Commission Calculations: Rates, Splits, and Net Proceeds
Master real estate commission math including standard rates, broker-salesperson splits, VAT on professional fees, and computing net proceeds for clients.
Standard Commission Rates in the Philippines
“A real estate broker shall be entitled to receive compensation or commission for his professional services in connection with the purchase, sale, exchange, lease, or mortgage of real estate unless he has violated any provision of this Act. The commission or compensation of a real estate broker shall be agreed upon by the parties.”
What This Means
Philippine law does not set a fixed commission rate. it is market-driven and agreed upon by parties. However, industry standard rates are: 3-5% for sale of lots and house-and-lot, 5% for raw land and farm lots, and 1 month's rent (or a percentage of total lease value) for leasing. Developer projects typically offer 3-5% to selling brokers plus additional incentives. The commission is based on the Transaction Value (selling price, or total lease value for leasing). Computing commission correctly is essential for broker financial planning.
- No statutory fixed rate. commission is by agreement
- Industry standard: 3-5% for residential, 5% for raw land
- Leasing: typically 1 month rent or 5% of total lease contract value
- Developer projects: 3-5% + incentives (trips, bonuses)
- Commission base = Transaction Value (gross selling price)
Real-World Scenario
Broker Reyes closes a P12,000,000 house-and-lot sale with an agreed commission rate of 5%. She also has a salesperson, Agent Cruz, who sourced the buyer. Their split agreement is 60-40 (broker-salesperson).
How much does each person earn from this transaction?
Broker-Salesperson Splits and Override
“A real estate salesperson shall perform real estate service only for or on behalf of a licensed real estate broker. No salesperson shall be entitled to a commission from any person or entity other than his employing broker. No person shall pay any commission or compensation to any real estate salesperson except through his employing broker.”
What This Means
Commission splits vary by brokerage. Common structures: (1) Flat split (e.g., 60/40, 70/30 broker/salesperson), (2) Sliding scale (split improves as salesperson hits targets), (3) Override model (broker takes a fixed "override" percentage, rest goes to agent). For co-brokering (two brokers sharing a deal): the typical split is 50-50 between listing broker and selling broker, though this is negotiable. When computing income, remember that salespersons are considered "self-employed" for tax purposes. they file their own income tax returns.
- Common splits: 60/40, 70/30, or 50/50 (broker/salesperson)
- Sliding scale: better split as agent produces more (e.g., 50/50 → 40/60 after P5M)
- Override: broker takes fixed 20-30%, agent keeps the rest
- Co-brokering: typically 50/50 between listing and selling broker
- All payments to salesperson must go THROUGH the broker (RA 9646)
Real-World Scenario
A brokerage uses a sliding scale: 60/40 (broker/agent) for the first P3M in annual sales, then 50/50 for P3M-P10M, then 40/60 above P10M. Agent Santos closes a P15,000,000 sale (5% commission = P750,000), bringing her annual commission earnings to P1,200,000 for the year.
How is Agent Santos' P750,000 commission distributed under the sliding scale?
VAT and Tax on Broker Commission
“A value-added tax equivalent to twelve percent (12%) of gross receipts is hereby imposed on the sale or exchange of services, including the use or lease of properties. The term "sale or exchange of services" shall mean the performance of all kinds of services in the Philippines for others for a fee, remuneration, or consideration, including those performed or rendered by... professionals.”
What This Means
Broker commissions are subject to VAT if the broker's annual gross receipts exceed P3,000,000. VAT-registered brokers must add 12% VAT on top of their commission when invoicing developers/sellers. If below P3M, the broker pays 3% percentage tax instead. Additionally, brokers are subject to income tax on their net income. For employed salespersons, withholding tax applies. For self-employed brokers/agents, quarterly estimated tax payments (BIR Form 1701Q) are required. Understanding these taxes is essential for computing actual take-home pay.
- VAT (12%) applies if broker annual gross receipts > P3,000,000
- Below P3M: 3% percentage tax instead of VAT
- VAT is added ON TOP of commission. developer pays commission + VAT
- Income tax: self-employed brokers can choose 8% flat rate or graduated rates
- Quarterly estimated payments via BIR Form 1701Q for self-employed
Real-World Scenario
Broker Lim is VAT-registered (annual receipts P5,000,000). She closes a developer sale earning P500,000 commission. She wants to know her actual take-home after taxes.
What are Broker Lim's tax obligations and net take-home from this P500,000 commission?
Frequently Asked Questions
Can a seller refuse to pay the agreed broker commission?
Once a commission agreement exists (preferably in writing via a Broker's Authority or Exclusive Authority to Sell), the broker is entitled to commission upon closing. If the seller refuses to pay, the broker can: (1) file a civil case for collection, (2) file a complaint with the PRC-PRBRES for unethical conduct if the seller is also a licensee, or (3) invoke any arbitration clause in the agreement. A written authority to sell protects the broker's commission claim.
Is the commission based on the gross selling price or the net selling price?
Unless otherwise agreed, commission is typically based on the GROSS selling price (total consideration in the deed of sale). not the net amount after taxes or other deductions. For developer projects, the commission is usually based on the Net Selling Price (total contract price minus discounts/promos). Always clarify the commission base in your written agreement with the seller or developer.
How is commission computed for installment sales?
For installment/in-house financing sales, commission is typically computed on the Total Contract Price (TCP) and paid in tranches matching the buyer's payment schedule. Common structures: 50% of commission at reservation, 30% at move-in/turnover, 20% upon full payment. Some developers pay 100% upfront on the TCP. If the buyer defaults and the sale is cancelled, some developers require commission clawback (return of unearned portion).