A new data study is predicting more than three-quarters of brokerages could become unprofitable if the industry fails to transform their operations once the National Association of Realtors’ (NAR) settlement changes how commissions are structured.
The study by AccountTECH calculated future net profit for brokerages – working under the assumption that volume, company overhead, and agent split percentages remain at current levels after the changes go into effect. After reviewing the finances for 100 randomly selected companies, AccountTECH found that if commission percentages dropped to 2%, then 79% of the companies in this analysis would be unprofitable. With a commission drop to 2.5%, 60% of these brokerages will be unprofitable.
The companies in the study had agent counts that ranged in size between five and 5,000 agents. The study predicted brokerages with more storefronts were considered the most challenged – for example, when focused on companies with three storefronts, only 14% were forecast to remain profitable if commission rates drop to 2% per side. But for larger companies with between 100 and 5,000 agents, the study predicted 88% will be unprofitable at a 2% commission rate.
The study based its forecasts on three assumptions: commission “splits” between real estate agents and their companies will remain static, total commission volume will remain the same and operating expenses will remain at current levels.
“Companies that are already starting to adjust their operations for the next cycle can use these study results to gauge the scale of the adjustment they need to make to remain profitable,” said the AccounTECH study. “Assuming that commission margins drop to 2%, for more than 75% of the study subjects, they need to increase income or cut expenses for every agent in their company by $2,908. As an example, a company of 100 agents will need to cut overhead by $290,800 per year to break even.”
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i really don’t think that NAR attorneys did a thing to stop this from happening. THEY COULD NOT HAVE EXPLAINED that the public vastly under stood our contracts and if the judge could not understand then it was not presented correctly. this was a rail road job if I have ever saw it. NAR NEEDS TO FILE A INJUNCTION NOW to stop this….if not then all realtors should cancel all and any payments to NAR as well as their companies///we are sheep sent to the slaughter!!
Dang Right! They may as well have said, “why don’t we just pay these attorney’s “ONE BILLION DOLLARS” instead of this much smaller amount. They definitely DID NOT REPRESENT me and my interests at all. What is the real purpose of NAR? To fight for the rights of home ownership? We can do this with our own representatives that we pay taxes for!
I couldn’t agree with you more…what a bunch of clowns… if NAR attorneys are not sharp enough and eloquent enough to stand up in court and explain the nuances of our business and and why our system works for everyone (which means the general public), they should be fired and replaced. Our system has developed and evolved into what we have over decades in order to protect the public and ensure representation for everyone. The court is somehow spinning this as a way to protect the public…all they have managed to do is put more money into the sellers pockets, sellers who are already getting a premium for their property from buyers who are waiving all sorts of protections and spending money they can barely afford, so their genius answer is to slap a commission bill on top as well?…what a joke. Very simply a listing agent can now just offer less commission to a buyer than any buyers agent can because it’s only one transaction and the buyer is knocking at their door…and they’ll be more than willing to keep it in house if they can, which drives more buyers directly to the listing brokerages instead of being independently represented, can someone explain how this is protecting the public??!!….NAR should be standing up for us and protecting our industry, instead, they surprised everyone by agreeing to a settlement after they vowed they would appeal the ruling…this was a self serving deal to save their own hide so they wouldn’t go bankrupt and now they’re trying to sell it to us as if they were protecting us. Disgraceful.
We should all walk from NAR, they’ve now proved that they no longer provide any support or protection for us in anyway whatsoever. While we’re at it, we should walk on all of the local MLSs as well….one nationwide MLS would do and also be a much more logical, simplistic and cost effective system.
I agree 100%, the method we’ve been using was developed and evolved over decades and it was extremely functional for everyone. Just like we’ve had it drummed into our heads over and over: commission s are negotiable. They always were but our negotiators fell apart and are driving us into a much worse universe.
I am 100% agree with those comments. Tne NAR attorneys should fight for the indutry. They have to appeal. Nobody is going to show a listing with 1% commission. Expenses as travel, driving, gas etc.
Why if few companies are the one made a mistake all companies has to be harm for the decision.
Why we are paying for NAR if nothing is done.
I totally agree with you!
Sad to say, totally agree, Mark. Real estate agents have been thrown under NAR’s bus. Maybe the whole goal of the NAR lawsuit is to destroy the entire MLS system in favor of online sales? Perhaps, big biz wants to cut agents’ fees and sell real estate like cars on Carvana. Open Door seems very much like Carvana. I’ve done a lot of research on them and that’s all I’m going to say about that…. Right now, I don’t want to pay NAR another dime.
Below is a link to a story about “REcolorado” being sold to a private equity firm. Who’s next and to what end?
https://www.realestatenews.com/2024/06/24/deal-in-place-to-sell-recolorado-to-private-equity-firm?utm_source=Real+Estate+News&utm_campaign=fa9a9359fa-EMAIL_CAMPAIGN_2023_03_29_09_44_COPY_01&utm_medium=email&utm_term=0_-56236f4a8a-%5BLIST_EMAIL_ID%5D
That is exactly what I thought. My small brokerage was in KY & OH, I’m newly retired after 34 years. we have a plethora of large, medium and small brokerages offering all the way down to 1%. No antitrust issues or collusion here, no guns held to consumers here. Plenty of competition. Agreed-NAR attorneys are inept! Amazingly weak. And why did I read the NAR President flew to D.C. several times to meet with a congressman on this suit? I suspect this outcome was planned.
Maybe Buyers should start a class action lawsuit of their own since this is mostly hurting them
Totally agree. It harms the ones the most it was trying to protect. Unbelievable!
Yes, they should also be suing. THIS IS THE BALANCE. Brokerage fee is built into the price of every single home which can be negotiated. Some of it is available for the buyer agent fee some of it is for the listing agent. It is a balance. It is not stealing anything away from anyone. But now the buyers who want to work with an agent, may ultimately pay a whole lot of money out of their pocket now. Thanks NAR! Thanks also to the justice system for not throwing out such a misunderstood one sided case.
Thank you, Keith….BALANCE is the word.
Good call!
The attorneys forgot to tell the court that those 2% agents worked Monday-Friday, no evenings, weekends or holidays in Europe. Americans are in for a rude awakening.
Why is it assumed that commissions will drop once the settlement takes effect. Commissions have always been totally negotiable and the idea that they have been fixed at any particular rate is absurd. I expect that commission rates at my brokerage will remain unchanged since all my agents have always negotiated fair and reasonable commissions with their clients and this will not change if they do their jobs right in the future.
Half agree, Roger, and I appreciate your thoughts. Commissions will not drop for LAs. However, BAs can’t even freely show a property after the NAR agreement is implemented. Not without requiring a possible new client to sign a contract stipulating that the Buyer will be responsible for paying an Agent they barely know a predetermined fee. That’s a very hard “get” when first meeting someone through friend or referral. I, too, haven’t had any problems getting signed contracts. But I’ve never suggested a Buyer sign a contract with me on the very first or second meeting. And I’ve never asked for a contract in order to show a property. That feels contrived. I may ask after a first showing, if all goes well.
I usually wait to ask for a signed contract after I feel I’ve shown my value to possible new clients, in word and deed. (Heavy emphasis on “deed.”) Real estate is about relationships. Building trust with a Buyer takes more than signing a contract 20 minutes before the first showing.
This NAR settlement is a disaster for Buyers Agents, leaving Buyers unprotected. IMO, after August 17th, first time home buyers will be lost and at the mercy of Listing Agents. We haven’t even talked about VA loans and their restrictions. Maybe the DOJ should go after Lenders for refusing loans that include fees.
I agree with your summation of this situation. I understand the lawsuit if Brokerages were complicit with fundamental enforcement of commissions before commencement of Listing Agreements but in my nineteen years as a Realtor, Broker, Broker/Owner and Broker/Manager I have never been associated with commission agreements except during interaction with sellers who have agreed to the commission and signed a contract indicating the commission recognized by both the Agent and their Client. Let the DOJ go after those Brokerages that conducted illegal policies without destroying the livelihood of Agents who have diligently represented their clients.
Spot On!
I feel NAR could have done a mi h better job.
We as realtors have paid millions of dollars in fees with the idea of getting some type of representation when it comes to situations like this. Maybe my idea is wrong and we are out here by ourselves.
Exactly. They sold us out. They are not doing anything about it and they haven’t even adjusted their fees. They are going to provide our information to all these free websites that caused this attitude. These people feel that we don’t provide a service. That data that they love on Zillow comes from us, and they sold it back to us and then eventually used to get this settlement. We should take this away from them by leaving the NAR. Let them go bankrupt.
Nick…. they not only sold us out, they’re not going to be lowering any fees either…the fees are obviously only going up as a result of all this.
And don’t even get me started on Zillow, that’s the biggest pile of crap ever sold on Realtors, they came in like a Trojan horse nearly two decades ago, acting like they wanted to be your best friend and that they were there to just provide a really cool MLS with our picture next to our listings to help give visibility to our properties and help grow our business…wasn’t that a crock of you know what… they should’ve never been given access to our MLS information, the only proprietary information that we have is Realtors is our listings, once we give that away, we have nothing…. If we knew what they were up to from day one this would’ve never happened…. They were genius about the way they slid into our business like snake; now with the low inventory they can’t even provide the amount of leads in May markets that they promised to these agents who pay them, so they leave listings on their site longer and longer, people call asking to see a property that’s already been under contract for a week… I guess my only hope from all these changes in the industry is that it blows them up, just as they deserve.
I believe NAR should spend the $418,000,000. challenging this action, and it’s not too late considering the Judge will not decide on it until November. If they did fight I am confident that Realtors like myself would donate additional money to a legal fund to increase this amount substantially to defeat this action no matter how long it would take and no matter how much it would cost. This present settlement denies transparency and goes against the grain of everything society has been promoting over the past 50 years, transparency.
NAR let all licensed agents and brokers down, so sad. All of us have paid our NAR fees for many years .. now we ask ourselves why?
I wish everyone all the best going forward
I assume the answer is yes, but want to ask if this affect commercial real estate commissions as well?
Globalist fan NAR didn’t handle this well at all… no surprise. Buyers will be affected, may be that was the long term plan—You’ll own nothing and will be happy.
We should drop them. They go bankrupt anyway and then we start something new and it doesn’t apply to us. We didn’t commit any crime. Florida is a transaction state state anyway. I mean it’s just ridiculous. They sold us out. We don’t need to support the NAR .
ALL BROKERAGES DROP THE NAR AND START SOMETHING NEW. Do what screen actors guild did before it’s too late. Our most precious information is our data. Our data that we all work for is the soul of real estate. The NRA sold us out if we don’t drop them we are all going to face some serious changes with everything. New agents will struggle.
Reading all the comments – how can you not understand?
Been a licensed Builder / Realtor for 45 years. The buyer has NEVER been able to negotiate the buyer agent fee. The listing agent sets it! Saying “You have to offer 3% or no buyers agents will show your property!” So – as a builder – you raise the price to cover the cooperating compensation. Argue what you want – seller pays the fee from proceeds – or – buyer pays thru higher price. The dollars are going in the buyers agent pocket and they NEVER had to have the negotiation with the buyer they represent. That is NOT transparency!
Buyers agents could very well continue to get 2.5% or 3.% IF they can communicate their value to the buyer. If the buyer sees that value, good for you!
The professional agents will survive.
Written buyer agent agreements will benefit everyone. It will level the field. If a fixed fee is negotiated, a buyer agent will be just as motivated to show there buyer the $299,000 home as the $499,000 home! No more steering for a larger commission.
NAR is protecting YOU! Go ahead, make that call to the listing agent behind the buyers back after this all changes and ask “what compensation is the seller offering?” Let me know how that works out for you if the right educated buyer client finds out.
Will-Interesting comments. I represented builders for 15 years, managed the sales in many developments. I’ve not known any buyer that prefers to pay a buyer’s agent commission out of pocket, no matter the price point. Have you? I have known hundreds of good Realtors that brought their buyer to me and allowed me to sell the value of a new home. They intelligently took a step back, while I demonstrated the product and benefits to the buyer. Then they advised the buyer on area comps. Market value=what a ready, willing and able buyer is willing to pay. It is not builder costs + profit + commission. If you are increasing your price to cover commission, is your new price over market value? Do you feel you’re doing all the work and buyer’s agent isn’t working? That issue is for another forum. Has nothing to do with the NAR settlement.
At the risk of sounding ignorant can someone tell me where the 2.5 or 2% represents? Sellers side? Buyers side?
We are a Midwest firm where the average sale is 189K.
I have my own brokerage and have never been a member of NARS! I always thought it was a waste of money! We have a real estate board in Ma known as Greater Boston Real Estate Board, who wants an annual $600 fee…and expects it around Christmas time! NO THANK YOU! They do nothing but take your $$$ and give zero in return! I can’t believe that realty brokerages make you join these associations!
Another thing I can’t believe is that fact that all sellers needed to do was to Google
“can I negotiate my agent’s commission percentage” and they would get the answer, instead of this law suit…which is taking away the livelihood from all agents! It’s outrageous! Also…I’d love to know the percentage of homes that are sold by buyer’s agents….It’s the majority of the sales!!!
Spot on article.
Another nail in the coffin of the American Dream.
The reason NAR sold us out is simple. They were out of legal fees. They were continuing to take money from us. Misappropriate it. And then threw us under the bus when they no longer had the money to defend us or themselves. They did it to save themselves. If they had gone further, they would have gone bankrupt. They couldn’t perform.
All the comments are right on target. This had nothing to do with protecting our interests. It was self-serving and self-survival.
I’m not sure how the buyer agent fees will evolve. We know it will change. But here in the midwest, we operate mostly without attorneys invovled. Title companies close the transaction. Some listings are posting commissios for less than 3%. As a transaction coordinator, I am seeing my agents and others simply write in under “other terms and conditons” that the seller agrees to pay buyer’s agent brokerage 3% of the gross sales price. So far, I have not seen one single seller say no or counter. Time will tell.
Another move to ruin independent work. The above comment says you will be just as motivated to show a 300k home as a 600k. Ridiculous. A buyer who can afford 600k will not look at 300k and vice versa as the 300k buyer can’t afford 600k. I show my buyers whatever meets their needs. Now I have to sign an agreement that the buyer pays a fixed fee? So assuming 3%, if we are looking in the 300k range its a 9k payment. When exactly do they pay this? Now I have to inquire directly with each seller agent- will the seller consider an x% buyer commission? As a buyer, if I am on the hook for 9k with a rep but no payment if I go to the listing agent, I’m going to the listing agent, it’s a no-brainer. In the meantime, the listing broker is still offering the same split to a sub-agent that they would have provided to the buyer agent. NAR, is another globalist lever, removing jobs and income from the people. Remove NAR.
We should start a class action to dissolve NAR, we are paying for their protection. They have put us and buyers in a terrible position. What if we just refuse to pay?
When I first got my license 12 years ago I was amazed when I was told that I HAD to join the NAR in order to work at any of the brokerages in my area since they were all members. It wasn’t even an option to NOT join since non-member brokerages were pretty much non-existent in my area. I questioned what the hell I was getting for all this money I paid every year to the national and local boards and how in the name of god did this benefit me? I just couldn’t understand why these brokerages raved about the NAR and how they were all gung-ho to follow NAR and let them sell my listing info to the likes of Zillow, Realtor, etc. Who the hell came up with this idea!!!!????? And now this fiasco. As a consumer I can honestly say I would never sign a contract to pay someone that I just met and know nothing about for any type of business transaction. I can’t imagine that home buyers are going to be lining up to do this either. They are going to go directly to the listing agent and buy with no representation and honestly I don’t blame them. I cannot imagine the real estate industry getting better because of this decision by NAR and with that said I am done and I will not be renewing my license come August. No more of my money will be paid out to their inept organization that has done nothing for me but drain my bank account on a yearly basis. This is a dying business for the average real estate agent and I predict that there will be many more agents hanging up their licenses and many brokerages shuttering their offices. Thanks NAR…..stellar job standing up for all the honest, hard-working agents who have been held hostage by your required membership only to have you stab us in the back.
I agree completely that NAR sold us out! I have always hated being required by our MLS system to be a member of our local board of realtors, who then in turn requires us to pay dues to our state board and then NAR. I have always thought of this as $900 down the drain every year. I posed the question to our MLS system if we could now drop the boards and still remain a member, no response!
Any seller who cries foul about paying commissions obviously didn’t read their contracts before signing it. Tough luck! They should have sued their individual agents or brokerages, not the industry. This was just a get rich quick scheme, and many other greedy sellers jumped in on it. I would like to see who those plaintiffs now and see what kind of expensive vacations they’re going on and luxury homes/autos they’re buying now that they fleeced the system. This case had no legal merit as it was too broadly filed, and not specific to the situation at hand.
I also bet that no seller will be lowering their list prices 2-3% now that they won’t have to pay the buyer agent co-op fee. No one has yet explained to me how the DOJ expects buyers to cough up an additional fee out of pocket when they’re already the one expected to pay the majority of the closing costs. So cash to close will go from 10-15k for most buyers in my region to 20-30k! And all of that is fees, not down payments or building equity. I expect a lot of buyers to sit this out as they are completely priced out of buying a home, especially young people without equity rich homes to sell.
THIS WAS JUST A GREEDY CASH GRAB with a jury who fell for it!