Commission rates are declining nationally, while top sales agents are demanding a higher share from their brokers, suggests a new study by the National Association of Realtors. According to "A Changing Landscape: An Examination of Key Trends Shaping The Real Estate Industry," a report by the Strategic Issues Subcommittee of the NAR, financial pressures and the rise of new business models "are expected to accelerate the evolution of the broker-agent relationship."

While smaller brokerages are disappearing, except for boutique firms which serve a market niche, larger brokerages are becoming dominant, with scale becoming an increasingly important factor in success, says the new report.

According to interviews with a number of brokers across the country, full-time active real estate agent numbers will shrink due to an increase of productivity on a per agent basis. The number of transaction sides per agent has been increasing in recent years, with technology and market conditions as factors. Also influencing productivity are agent assistants and teams which are skewing individual productivity statistics. The teams may conflict with support specialists hired by the broker, and could lead to more conflicts between brokers and agent team leaders.

Meanwhile profits are slipping. One broker estimates that the average net profit per transaction is about $150 per transaction side. As a result, brokers will be looking at "the quality of people and their effectiveness," said one consultant.

An increase in friction between brokers and agents?

Most brokers questioned in the study would like to see labor costs go down through a recapture of better "splits." In many markets, top producing agents get 50 to 90 percent of gross commissions. While most brokers will continue to use agents as their primary sales channels, others plan to bring in salaried employees to perform some aspects of the transaction to lower operating costs. In-house employees can lower commissions to 30-35 percent, suggests one consultant. Agents may prefer to remain in a sales role to increase their transaction volume, allowing the in-house support personnel to handle some details.

Other avenues of exploration to reduce costs are parallel channels in which a brokerage might try a new business model such as a discount store under another name. The new business model may pose a risk to the old model as agents prove resistant to change, posing a "channel conflict." One broker said, "It's easier to build a new model from the ground up by hiring customer service professionals in other industries and getting them licensed, than changing a traditional company's agents."

While brokers ponder how much they need agents and what they should pay them, the same question arises about brokers. Will they still be needed by agents?

Agents will continue to want associations with brand name brokerages, help with overhead costs, and some insulation from liability, says the report. The high cost of technology also strengthens brokers' positions, as they use unique services such as customer care, automated direct marketing packages, online catalogs and web services to attract and retain agents. Some brokers worry that they are at risk of losing their position as agents can get such services from other sources.

Published: June 13, 2001

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