How does a real estate brokerage earn its revenue?

A brokerage does not sell houses itself. Its agents do, and the brokerage keeps a share of what they earn in exchange for its licence, brand, training, office and support. For a buyer, the question is how that income reaches the brokerage, how steady each stream is, and what the brokerage must pay out before anything is left over.

Commission splits

Most income starts as a commission on a closed deal, which the brokerage divides with the agent under a written plan. Some plans change as an agent produces more. Ask to see the plans in use, and ask how many agents sit on each. A buyer should be able to trace a closed transaction from the deal file to the commission statement and into the accounts.

Desk, monthly and transaction fees

Many brokerages also charge agents a desk fee, a monthly fee or a per-transaction fee, sometimes in place of a larger split. These charges do not depend on a single closing, which is a difference your accountant can explain. Look at how they are billed, how often agents pay late, and whether any have been waived for senior agents.

Referrals and ancillary income

Some brokerages earn referral income from other firms, or run related services such as property management or training. Treat each as its own line and ask whether it needs separate registration or sits in a separate company. Your lawyer and accountant can tell you whether it comes with the sale.

What goes out

Franchise fees, rent, insurance, technology and staff come out of that income. Compare the revenue lines with the expenses before you form a view of the business. Ask your accountant to walk you through the statements.