The Real Estate Industry Faces a Revenue Fall

Tue Mar 19 2024
Nikki Bailey (1364 articles)
The Real Estate Industry Faces a Revenue Fall

In the United States, over a million people are rethinking their roles as real estate brokers.

The realty business was accused of conspiring to maintain artificially high commissions; last Monday, the National Association of Realtors settled these charges. The amount of money that goes into an agent’s pockets from a house sale is likely to alter after the settlement.

From the Maryland suburbs to Minneapolis, real estate agents were taken aback by the sudden change in the 30-year-old model for buying and selling properties. According to them, they are currently attempting to determine the extent to which the verdict would impact their livelihoods.

Most people either don’t think the company will change much, try to stay successful by embracing new payment mechanisms, or go into a whole different field.

Washington, DC-based real estate agent Franklyn Salas made $50,000 in commissions from homebuyers last year. In addition to his full-time job at a title business, he often puts in at least 40 hours each week.

At the moment, Salas is considering other side jobs. Instead of “running around like a chicken with its head cut off” trying to find a buyer and encountering resistance because he wanted to make money, he might focus on renovations, development, and house flipping.

The NAR contract is set to take effect this summer, and according to Stephen Brobeck, a senior fellow at the Consumer Federation of America, it could have a particularly negative impact on agents who represent house buyers. This is because the deal might lower their commissions and potentially reduce demand for buyers’ agents overall. Perhaps new forms of payment will emerge as a result, including flat-fee systems where buyers’ brokers charge a set amount for a set menu of services or by the hour.

In the southeast and northeastern parts of Florida, real estate agent Anthony Lamacchia is in charge of approximately 500 agents. He informed the agents of the changes, including the necessity to discuss commission splits between the buyer’s and listing’s agents, during a Saturday morning call at 6:30 a.m.All of this, he claimed, had terrified them.

Since the financial crisis of 2012, when less than one million people were members of the National Association of Realtors, that number has more than doubled, reaching approximately 1.5 million. As house sales surged and other businesses cut jobs, many of these agents flooded the market during the epidemic.

By early 2021, there were more real estate agents than houses on the market in the United States, making it a challenging market for most. Earning a living became much more challenging as loan rates began to rise, which dampened home sales.

Agents from 21 different offices in the District of Columbia, Maryland, and Virginia are the subject of a memo that broker Gigi Luu is penning at the moment: Clients who inquire about the modifications should be informed that there are numerous unknowns, according to the draft paper. We only work with agents that can prove their worth.

For a long time, purchasers didn’t usually pay real estate agents directly. The seller has already covered the buyer’s agent commission, thus it is already included in the house price.

In the future, buyers may be required to pay the agent’s fees in advance if they desire their services.

A Takoma Park, Maryland, associate broker named Dan Metcalf speculated that some sellers’ agents may figure out a way to keep paying buyers’ agents the same amount they were previously. Even if it’s against the terms of the settlement, real estate agencies could still promote their commission splits on their own websites or social media pages rather than the multiple listing service, a database utilized by real estate agents.

The use of a fee-for-service model by buyers’ agents is another possible consequence, he added: This amount covers the expense of a house inspection and the cost of writing an offer.

Home sellers are under pressure. Some real estate agents still don’t think anything will change, even though there could be consequences.

Boston and Martha’s Vineyard real estate agent Pauline Donnelly of Donnelly + Co. predicts that the vast majority of sellers will choose to keep footing the bill for the buyer’s agent. This is due to the fact that sellers know that buyer’s agents can aid in the sale of their home, and dealing with unrepresented purchasers can be challenging for those without real estate knowledge, she said.

Donnelly, who oversees 35 brokers in the Boston and Martha’s Vineyard areas, stated that it is highly improbable that they will approach their buyers and request payment for their fees. It will be out of reach financially for many of them.

Donnelly stated, “It’s going to be a rare buyer that does that” when asked about the possibility of buyers paying their agents’ commissions in a competitive transaction.

According to David Schlichter, a real estate agent in Denver who heads a team of four agents for the firm Compass, sellers are likely to continue paying the commission for buyer’s agents for the time being. That’s because house sellers know that if they collaborate with buyer’s agents, they’ll attract more serious bids and purchasers. Schlichter warned that it could backfire if they did not offer the commission.

North Carolina’s Urban Durham Realty owner Courtney James, who employs 27 people, has stated that she has not yet fully processed the implications of the settlement for her company.

If sellers refuse to pay the commission for buyers’ agents, it is unknown if home sales prices will decline, she said. She went on to say that many potential purchasers would be put off from the market if they were required to pay a fee to their agents, which would force them to pay in cash. She stated that agents cannot act pro bono.

Nikki Bailey

Nikki Bailey

Nikki Bailey reports on US Stocks. She covers also economy and related aspects. She has been tracking US Stock markets for several years now. She is based in New York