Most real estate professionals expect commission splits at their brokerage to remain unchanged for a while longer. As for the rest, many have conflicting opinions on what kind of change is coming.
This report is available exclusively to subscribers of Inman Intel, the data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.
Change is coming to commission splits at some brokerages — but probably not the kind agents most fear, according to the most recent Inman Intel Index survey.
About 4 in 5 agents and brokers surveyed in late May by Intel believe their brokerage’s commission splits will likely remain unchanged over the next 12 months.
But of those who do expect a change to splits, agents who believe their split will fall outnumber nearly 5-to-1 those who believe it will rise.
These results reveal an underlying anxiety among agents that the upheaval stemming from the commission lawsuits may hit their bottom line on two fronts: a drop in overall buyer commissions as a result of the new policies, and a shrinking cut of what remains as brokers try to claw back some of their margins from agent splits.
Fortunately for them, some of those fears may be unfounded, an Intel analysis suggests.
Brokers tell Intel they have little leeway to reduce the agent’s cut of the transaction as their firms struggle to retain talent in a cutthroat recruiting environment.
And Intel’s latest survey confirmed what these brokers suspect: Brokerages that attempt a cut to the agent split right now would face significant pushback. Large majorities of agents surveyed across the spectrum say a reduction in their split would prompt them to leave their brokerage.
Still, brokerage leaders are eyeing changes in hopes of protecting margins while maintaining an edge in recruiting and retention.
They shared their actual plans, available to Intel subscribers in the full report.
Expectations gap
Generally most agents and brokers are on the same page: Don’t expect a change in your split anytime soon.
But the Intel Index survey results did produce one big discrepancy between agent and broker expectations:
- Fewer than 2 percent of agents surveyed believe their brokerage is likely to increase the agent’s cut of commission splits over the next year.
- But a significant share of brokerage leaders are actually considering exactly this, the survey found. The share of brokerage leaders who told Intel they are leaning toward an increase to the agent’s cut is 13 percent.
What accounts for this gap in expectations?
Intel asked those brokers eyeing an increase what was driving them. Perhaps predictably, it’s a matter of the pressures they face retaining talent in this market in the face of relentless competition.
- Just over 53 percent of brokerage leaders who told Intel they expect to increase the agent’s split in the coming year said they are motivated primarily by “recruiting or retention.”
- At the opposite end of the spectrum — brokerage leaders planning a cut to agent splits — a large majority of respondents said their plans were driven by the post-lawsuit commission environment or anticipated market conditions.
And Intel’s survey of agents finds that brokerage leaders have a more or less accurate picture of their agents’ mentality on this.
Top-performing agents already receive frequent recruiting inquiries from other firms, and most tell Intel that a move by their own brokerage to reduce their splits might be enough to push them over the edge.
- 64 percent of agents with a traditional split above 90 percent say a reduction below that mark would likely prompt them to leave their brokerage. 69 percent of agents with a traditional split between 80 percent and 89 percent said the same.
- In the lower tiers, agents were even less likely to entertain the idea of a split reduction. 79 percent of agents with a traditional split in the 70s indicated a reduction below that level would prompt them to look elsewhere.
So lowering splits at this juncture might come with considerable risk to brokerage leaders who are already concerned about retention.
Still, industry professionals can expect cuts to agent splits at a small share of brokerages as their leadership tries to fight the factors that are compressing their margins.
- While about twice as many brokerage leaders are leaning toward a split increase for agents, just under 8 percent of leader respondents said a reduction in the agent split may be on the way.
For the vast majority of brokerage leaders surveyed — 79 percent — a change to splits is not on the table, at least for now.
Instead, they shared a number of more creative measures they might take to improve margins while maintaining their firm’s attractiveness to agents.
The paths forward
As part of this line of questioning, Intel asked brokerage leaders for their unfiltered thoughts on whether they are considering changes to their compensation structure or business model.
Intel received 156 written responses to this question from brokerage leaders. Here are some of the highlights.
- “Considering an alternative plan with higher transaction-related cost/fees in lieu of a lower monthly fee. This would add flexibility for newer agents and those agents struggling to gain sales momentum in the current environment.”
- “nope. we are fixed price and our customers love it”
- “Will give a $25k salary per year”
- “reduce salaries and increase bonuses”
- “More ancillary services fees.”
- “I will no longer cover the cost of marketing, lead generation.”
- “Increasing the cap.”
- “Free buyers representation”
- “I will have a compensation disclosure that is emailed to every agent that shows a property going forward. Other than that, minimal changes.”
- “Considering hiring a lead gen team and charging agents for prequalified leads with a percentage.”
- “My compensation is the best I’ve seen where anything at all is provided. Yet, I’m constantly compared at a “split” or “cap” level with competition that uses [calculus] to figure commissions, so it’s a bit frustrating… I refuse to lie to my sales people, so that is my biggest frustration in compensation model is that being honest and forthcoming is a disadvantage in the marketplace because realtors are not great at math.”
- “yes, we are considering lowering agent splits to be more profitable.”
- “Considering upping an agent’s split and making some broker-offered resources available on a per-use basis.”
- “We may employ full time listing agents to focus only on sellers.”
- “I am considering becoming a team (as opposed to staying a small brokerage) because, in light of the deregulation of real estate after the NAR Settlement, it will be harder for small brokerages to compete with the monopolizing brokerages where they will off market deals or where large brokerages will pay a larger commission to its own buyer-agent.”
- “Diversifying business to focus exclusively on top talent, luxury residential, commercial and investment legends”
- “give them what they want or the remaining agents will leave. many have been bought by the competition already”
Methodology notes: This month’s Inman Intel Index survey was conducted May 20-June 2, 2024, and received 960 responses. The entire Inman reader community was invited to participate, and a rotating, randomized selection of community members was prompted to participate by email. Users responded to a series of questions related to their self-identified corner of the real estate industry — including real estate agents, brokerage leaders, lenders and proptech entrepreneurs. Results reflect the opinions of the engaged Inman community, which may not always match those of the broader real estate industry. This survey is conducted monthly.
Email Daniel Houston
Credit: Source link
