Commission Math: Tiered Rates and Broker–Associate Splits

Calculate the commission earned by the brokerage first, then calculate the associate’s share of that commission. When a question gives different rates for different portions of the sale price, calculate each portion separately.

The rates in these exercises are hypothetical. Real estate commissions and compensation arrangements are negotiable; there is no standard commission rate.

Write down the calculation order

1. Identify the amount to which each rate applies.
2. Multiply each portion by its own commission rate.
3. Add the portions to find the total commission.
4. Apply any sharing between brokerages stated in the problem.
5. Apply the associate’s split to the commission their brokerage receives.

Only apply a split or fee that the problem gives you. A sales associate’s percentage is ordinarily a percentage of the applicable brokerage commission in these exercises, not a percentage of the property’s sale price.

Worked example: tiered commission

A hypothetical agreement provides 5% on the first $400,000, 4% on the next $300,000, and 3% on the amount above $700,000. The property sells for $850,000. There is no sharing with another brokerage. The associate receives 60% of the commission.

Associate’s share: $36,500 × 0.60 = $21,900. The brokerage retains $14,600 before any other expenses. The price portions add to $850,000, which checks that no portion was omitted or counted twice.

What if two brokerages share the commission?

A different exercise gives a $500,000 sale, a 4% total commission, an equal split between two brokerages, and a 70% associate split within one brokerage. Total commission is $20,000. That brokerage receives $10,000. Its associate receives $7,000. Multiplying $20,000 directly by 70% would skip the inter-brokerage split.

Avoid these common mistakes

• Do not add tier rates and apply the sum to the entire price.
• “The next $300,000” describes a portion, not a new total price.
• Convert 5% to 0.05 before multiplying.
• Keep the sale price, total commission, brokerage share, and associate share labeled separately.

Try three practice questions

1. A $300,000 sale earns a hypothetical 4% commission, with no other brokerage split. The associate receives 65%. How much does the associate receive?
2. An agreement pays 5% on the first $200,000 and 4% on the remaining $150,000. What is the total commission?
3. A brokerage receives $18,000 and pays its associate 60%. How much does the brokerage retain before other costs?

Answers and explanations

1. $7,800. $300,000 × 0.04 = $12,000; $12,000 × 0.65 = $7,800.
2. $16,000. $10,000 + $6,000. The two percentages apply to different portions.
3. $7,200. The associate receives $10,800; $18,000 − $10,800 = $7,200.

Keep studying

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