For real estate professionals, an overview of changes in business practices National Association of Realtors (NAR) The National Council Litigation Settlement Agreement — which takes effect Aug. 17 — is top of mind. But when it comes to brokerage firms’ financial performance, industry analysts don’t believe these changes will be the final word.
“It’s really interesting because these cyclical macro elements are front and center right now, United States Federal Reserve Finally entered the interest rate cutting cycle. You could argue that if this spurs more buying activity, increases inventory, and gets buyers off the sidelines, then that could be a tailwind for the industry in the coming quarters. Keef Brouillette and Woods.
“But is it enough to transcend any bubbles or issues that come with implementing these practice changes in the coming months?” Tomasello asked. “In my view, macros and interest rates are leading the way, but litigation and the resulting structural changes are right behind it, and it may be difficult to parse the individual headwinds and gains from these two different opposing forces in the coming quarters. .
While analysts don’t believe changes in business practices will be a determining factor in the financial performance of the publicly traded brokerage firms they cover, that doesn’t mean they aren’t keeping an eye on things.
“Our main concern is any meaningful slowdown in trading, or something similar that we can attribute to changes in business practices,” analyst John Campbell said. stephens.
In addition to looking at the possibility of a slowdown in home sales transactions, some analysts also expect a decline in buyer’s commission rates, which would put pressure on the company’s profit margins.
“We now assume a 30-40% decline in buyer commission rates to 1.5-1.75% (from around 2.4%), while keeping seller commission rates around 2.4%.” JPMorganwrote a report on July 24. “There remains considerable uncertainty about the timetable for changes and what market practice will ultimately look like.”
Campbell agreed commissions would likely fall, but not to the extent Paulon predicted.
“I think we’re going to see buyers do it themselves more, and I think on the face of it, buyer economics are going to be more compressed,” Campbell said. “But the caveat here is that some are saying it’s going to be down 30% or something.” 40%, but I don’t think so.
Soham Bhonsle believes there will be less compression in buyer agent commissions as the industry will lose the vast majority of underperforming or part-time agents. This will allow professional, high-performing agents to take care of buyers who wish to have an agent. Because these agents are the cream of the crop, they will continue to demand higher levels of compensation for their expertise, experience and services.
“The most productive and best agents will be able to express and deliver their value proposition better than others,” said Bhonsle, who is BTIG.
Campbell added that deal-by-deal commission compression may be offset by the fact that top-performing agents can get deals from agents leaving the industry.
While a reduction in the number of brokers could cut into broker revenue if the brokerage model hinges on brokerage, the good news for the industry is that the top brokers are currently dispersed among brokers, Campbell said. But there could be an advantage if brokerage firms make a concerted effort to help their agents become more efficient and productive.
“There are brokerages that can help their agents be more efficient, I would say redfin tuna “It’s probably one of the best companies to really drive efficiencies,” Campbell said.
“But in most companies, agents are 1,099 independent contractors who have to take care of their own technology and their own expenses, so I think the clear winner is going to be anyone who has any technology that can help bring more leads to the agency people”.
Ultimately, however, analysts — like the agents and brokers preparing for these changes — aren’t 100% sure what will happen on August 17.
“Anyone who says they know exactly how things are going to play out is lying,” Campbell said. “I just got back from a conference where I had countless conversations with people, and I wouldn’t say people are in the dark. Fumbling around, trying to find our way. I do think the industry has worked tirelessly to prepare itself for these changes, but no one knows exactly what is going to happen.
Boensler agrees. “I don’t know if commissions are going to start going down right away — I think it’s going to take time to play out,” he said. “Some brokerages will introduce different pricing models, and I think as this model penetrates, we will see some impact.
“I don’t have any expectations for this quarter, but we’ll be keeping a close eye on the last quarter of the year and the first half of next year, especially as we get into the spring selling season.”
