Low-cost residential real estate brokerage is not necessarily a new phenomenon. About 50 years ago, a trailblazer named Dave Liniger created the concept of “real estate maximums,” birthing RE/MAX. RE/MAX was probably the most radical low-cost ‘disruptor’ this market has ever seen.
About 10 years later Gary Keller founded Keller Williams, and it was KW that revolutionized the cap-commission model, which, for all intents and purposes, is a low-cost model. The flat-fee model has also been around for decades, but only in the last 10-15 years has it taken off.
Are agents really keeping 100%?
Flat-fee brokers advertise themselves as 100% firms. Real estate agents under their flag get to keep 100% of the commission earned in a transaction. The way these firms make money is by charging a monthly fee and/or a transaction fee. Some may also charge other fees for such things as Errors & Omissions insurance, desk rental, technology, etc.
In reality, agents are keeping somewhere between 92 to 98 cents on the dollar with these flat-fee firms. While not truly a 100% take, agents who hang their licenses with these firms are generally keeping more than agents listing and selling with firms that have the more traditional commission models.
Flat-fee firms climbing up the brokerage rankings
Interestingly, in 2013 only five of the top 100 firms in the nation, according to the RealTrends 500 rankings, were flat-fee firms. In 2023, 10 years later, flat-fee firms now account for 16 of the top 100. By transactions last year, flat-fee firms did 12% of the closed business of the top 100, compared to 5% back in 2013. Put another way, in just 10 years, flat-fee firms have more than tripled their presence among the nation’s top 100 firms, while growing their production by 129%.
Incredibly flat-fee firms now account for six of the top 25 brokerage firms in the nation. United Real Estate, HomeSmart, Fathom, Realty ONE Group, West USA Realty and Samson Properties all have incredible growth stories since their respective beginnings.
Not all industry stalwarts welcome this model
Not all in this industry are welcoming the burgeoning growth of flat-fee firms. Many of the incumbents do consider it an invasion, and the primary reason is the ‘flat-feers’ role in the wholesale margin compression that’s been whacking this industry.
Low-cost brokerage has kicked brokers in the teeth over the years. Before RE/MAX, brokers were keeping between 30% to 50% of every commission dollar earned. With the national average retained company dollar now well under 13%, according to RTC Consulting’s latest benchmark report, there’s no doubt it’s been a grind.
With flat-fee firms retaining a lot less than traditional firms, they need to operate lean and quickly get to scale to be economically feasible. Indeed, the fast-growing flat-fee brokerages that are permeating this industry are showing they have what it takes.
I think the flat-fee model is here to stay, and I suspect we’ll continue to see this segment capture market share. Fortunately, this industry has room for every model, and if anything the flat-feer’s are forcing their competition to be better.
Scott Wright is a partner with RTC Consulting.
This column does not necessarily reflect the opinion of RealTrends’ editorial department and its owners.
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