Traditional Commission Model

The traditional commission model is the most common franchise model and is seen in such franchises as Century 21 Real Estate, Prudential Real Estate Affiliates, Coldwell Banker Residential Real Estate, or a dozen other well-known national brands. These franchises have grown up over the last 50 to 80 years at a time when the traditional commission model was highly profitable and agent commission splits within the company averaged close to 50 to 60 percent.

Under the traditional commission model, the brokerage revenues come from the gross commissions generated by its salespeople. This gross commission income (or GCI) is shared first with the franchisor through payment of the off-the-top fee, then secondarily with the sales associate responsible for the transaction. This leaves an amount referred to as gross profit or company dollar and represents the amount of money the brokerage has left to pay its operating expenses and generate profit for its owner.

For a start-up company, the key to a traditional commission model office is to keep the gross profit (or company dollar) at a minimum of 21 to 35 percent of the gross commissions received by the company. This task is easier said than done in today's climate, where agents are demanding bigger commission splits than ever before.

The primary benefit of the traditional commission model franchise is that it is commonly accepted, understood, and supported, thus creating no barriers to recruiting agents from companies with similar commission structures. Furthermore, the cash flow for this sort of office is good if it is in a high-end marketplace or in a marketplace with a high volume of sales units. As the company's agents make more money and produce more sales, so should the broker's profits grow.

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