Industry members view commission litigation as one of the biggest recruiting challenges in 2024.
This is the third and final story Recruiting War ’24is a multi-part series available exclusively to Intel subscribers about how brokerage firms poach and retain top brokers in a down market. Read part one here and part two here — Both are available through your Intel subscription.
“People are angry that the industry has lost half its members.”
That’s what real estate industry veteran and Collabra Technology CEO Russ Cofano said this spring when asked how commission litigation might intersect with recruiting efforts. The point is, with the big changes coming, the industry is increasingly concerned that the agent pool will shrink significantly.
Cofano actually expressed doubts about the likelihood of any such outcome.
But now many are worried about a dwindling agent workforce, underscoring the impact of commission lawsuits that are rippling through different parts of the real estate industry. Lawsuits and settlements from the National Association of Realtors, master franchisees and others involve more than just agent compensation. They also intersect with competition for talent.
That’s at least the conclusion of the March Inman Intel Index survey, the last time we asked brokers and agents these questions. In previous installments of this series, we revealed survey results showing how agents are engaging in near-constant recruiting campaigns and, in an ever-changing market, broker efforts have shifted focus toward top producers.
But surveys also show commission lawsuits are a major source of anxiety for many in the real estate industry. This anxiety also extends to concerns about talent and labor resources.
The good news, however, is that some of the smartest minds in the industry don’t think the recruiting apocalypse is imminent. Instead, they believe the coming changes could put more pressure on some agents and provide opportunities for those who can take advantage of the moment.
Commission litigation as recruiting challenge
Intel asked brokerage leaders in March about their biggest recruiting challenges in 2024.
- The market is the biggest challenge leaders face: Multiple interviewees, or approximately 43%, pointed out this problem. This makes sense because despite high hopes at the start of the year, there has been speculation lately that interest rates won’t fall as quickly as hoped.
- The concerns about commission lawsuits are the same as those about the market: Among the leading brokerage respondents, approximately twenty four% Select “litigation uncertainty” as the top recruiting challenge in 2024. 15% said the issue of commissions and compensation claims related to litigation will be the biggest challenge this year.
Photo credit: Jim Dalrymple II
other 7% Select “Other” and provide a free answer. The topics raised in these answers vary, but the most common comments relate to various litigation-related issues.
- “Agents will wait for the matter to be resolved before taking action […] In terms of buyer’s commission compensation,” one respondent wrote.
- “Antitrust against MLS and real estate agents,” said another.
- Another person said: “The commission issue needs to be resolved so agents can leave the company and those who remain will be able to see that lower fees are good for everyone.”
The point is that when all survey responses addressing commissions and commission litigation-related challenges are combined, the problem is at least as serious as market uncertainty.
The survey results also show that commission litigation generally puts pressure on industry members.
Photo credit: Jim Dalrymple II
- Agents are not satisfied: Of the agency respondents surveyed, the majority or approx. 41%said they were not satisfied with NAR’s settlement.
- Many “other” responses to this question also expressed dissatisfaction with the settlement.
- “Absolutely not,” one person responded with satisfaction, “the media made a huge misrepresentation.” The comment was representative of the type of response the question elicited.
The survey further found that people are deeply ambivalent about NAR itself.
- multiple attorney respondents, or 43%said they were “no longer sure” whether the organization had a “positive impact on the industry”.
- less than one-quarter of proxy respondents, or twenty four%When asked if he was NAR positive, he said an unequivocal “yes.”
Photo credit: Jim Dalrymple II
The survey also includes a completely free-to-answer question asking “the most relevant questions for today’s recruiters.” The issue of committee litigation is a recurring theme:
- “As an agent, how is my commission protected by this company?”
- “How are legal education and risk management structured?”
- “Will you be there?”
All of which points to the anxiety-ridden way in which commission lawsuits and settlements are hanging over the industry. Notably, real estate professionals consider this issue specifically a recruit The challenges are on par with the cutthroat market.
So will litigation hinder recruiting efforts?
Experts who spoke to Intel agreed that the lawsuits and lawsuit settlements could change the industry. But they don’t usually envision metaphorical nuclear bombs.
Instead, they describe something closer to a transformation that will change the way real estate professionals think about talent.
- The rise (or fall) of the middle-tier agency: Cofano doesn’t expect a significant exodus from the commission lawsuit. Why? Because many “licensees did not conduct any transactions last year.” These people are holding on to no deals now, so they are unlikely to suddenly abandon real estate if things get more difficult. Instead, Cofano believes the biggest change will be for leaders to “invest heavily in the quality of the middle tier” — in other words, agents who are not yet performing at their best but can close sales. These agents will face the most pressure from the coming changes, but may also benefit from brokers’ efforts to promote agents who want to stay in the industry.
- “Brokers are going to have to provide more substantial value to these individuals in terms of the brokerage value proposition.”
- “Hiring is going to get bigger. The winners will be the agencies that stick around and get value.
- Chaos is a ladder: Chris Heller, president of OJO and Movoto, believes that lower-skilled agents will gradually leave the industry, but noted that the agent ranks will shrink in “years, not months.” Of course, the size of the agent pool is important for recruitment, as the supply of labor will determine the intensity of competition; fewer workers means brokerages eager to increase their headcount have to fight harder. But Heller made a similar point about Coffano, that agents are somewhere in the middle.
- “There are recruiting opportunities that allow these struggling agents to say, ‘Hey, we have a process that works.'”
- Heller also said it’s possible to seize opportunities even when there’s uncertainty: “Whenever there’s change or upheaval, you throw a big rock into the pond and it creates opportunity.”
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