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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.

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“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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