Concerns about how lower commission rates will affect real estate agents have gained widespread attention since the antitrust lawsuit was settled. national association of realtors (NAR), but brokerages will also feel the pinch.
New data from real estate accounting software provider Account Technology Research shows that brokerages with profit margins of 3% or less are at risk of losing money even if their commission rates drop slightly. More than half of the brokers analyzed had profit margins between 3% profit and 3% loss.
“Many brokerages have failed to create adaptive business models that adjust fees based on fluctuations in gross profits,” AccountTech CEO Mark Blagden said in a statement. “Such thin margins may not be able to sustain a small decrease in commission rates. Faced with the NAR settlement The potential for widespread reductions in commission rates may result, and brokerage firms may need to accelerate their efforts to streamline administrative costs in order to achieve or maintain profitability.
The company conducted research and analysis on 100 brokerages. The number of profits increased from 60% for the whole of 2023 to 62% in the first half of this year. For brokerages that are profitable, the average operating profit per agent is $294 per month, while for brokerages that are losing money, the average operating loss per agent is $214 per month.
Thin profit margins leave many brokerages vulnerable to falling commissions. From January to June, only 5% of brokerages had EBITDA (earnings before interest, taxes, depreciation, and amortization) margins of more than 9%, while 21% of companies reported EBITDA losses of 1% to 2%.
Although this shows that some brokerages have easily achieved profitability, if concerns about falling commissions materialize, more brokerages will fall into losses or even further losses.
While the full impact of the changes in new business practices won’t be known until new listings replace existing listings, brokers have so far reported mixed results.
compass After reporting little change in commissions on a recent earnings call, Chief Executive Robert Reffkin said fears of lower commissions “simply haven’t materialized.” redfin tuna Data show that buyer’s agent commissions fell from an average of 2.62% in January to 2.55% in July.
