Key Takeaways:
– A $1.8 billion dollar damages claim has been assessed against the National Association of Realtors, Keller Williams, and HomeServices.
– There were slightly over 10 million transactions of existing home sales nationally last year.
– The damage claim, if extended across the country, would result in a total of $72 billion in damages.
– Over the past five years, the total gross commission paid out to residential brokerage firms and agents was approximately $420.9 billion.
– The average gross margin retained by brokerage firms is about 14% of gross commissions.
– The brokerage firms’ share of gross commissions over the past five years was likely around $58 billion.
– The damage award, if extended nationally, would be 124% of all the gross margin made by brokerage firms in the last five years.
– The approximate profit made by the brokerage industry over the past five years was $2.3 billion.
– 86% of gross commission revenue goes to real estate agents and teams.
– The challenge is that those who benefitted the most from the system escape any liability in the damage awards.
HousingWire:
While reading about the $1.8 billion dollar damages claim assessed against the National Association of Realtors, Keller Williams and HomeServices, I wondered what impact this could have economically on the industry. I decided to break down the numbers and look at brokerage economics.
Last year, nationally there were slightly over 10 million transactions of existing homes sales.
Theoretically, multiplying the damage claim by 40 or so would result in a total of $72 billion in damages if extended across the country against all transaction sides.
According to data from RTC Consulting and RealTrends, the total gross commission paid out to residential brokerage firms and their agents over the past five years was approximately $420.9 billion.
What we also know is that the average gross margin, the money that is retained by brokerage firms, is about 14% of gross commissions among all brokerage firms in the U.S., according to RTC Consulting data. So, the brokerage firms’ share of the gross commissions was likely in the range of $58 billion over that period.
Breaking down the numbers
So were a Federal judge — consolidating all the claims against all brokerage firms in the U.S. to set this claim — then it would equal about 124% of all the gross margin that all brokerage firms did in the last five years.
Since the average pre-tax profit margin, according to our data, was approximately 4% over that time, then the approximate profit would have been about $2.3 billion over that period —for the full five-year period. This means that the damage award, if extended nationally, would be 31.3 times all the pre-tax profit made by the brokerage industry during that time frame.
Of course, the significant missing data is that most of the gross commission revenue ends up with the real estate agents and teams. According to our data, 86% of it, on average, across all business models, brands, regions etc. goes to the agents and teams. To the best of my knowledge none of the agents and teams were named in the Missouri case. We do know that in the most recent case filed in Texas some teams and individual agents have been named but only a very short list.
I am not sure that any brokerage firm would have the ability to recapture any of the damages from their agents or teams. Perhaps someone may know how this could be done, but I am not sure how a brokerage could reach back to do so.
This is among the large challenges facing the industry. Those who benefitted the most from the system as it has existed escape any liability in the damage awards.
Steve Murray is the founder and partner of RTC Consulting and a senior advisor to HW Media.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story:
Steve Murray at [email protected]
To contact the editor responsible for this story:
Tracey Velt at [email protected]
Related
Source link
Property Chomp’s Take:
Have you ever wondered about the impact of a multi-billion dollar damages claim on the real estate industry? Well, recently a $1.8 billion claim was assessed against the National Association of Realtors, Keller Williams, and HomeServices, and it got me thinking about the potential economic implications. So, let’s break down the numbers and take a closer look at brokerage economics.
In the United States, there were slightly over 10 million transactions of existing home sales last year. If we were to multiply the damage claim by 40 or so, we would end up with a staggering $72 billion in damages if extended across the country against all transaction sides.
Now, let’s consider the total gross commission paid out to residential brokerage firms and their agents over the past five years, which amounts to approximately $420.9 billion according to data from RTC Consulting and RealTrends. However, it’s important to note that the average gross margin, the money retained by brokerage firms, is about 14% of gross commissions. This means that the brokerage firms’ share of the gross commissions was likely around $58 billion over that period.
If a Federal judge were to consolidate all the claims against brokerage firms in the U.S., the damages would equal about 124% of all the gross margin earned by brokerage firms in the last five years. Considering that the average pre-tax profit margin over that time was approximately 4%, the approximate profit made by the brokerage industry during that period was about $2.3 billion. This means that the damage award, if extended nationally, would be 31.3 times all the pre-tax profit made by the brokerage industry.
However, it’s important to mention that most of the gross commission revenue ends up with the real estate agents and teams. On average, 86% of it goes to the agents and teams. In the Missouri case mentioned earlier, none of the agents and teams were named, and in another recent case filed in Texas, only a short list of teams and individual agents were named. This raises the question of whether any brokerage firm would have the ability to recapture any of the damages from their agents or teams.
This situation highlights one of the challenges facing the industry. Those who have benefitted the most from the existing system may escape any liability in damage awards. It remains to be seen how this will be resolved and whether brokerage firms can hold their agents and teams accountable for any damages.
In conclusion, the $1.8 billion damages claim assessed against the National Association of Realtors, Keller Williams, and HomeServices could have significant economic implications for the real estate industry. The potential damages, if extended nationally, would far exceed the pre-tax profit made by the brokerage industry in the last five years. This case raises important questions about the allocation of gross commission revenue and the ability of brokerage firms to recapture damages from their agents and teams. It will be interesting to see how the industry addresses these challenges in the future.
