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What is the Best Approach for Commission Split in Real Estate?

By Star Report 6 min read

By Rick Dingraudo, Financial Analyst - New Home Star //

While everybody’s personal philosophies, management styles, and business best practices may vary, there is one common theory that all can agree on: whatever you do, do not mess with other people’s money. Within New Home Star’s divisions, the range of commission splits, or lack of, vary greatly across the country. This poses the question as to why some teams agree to a shared commission floor, and why others believe that it is best to work on a competitive sales floor.

In this article, we will share insight from several of New Home Star’s sales professionals ranging from Sales Associates to Vice Presidents. More specifically, we will explore the effect that choosing between shared and competitive floors has on team culture, net sales, and the overall outlook on earning commissions.

Team Culture

On a shared floor it is only natural that there is a great deal of dependency upon a cohesive team culture. If everyone on the team gets an equal share of the pie, all Sales Associates should be motivated to continue to grow the pie larger. One of our Sales Associates in the Pacific Northwest said that her Director allowed her and her partner the autonomy to choose whether they wanted to create a competitive or shared floor. Initially, they began their partnership on a competitive floor but eventually chose to switch to a shared floor, splitting all commissions 50-50. When asked upon the change in team dynamic that followed, she stated, “where once was a rivalry, there is now a family.”

On the opposite side of the country, a South Carolina Sales Associate states there was never a question of whether to split or not. A true team culture was ingrained from the start, and splitting evenly with his partner(s) was to be expected. Upon graduating New Home Star’s 8-week sales training program, he hit the ground running and was selling close to double what his partner(s) was selling month after month. As he began to feel short-changed, his partner recognized the same issue and approached him with a proposition. “I am going to make this right,” he said. “The next few months, I will handle the majority of the sales and backlog management, and you can do the administrative, back-end work.” This evened out the partnership, and the two are now consistently performing and feel equally valued.

On the competitive sales floor, the registration card is the almighty ruler. In most cases, this means that the Sales Associate who originally registers the customer is the one who receives the full commission, regardless of who brings that customer to contract. While this may lead one to conclude that Sales Associates on competitive floors are only driven by their individual success, our Vice President in the Southeast tells us that could not be farther from the truth. “I believe in a culture that supports each other, whether or not [the Sales Associates] are compensated for it,” and adds that the competitive floor “helps to solidify their moral compass and trains them to be selfless leaders.” In this environment, everyone is expected to carry their own weight and is accountable to the entire division when the sales are tallied at the end of the month. Each Sales Associate can only point a finger at themselves, and looks at their entire team as their “partners,” even though their commissions are not being split throughout the team.

What Will Lead to More Sales

A Director in the Southwest, who is an adamant proponent of competitive sales floors, even admits that “with a shared floor, there is no doubt that if you have the right synergy, it will lead to more sales.” At this point, the questions then becomes whether or not splitting sales commissions promotes that type of synergy.

Our Sales Associate in the Pacific Northwest says that she is fortunate to work on a perfectly complementary team. While she is great at establishing a relationship with her prospective buyers, her partner excels at closing the deal. However, she recognizes this is not always the case. She agrees with our South Carolina Associate who says that it is very rare to find such a synergistic duo with perfectly complementary strengths. He says that while truly complementary teammates makes perfect sense for splitting commissions, he believes that there may not be enough diversity in strengths amongst Sales Associates to find those rare partnerships. This is not to say that we only recruit the same cookie-cutter type of Sales Associate, but as a sales team interviews a candidate, they may be naturally inclined to select a new hire that naturally feels similar to what has helped that team to succeed in the past.

On the flipside, the benefit of being on a competitive floor, we can point back to how self-drive and motivation can push Sales Associates to excel. Since they can only point to themselves when it comes to the success of their community, there may be an additional factor of accountability that comes along with that. A Sales Director leading a team of this kind may be inclined to host healthy monthly competitions between the Sales Associates for extra motivation.

Where is the Commission Earned

An unexpected debate that came up was whether the commission was earned when the sale was written or when the home is under construction. The true answer is that this varies between builders. Those who believe the commission is earned during the backlog process are most likely to have builders with longer construction times. As one Sales Associate who is part of a 50-50 split team put it, “New Home Star does an amazing job of training us on how to get the sale, so that is not the challenge. The hardest part is getting the customer not to cancel their contract when the builder is running behind on a delivery.”

Those who argue that it is at the time of sale are more likely to point out the importance of establishing the relationship with the buyer. There is a great deal of effort and training required to build the customer up to the emotional peak of signing the contract. Therefore, it is understandable for anyone to believe that is the point in which the commission is truly earned.

Unfortunately, there is no black and white answer whether a team should be set on a shared or competitive floor. We’ve seen both strategies excel in the right circumstances. Factors like the Director’s leadership style, the team’s personality, and culture all play a huge role in uncovering the secret formula that’s unique for your sales team. However, whether your division is comprised of shared or competitive floors, the common theme is to always have this conversation up front before sales begin to be written. All team members have to be willing to communicate, and never sacrifice a relationship with a teammate over commissions.

Originally published Nov 30, 2017 under Explore the latest topics, updated February 2, 2024

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