The macroeconomy, not changes in business practices, will determine the financial performance of brokers

For real estate professionals, business practices are changing as described in the National Association of Real Estate Agents (NAR) nationwide lawsuit settlement agreement – ​​which takes effect on August 17 – is high on the agenda. But when it comes to the financial performance of their brokers, industry analysts don’t believe the changes will be the end all be all.

“It’s really interesting because you have both cyclical macro elements that are now central to the Federal Reserve finally breaking the cycle of tariff cuts. And that could, you could say, help the industry in the coming quarters if it leads to more buying activity as more inventory comes online and buyers get off the sidelines,” said Ryan Tomasello, a analyst at Keefe Bruyette & Woods.

“But will that be enough to overcome any air pockets or hiccups that will result from implementing these practice changes in the coming months?” Tomasello asked. “In my opinion, macroeconomics and interest rates are in the driver’s seat, but the lawsuits and the structural changes that result from them are a very close second, and it may be difficult to compare the individual headwinds and the benefits of these two different factors to see through. opposing forces in the coming quarters.”

While analysts don’t believe changes in business practices will be the determining factor in the financial performance of the listed brokerages they cover, that doesn’t mean they aren’t keeping an eye on things.

“The main thing we’re looking for is any kind of meaningful slowdown in transactions or anything like that that we can attribute to changes in business practice,” said John Campbell, an analyst at Stephen.

In addition to exploring the possibility of a slowdown in home sales transactions, some analysts also expect a decline in buy-side commission rates, which would put pressure on companies’ profit margins.

“We now expect buy-side commission rates to decline by 30-40% to 1.5-1.75% (from approximately 2.4%), while sell-side commission rates remain at approximately 2.4% ,” says Anthony Paolone, analyst at JPMorganwrote in a note on July 24. “There remains a lot of uncertainty about the timeline of changes unfolding and what market practices will ultimately look like.”

Campbell agrees that commissions could fall, but not to the extent Paolone predicts.

“I think we’ll see a little bit more DIY among buyers, and I think superficially there will be more compression on the buying side,” Campbell said. “But the thing to note here is that some people are saying it will drop 30% or 40%, and I don’t see that.”

Buy-side commission compression will be limited as the industry loses the vast majority of its underperforming or part-time agents, according to Soham Bhonsle. This will leave the professional, high-performing agents to take care of the buyers who desire representation. Because these agents are the cream of the crop, they will continue to demand higher compensation for their expertise, experience and services.

“The most productive and best agents will be able to express and deliver their value proposition even better than the others,” says Bhonsle, an analyst for BTIG.

Campbell adds that the compression in commissions per deal may be offset by the fact that the best performing brokers can take deals from those brokers leaving the industry.

While having fewer agents can reduce brokers’ revenues if their model depends on the number of brokers, Campbell said the good news for the industry is that top agents are currently spread across the brokerages. But an advantage could potentially be given to brokers who make concerted efforts to help their agents be more efficient and productive.

“There are brokers who help their agents be more efficient, I would say Redfin is probably one of the best ways to really transform efficiency,” said Campbell.

“But at most companies, agents are 1099 independent contractors, and they have to provide their own technology and costs, so I think the clear winners will be anyone who has any kind of technology that helps drive more leads to their agents. .”

Ultimately, though, analysts – like the agents and brokers preparing for the changes – aren’t 100% sure of what will happen on August 17.

“Anyone who says they know exactly how things will go is lying,” Campbell said. “I just got back from a conference where I had countless conversations with people, and I wouldn’t go so far as to say that people are fumbling through the dark to find their way. I think the industry has adapted tirelessly in preparation for these changes, but no one knows exactly what is coming.”

Bohnsle agrees. “I don’t know if commissions are going to come down right away; I think it’s going to take some time for that to develop,” he said. “Some brokers will come up with different pricing models, and I think if that trickles down, we’ll see some effects.

“I don’t expect anything this quarter, but we are keeping an eye on the last quarter of this year and the first half of next year, and especially as we enter the spring sales season.”