Has the Day of Reckoning Arrived? The Looming Challenges of Brokerage 

A few observations on new competition, cost of agent retention and more 

The gross margin for the average brokerage firm in the United States, as of June 30, 2018, has declined to 15 percent—down from 22 percent five years ago. While traditional brokerage firm gross commission, whether independent or franchised, is still nearly 21 percent, those firms have also declined proportionately over that period. It appears that this trend is accelerating downward in many regions of the country. 

Agent Consolidation is Here 

The nearly 15,000 agents and teams represented on the REAL Trends America’s Best Real Estate Agents rankings from the calendar year 2017 represented about 1.5 percent of all Realtors® in the United States, nearly 11 percent of the transactions sides and a stunning 23 percent of all the closed sales volume last year. Consolidation among fewer agents is not coming; it’s here now. 

New Business Models 

New forms of competition are driving the cost of agent retention to new heights and offering lower caps to agents and teams across the country. Firms such as Compass, eXp, REAL, Fathom, JP Piccinini and others are offering a widening variety of operating formats than ever before. Some of them are better funded than any new competitors in recent memory. 

Core Services Margins Decreasing, Housing Stalled 

Margins in several related core services, such as mortgage and title, are decreasing making the growth in earnings from these endeavors more difficult. 

Existing and new homes sales growth has stalled. In most months of 2018, existing homes sales have fallen below the rate of the same month a year ago. Price increases remain, and total sales volumes are mostly increasing, but even these are not making up for the continued downward pressure on commission rates. 

So, there is a confluence of events that make this among the most challenging brokerage environment we’ve ever seen. Apart from the housing and economic recession of 2006-2010, these may be the most challenging times ever for the brokerage industry. The business will survive, but what it looks like going forward may be far different than what it has looked like in the past.

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