PSI Virginia Real Estate Practice Exam

What is a critical aspect of commission splits between brokers and agents?

1. All commissions are given directly to agents

2. Brokers do not handle commissions

3. Commissions are paid to brokers first

4. Commission splits are not based on performance

The correct answer is: Commissions are paid to brokers first

Commission splits are a foundational aspect of the relationship between brokers and agents in real estate transactions. Typically, when a property is sold, the total commission earned from that sale is first paid to the brokerage firm. This practice is essential because it allows the brokerage to cover its operational costs and support its agents. Once the commission is received by the brokerage, they then distribute a portion of it to the agents based on the agreed-upon commission split arrangement. This structure incentivizes agents to perform well and close sales, as their earnings are directly tied to the brokerage's commission receipts. The other options propose scenarios that do not accurately reflect standard industry practices. While all commissions are not given directly to agents, nor do brokers refrain from managing commission payments, there is also a performance-driven aspect to commission splits that directly counter the idea that splits are not performance-based. Performance can influence the percentages that agents receive, thereby establishing a meritocracy within the brokerage system.