,” says Giuggio.
“Service is at the heart of everything we do at Fathom. We believe that when we serve others and genuinely put them first, we will be successful. We believe a real estate agent’s value shouldn’t be measured solely by transactions and volume. Your value and worth are measured in many other ways, and each member of our Fathom family is important,” says Harley.
Preparing for the future
Fathom believes that now is the time for agents to look at their business and think about whether commission splits are a thing of the past. “If you’re doing all the work to close a sale and excluding incremental increases to the E&O cost based on the sales price, your brokerage’s role does not change, regardless of the property’s value,” says Harley. “So, why does a percentage split between you and your brokerage make sense?”
As our industry continues to move past the pandemic fluctuations and into uncharted territory, now is the time for agents to examine ways to increase their income. For many, commission splits may be a relic of the past with programs like Fathom’s FREE4Life representing a better future.
Learn more about Fathom’s commission plan, culture and local leadership. Then schedule a call with a team member at https://fathomcareers.com/free.