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PHOTO: U.S. real estate agent. FILE

In less than a week, the first of two class action lawsuits challenging the NAR’s commission rules will commence, posing a substantial threat to the residential brokerage industry’s status quo. A team of analysts from Keefe Bruyette Woods believes these lawsuits could trigger a significant decline in the annual commission pool, potentially resulting in an industry-wide reduction of up to 80% of real estate agents.

In their extensive 75-page report, the analysts dissect the potential repercussions of altering the NAR’s Clear Cooperation rules, affecting not only agents and brokerages but also mortgage companies, real estate portals, and, most importantly, consumers. Given the complexity of this subject, we’ll focus on a few key points in this DataDigest edition – be prepared for charts!

At the core of KBW’s analysis is the notion that a court-ordered injunction could dismantle national real estate commissions by early 2024, discontinuing the practice of listing agents and sellers determining and paying buyer agent commissions. This could lead to a gradual reduction in the annual $100 billion commission pool, perhaps diminishing it by 30% as consumers become more informed about the transparency changes. Simultaneously, commission rates may drop by 200 basis points or more.

National Association of Realtors (NAR) SAGA – Realtors Jumping

The analysts ponder whether consumer inertia and agent resistance will counterbalance economic theory. Insights from homebuyer surveys might provide clues.

For real estate agents, the prospect of a potential 30% decline in commission volume and a 200-basis point rate reduction is undoubtedly unsettling. However, the most striking – or exciting – projection is the possibility of 60% to 80% of agents exiting the industry as alternative services emerge, MLS networks/NAR weaken, and the power dynamic shifts dramatically in favor of sell-side agents.

Who faces the most risk? According to the analysts, the large traditional brokerages are most vulnerable if the NAR’s co-broking rules are discarded. However, this statement carries a significant caveat. KBW analysts indicate that publicly traded companies like Anywhere Real Estate, Compass, RE/MAX, eXp Realty, and Douglas Elliman would need to navigate commission pool pressures. Because commissions constitute the majority of brokerage revenues, the estimate that the overall commission pool could shrink by over 30% is undoubtedly a negative signal for the sector. However, it’s possible that industry capacity will adjust to the shrinking commission pool, potentially offering opportunities for full-time agents to capture market share in a market with more variable commission levels.

National Association of Realtors (NAR) in major strife

Steering to seize opportunities? One contentious issue surrounding the current co-broking system is the concept of “steering.” Agents claim to act in their clients’ best interests, but a survey by consulting firm 1000watt indicates that most buyers don’t believe they’re receiving great value from their agents. Respondents felt that buyer agents are overpaid and might consider alternatives if they had to pay their agents directly. This sentiment could lead to challenges for the industry.

If 1 million agents disappear? KBW analysts suggest that the top 20% of agents handle the lion’s share of transactions, while the top 10% handle a significant portion. With a complete unbundling of commissions and a subsequent reduction in the annual commission pool, agent participation in the industry could significantly decline.

In comparing agent counts to annual home sales in other countries, the analysts found that the U.S. and Canada have a similar agent-to-sale ratio. However, the ratio in other countries ranges from 10 to 20, indicating that the U.S. agent count could theoretically decline by 60-80% over time.

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A challenge for brokerages will be demonstrating the value of buyer agents, especially with many homebuyers finding properties online. Specialist or hybrid models could gain traction in this evolving landscape.

A workaround with mortgages? If courts issue an injunction and NAR rules change, there might be a workaround to address immediate affordability challenges for buyers who have to pay for their agents directly – rolling these costs into the mortgage. While financing buyer agent commissions directly isn’t currently efficient, discussions among industry stakeholders, including Fannie Mae, Freddie Mac, and the FHFA, suggest the possibility of creating a workaround without major disruptions to the underwriting and origination process.


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