The Small Business Times

What Does Capping Mean In Real Estate?

One of the most frequently asked questions in the real estate industry is “what does capping mean in real estate?”.

Capping is a term used in the real estate industry to describe when a realtor doesn’t accept a commission split and instead receives 100% of the commission. Caps are calculated annually, either through a fiscal year with a Keller Williams. It usually happens when a company or brokerage reaches its commission cap. When they’ve reached their limit, a realtor can take what’s left.

When compared to split, capping is generally a better option for realtors. A realtor never has to worry about taking a 70/30 split. Instead, they take the entire commission.

Don’t worry if it still makes little sense. We’ll take a look at the ins and outs of what capping means in real estate in this article.

Understanding What Does Capping Mean in Real Estate

Capping is the popular term in real estate used to describe when a company reaches the limit on the revenue it can take for the company commission. The commission cap is primarily determined by the brokerage contract and the market in which you work.

Some caps are set at $15,000 or $12,000 if sales exceed $2,000,000. That means a realtor can earn up to $180,000 per year. A realtor cap in some wealthy areas or larger states can be around $42,000, which means a realtor can earn up to $355,000 per year.

When a transaction reaches a certain threshold, the companies may charge a cap fee. Even if a realtor receives 100% of the commission, they must still pay a fee.

A split should not be confused with a cap. A split is the percentage of a realtor’s commission that is split between the realtor and the brokerage or company. In this case, the realtor only receives half of the commission and not the total commission value. This varies according to the agreed-upon commission split percentage.

If you’d like to be successful as a realtor, remember that a cap is a better option than a split. Those who sell more will have a higher cap than those who sell a great deal but have a split commission. With capping, you can always expect higher earnings than with a split. You have the ability to increase your earnings if you have a good network and a high sales volume.

The Bottom Line 

Remember that each brokerage can set its cap. Before year begins, the brokerage and realtor must reach an agreement on the cap.

If you use the cap commission model, you must ensure the necessary tools and knowledge. Because brokerages that offer a 100% cap may vary significantly in terms of how much help or mentorship they will provide and equipment.

While real estate caps have advantages and disadvantages, it is critical to understand how they help you.