It’s reported that the $50M Corzine to Tepper deal in Sagaponack is being done sans broker.

I can hear the “Aw, shucks” (or something similar) being exclaimed at every bar and pilates class on the East End, not that I have been to either during this wicked allergy season.

So, how much does an agent make on a $50,000,000 transaction? I’m sure many of you imagine MILLIONS!

The reality depends on a several factors:

1- The agreed upon commission between the seller and the listing agent.

Every agent enters a listing presentation aiming for the highest commission they can get the seller to agree to.

6% commission is common in many places, but never guaranteed. Some markets go as high as 7 or 8%.  It’s not uncommon for the higher priced home owners to negotiate the commission down to, lets say 4 or 5%.

2- The agreed upon “offer of compensation” between the listing Broker and the Broker that brings the buyer.

In the Hamptons and Manhattan, the commission is typically split 50/50 between the listing Broker and the Broker who brings the buyer.  In other areas of Long Island, the listing Broker usually keeps a larger amount of the commission and offers out less than 50% to the Broker that brings the buyer. Why? Greed, and they get away with it. Saps!

3- The “Split” between the agent and the Brokerage they are working for.

Note that the commissions on any transaction are paid to the Brokerage the agent works for. The Brokerage keeps their share and pays out the split to the agent who did the work on the transaction.    Most agents start out at 50% (although we hear that one major Brokerage out here has started a new 45% tier) and as they gain experience and increase their gross commissions to the Brokerage, their split increases to, say 70% or greater in some cases.  See an interesting chat on Hamptons Brokerage splits here.

4- Was the customer or a client a Referral or are you working on a Team?

It is not uncommon for big clients or customers to be referred by their family members or best friends who have a real estate license. And the referral fee is usually 20 – 25% of the commission your Brokerage earns on the deal. Many are very justifiable and from hard working professionals that have been working with these clients for years, but don’t have the local expertise or connections needed to complete the transaction in an area outside their own market (common with second homes), but when they are “just the result of a phone call”, they can sting a bit.

Regarding teams, with the 24-7 nature of the real estate business today, many professionals have formed teams so someone can always be available to their clients. Often team members share in all commissions that come into the team.

5- Our Dear Uncle Sam

Most Agents are 1099 contractors and pay their own taxes.

Now for the reality

So, take a $50,000,000 sale and apply the above reduction mechanisms to it and I bet the number that spits out is less than you thought it would be!

Best case scenario:

One agent @ 5% commission:  $2, 500,000

@ 70% split w Broker:  $1,750,000

- 35% US taxes:  $1,137,500

Not a bad take!

Likely Scenario:

Listing agent and Selling agent @ 4% comission; $1,000,000 each

@ 65% split w Broker:  $650,000

- 35% US Taxes : $422,500

Still enough for a one-bedroom in The Springs, but…

Worst case…

add a referral fee of $25% and split it with a team member and the final commission on that $50M sale is about $160,000.

STILL A GREAT PAYDAY, but less than your imagination led you to believe.

And remember, there were approximately 10 sales of this magnitude in the US in 2008 and there are approximately 1.3M agents in the US.

It ain’t easy folks and I admire any agent who gets the opportunity to be part of a deal of this size.   It’s rarely “dumb luck” and often the result of years of hard work, building relationships, planting seeds and weeding the gardens of their business that results in this good fortune.

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