Real estate agent head counts will be under pressure even if commissions hold steady

Following the proposed $418 million settlement by the National Association of Realtors, which includes prohibiting offers of broker compensation on the MLS, two significant questions remain:

1. How much (if any) drop in net commissions should we expect?

2. On an aggregate basis, how much could real estate agent/broker head counts decline?

The opinions are, well, scattered all over the place.

Moving forward, some experts don’t think the proposed settlement will have any meaningful impact on agent’s incomes. That includes Robert Hahn, managing partner of 7DS Associates, a Las Vegas-based real estate consulting firm.

“The settlement will have zero impact on the industry,” Hahn told ResiClub last week. “Compensation is preserved, steering remains alive and kicking, and once agents figure out their ideas of the buyer agency agreement will not fly and that using the concessions field for compensation is a losing proposition, they'll just go back to offering compensation and steering buyers away from less-than-customary homes. They'll just do it off-MLS.”

Others disagree. They think downward pressure is coming, as sellers could balk at paying for buyers’ agents.

Look no further than JPMorgan, where analysts put out a note this week predicting that the NAR proposed settlement "could lead to a 30% reduction in broker fees.”

Amanda Orson, CEO and founder of Galleon, agrees directionally with JPMorgan.

“The first-order effect will be to agent income and the number of agents, in particular those who can be dedicated to the buy side,” Orson tells ResiClub. “Brokerages that anticipated this change and already amended their contract have seen a 50-75 bps reduction. In gross dollars, the impact is likely to be larger to dual agency commission than dedicated buyer’s agency alone.”

Even if the proposed settlement does little to change commissions, there's still going to be downward pressure on industry headcounts. The reason is that spiked mortgage rates and suppressed existing home sales have reduced the total pie available to be distributed.

“There's no inventory and this already makes being a realtor a very difficult job,” says Tomasz Piskorski, a professor of real estate in the finance division at Columbia Business School tells ResiClub. Fewer sales, he says, mean fewer opportunities for commission.

Click here to view an interactive version of the map below

Moving forward, it's the newbie agents who are most likely to be pushed out of the industry.

“The decline in [existing home] sales hit newer agents hardest, especially those who got into the business during the Pandemic Housing Boom,” Joe Rath, head of industry relations for Redfin and a licensed broker, tells ResiClub. “Those with a significant business and strong customer pipeline have been able to weather this downturn better, but there is no doubt that this sluggish market has caused financial stress for many real estate professionals. This downturn in the market will lead less successful agents and part-time, hobbyist agents to leave the industry for good.”

ResiClub reached out to NAR to obtain historic salary data. The results are slightly lagged, covering only through the full year 2022.

Click here to view an interactive version of the chart below