According to a study published by AccountTECH, real estate brokerages face profitability challenges if agent commissions decrease. Here are the key findings:
- Commission Rates and Profitability:
- If the terms of the National Association of Realtors’ (NAR) nationwide commission lawsuit settlement lead to typical agent commissions dropping to 2%, approximately 79% of brokerages would be unprofitable.
- Even a minor decrease in commission rates charged to sellers made the companies in the study unprofitable.
- If commissions dropped to 2.5%, 60% of brokerages would still be unprofitable.
- Impact of Agent Count and Office Count:
- Among companies with three storefronts, only 14% would remain profitable if commission rates dropped to 2% per side.
- For firms with 100 to 5,000 agents, 88% would be unprofitable if the average agent commission dropped to 2%.
- Break-Even Challenges:
- To break even, firms would need to increase income or cut expenses for every agent. For a 100-agent firm, this amounts to $2,908 per agent, totaling $290,800 per year.
- Brokerage gross profit margins have fallen to a nationwide median of 15%, driven by factors like increased pressure to provide agents with larger commission splits and rising operating costs.
Real estate brokers scramble for workarounds ahead of new rules on commissions