Agents Have Real Concerns — But Commission Rates Aren’t At The Top

Key Takeaways:

– Agents are more concerned about the health of the real estate market than their own commission rates
– Less than 10% of agents cited “compensation compression” as their top concern
– The lack of housing inventory is the top concern for 4 out of 10 agents
– Mortgage rates have fallen to third on agents’ list of concerns
– There are five potential explanations for agents’ lack of concern: Occam’s razor, uncertainty about the impact of commission lawsuits, some agents had a successful year in 2023, competitive commission splits, and the possibility of greater gains for higher-performing agents
– Career agents see a big opportunity ahead and are not jumping ship for a quick payday

inman:

Despite ongoing commission lawsuits, agents are more concerned about the health of the real estate pie than the size of their own slice, results of the latest Inman Intel Index survey show.

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.

After they endured one of the worst years in the history of the real estate industry, agents justifiably have a growing list of concerns. It seems the prospect of shrinking commission rates, though, remains far from the top of the list.

For the fourth-consecutive month, the Inman Intel Index, also known as the Triple-I, showed that fewer than 10 percent of agents cited “compensation compression” as their top business concern.

Despite newfound momentum nationally in new listings, a trend reinforced in the December Triple-I results, 4 out of 10 agents still rank the enduring lack of inventory first on their business-concern leaderboard.

This was the third time in four months that a lack of housing inventory outpaced the recurring business challenge options — including mortgage rates, commission lawsuit fallout, technological devaluation and other response choices.

  • Mortgage rates, which edged out housing inventory in November’s Triple-I, fell to third on agents’ list of concerns for the first time since the survey began in September. This result follows approximately six weeks of general interest rate decline.

With deals down massively in 2023 and a series of lawsuits challenging the underpinnings of how agents have earned buyer-side commissions for years, a relative lack of concern by agents is confounding. Intel breaks down five potential explanations.

1. Occam’s razor

You may be familiar with the idea of Occam’s razor, explained by Jodie Foster’s character in the 1997 film Contact: “It’s a basic scientific principle. It says all things being equal, the simplest explanation tends to be the right one.”

Those words may ring true here as well.

The survey question asks about “commission compression,” not income. Evidence of a reduced-commission environment in the wake of the Sitzer | Burnett verdict and corresponding settlements is anecdotal at best, and conversations with agents and broker-owners don’t paint a picture of typical commissions as a percentage of the transaction shrinking just yet.

2. Too soon to tell?

Intel, Inman and its contributor community have written extensively on the evolution of agents’ acceptance that the commission lawsuits would cause meaningful change. There is a growing understanding of the weight of this moment, and each passing settlement drives home the point that the traditional cooperative compensation model is being upended.

But it is still clear that uncertainty outweighs certainty. Inconsistent application of buyer agency agreements and fragmented training around potential lawsuit fallout don’t help agents seeking clarity. Add the fact that this is the way that business has always been done, and sentiment shifts being more glacial than galloping is understandable.

3. Last year didn’t stink for every agent

It is worth noting that a not-insignificant segment of the agent world bucked the odds last year. Almost one-quarter of agents reported increased gross commission income in 2023 compared to 2022, and slightly more than 20 percent completed more transactions year-over-year.

4. Splendid splits

Another factor is how competitive existing splits are already. It’s feasible agents believe they can keep them that way, or they have wiggle room if compression does creep in. A split of 90 percent / 10 percent was the most common commission structure in December, as it has been since the survey began. An 80/20 split has finished second each time, and the first- and second-place responses have never accounted for less than 60 percent of agent respondents.

Other, first inserted as a response choice in October’s survey to account for the myriad compensation arrangements brokerages have with their agents, has always ranked as the third-most selected choice.

Among the written answers, edited for grammar and clarity:

  • 95 percent to 5 percent
  • Flat yearly fee
  • Tiered that averages out to 86 percent to 88 percent (higher when I make more)
  • 65 percent to 35 percent
  • $349 for transactions under $700,000, $549 for transactions above $700,000
  • 70/30 until cap [reached], then 100 percent
  • Pay $10,000 at the beginning of the year and keep 100 percent of my commission
  • 50/50 for company leads, personal are 70/30 to $2 million then 90/10 after. Company leads count toward the cap.
  • $200 for every $200,000 in sales price
  • Salary-based with bonuses

5. Winnowing competition

The final plausible explanation on this list may be just as likely as any other.

Career agents, the ones who have been through tough periods before and who aren’t jumping ship looking for a payday, see a big opportunity ahead. With significant attrition within the industry a possibility, and transparency into agent value on the rise, there is a pathway to greater gains for higher-performing agents.

“You’re going to see buyers agents charge more than they charge today,” James Dwiggins, NextHome co-founder and CEO, told the Inman Connect audience last month.

Email Chris LeBarton


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Property Chomp's Take:

Despite ongoing commission lawsuits, agents in the real estate industry are more concerned about the health of the real estate market than the size of their own commission rates, according to the latest Inman Intel Index survey. The survey, exclusively available to subscribers of Inman Intel, revealed that less than 10 percent of agents cited "compensation compression" as their top business concern for the fourth consecutive month.

The survey results showed that agents are more worried about the lack of inventory in the housing market than the potential decrease in their commission rates. This concern about inventory shortage has been consistent over the past few months, surpassing other issues such as mortgage rates, commission lawsuit fallout, and technological devaluation.

The lack of concern about commission compression is puzzling, considering the challenges agents faced in 2023 and the lawsuits challenging the traditional commission structure. However, there are several potential explanations for this. One possibility is that agents are focused on income rather than commission rates. There is currently limited evidence of reduced commissions, and conversations with agents and broker-owners do not indicate a significant decrease in commission rates.

Another explanation is that it is still too soon to determine the full impact of the commission lawsuits. Agents are uncertain about the changes that may occur and are waiting for more clarity. Inconsistent application of buyer agency agreements and fragmented training on lawsuit fallout further contribute to this uncertainty.

It is also worth noting that not all agents had a bad year in 2023. Some agents reported increased gross commission income and completed more transactions compared to the previous year. This could explain why commission compression is not a top concern for these agents.

Additionally, the existing commission splits are already competitive, and agents may believe that they can maintain these splits or have room to negotiate if commission compression becomes a reality. The most common commission structure in December was a 90/10 split, followed by an 80/20 split. These splits have consistently been the top choices among agents.

Lastly, career agents who have experienced tough periods before may see the current challenges as an opportunity. With the possibility of significant attrition within the industry and increased transparency into agent value, higher-performing agents may have a pathway to greater gains.

In conclusion, despite ongoing commission lawsuits, agents in the real estate industry are more concerned about the lack of housing inventory than the potential decrease in their commission rates. The reasons for this lack of concern may include a focus on income rather than commission rates, uncertainty about the impact of the lawsuits, successful agents who had a good year in 2023, competitive existing commission splits, and the potential for career agents to thrive in a changing market.

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