Nervousness over commissions looms over agent recruitment battle

This report — the third installment in Inman’s Recruiting Conflict ’24 sequence — was initially printed on Could 27, 2024, solely for subscribers of Intel, the info and analysis arm of Inman. Subscribe to Inman Intel for a deeper evaluation of the enterprise of actual property.

“People are worked up about the industry losing half its membership.”

That’s what Russ Cofano, a long-time actual property trade veteran and CEO of Collabra Expertise, mentioned when requested this spring about how the fee lawsuits may intersect with recruiting efforts. The purpose is that with large modifications on the horizon, there’s a simmering worry within the trade that the agent pool is about to shrink considerably.

Cofano is definitely skeptical that any such end result is probably going.

However many are involved proper now about shrinking agent ranks, which highlights the way in which that the impacts of fee litigation are rippling out into totally different components of the true property enterprise. The lawsuits and settlements — from the Nationwide Affiliation of Realtors, main franchisors, and others  — aren’t nearly agent pay. In addition they intersect with the competitors for expertise.

That at the very least is the takeaway from the Inman Intel Index survey in March, which is after we final requested brokers and brokers about these points. In earlier installments of this sequence, we revealed survey outcomes exhibiting how brokers are fielding near-constant recruiting pitches, and that amid an evolving market brokers’ efforts have shifted their focus to prime producers.

TAKE THE INMAN INTEL INDEX SURVEY FOR JUNE

However the survey additionally reveals that the fee lawsuits are a serious supply of hysteria for a lot of members of the true property trade. And that nervousness extends to worries about expertise and the labor pool.

The excellent news, nevertheless, is that a few of the smartest minds within the trade don’t assume a recruiting apocalypse is nigh. As a substitute, they assume coming modifications could put extra strain on some brokers — and current a chance to brokers who can capitalize on the second.

Fee lawsuits as a problem for recruiting

Intel requested brokerage leaders in March in regards to the greatest recruiting challenges in 2024.

• The market was the most important single problem for leaders: A plurality of respondents, or about 43 p.c, pointed to this challenge. That is sensible as a result of regardless of excessive hopes at the start of the 12 months, extra not too long ago there was hypothesis that charges gained’t fall as quickly as hoped.
• Fear about fee litigation is on par with considerations in regards to the market: Amongst brokerage chief respondents, roughly 24 p.c chosen “lawsuit uncertainty” because the primary recruiting problem in 2024. That alone is important, however equally telling is the truth that one other 15 p.c indicated that the lawsuit-adjacent challenge of fee and compensation calls for could be this 12 months’s greatest problem.

One other 7 p.c chosen “other” and offered free response solutions. The subjects raised in these solutions diverse, however the most typical feedback needed to do with varied lawsuit-related points.

• “Agents are going to wait to make a move until things settle […] in terms of buyer’s commission compensation,” one respondent wrote.
• “Anti-trust with MLSs and Realtors,” one other mentioned.
• “The commission issue needs to be settled so agents can leave the business and the ones left will be able to figure out that lower fees are good for everyone,” one more particular person argued.

The purpose is that when all of the survey responses that contact on commissions and fee lawsuit-related challenges are mixed, that challenge looms at the very least as giant as market uncertainty.

The survey outcomes additionally present that the fee fits are weighing on trade members typically.

Credit score: Jim Dalrymple II

• Brokers are dissatisfied: Amongst agent respondents to the survey, a big plurality, or about 41 p.c, indicated that they don’t seem to be glad with NAR’s settlement.
• Most of the “other” responses to this query additionally expressed dissatisfaction with the settlement.
  • “Absolutely not,” one particular person responded to the query about being glad, “the media has made huge false statements.” The remark typified the kind of responses the query elicited.

The survey additional discovered important ranges of ambivalence about NAR itself.

• A plurality of agent respondents, or 43 p.c, indicated that they aren’t “sure anymore” if the group is “a positive for the industry.”
• Fewer than 1 / 4 of agent respondents, or 24 p.c, chosen the unequivocal “yes” when requested if NAR is a optimistic.

Credit score: Jim Dalrymple II

The survey additionally included a completely free response query asking about “the most relevant question to ask a recruiter today.” Fee lawsuit points have been a recurring theme:

• “How will I as an agent have my commission be protected by this firm?”
• “How is the legal education and risk management structured?”
• “Will you be around?”

All of this reveals that the fee lawsuits and settlements are hanging over the trade in anxiety-inducing methods. And it’s notable that actual property execs see the problem as particularly a recruiting problem on par with the brutal market.

So will litigation throw a wrench into the recruiting gears?

Specialists who spoke with Intel agreed that lawsuits and lawsuit settlements are more likely to change the trade. However they often don’t envision a metaphorical nuclear bomb.

As a substitute, they described one thing nearer to an evolution that may change the way in which actual property professionals take into consideration expertise.

• The rise (or fall) of the middle-tier agent: Cofano doesn’t envision an enormous exodus on account of fee litigation. Why? As a result of many “licensees did no transactions last year.” These individuals are holding on with out doing offers now, so are unlikely to out of the blue abandon actual property if it will get tougher. As a substitute, Cofano thinks the massive change shall be that leaders expend “a lot of effort around the quality of the middle tier” — in different phrases, the brokers who aren’t but prime performers, however who can shut gross sales. These brokers shall be beneath probably the most intense strain from coming modifications, however may additionally profit as brokers work to raise brokers who need to keep within the enterprise.
  • “Brokers are going to have to deliver more substantive value to those individuals in terms of the brokerage value proposition.”
  • “The level of recruitment is going to intensify. The winners are going to be the agents who are able to stick around and get the value.”
• Chaos is a ladder: Chris Heller, president of OJO and Movoto, thinks lower-skilled brokers will steadily depart the enterprise, however famous that agent ranks will shrink “over a number of years, not a couple of months.” The dimensions of the agent pool issues for recruiting, in fact, as a result of the provision of labor will dictate the depth of the competitors; fewer staff means brokerages desirous to develop their headcounts should battle even tougher. However Heller made an identical level to Cofano about brokers in the course of the pack.
  • “There are recruiting opportunities to take these agents who are struggling and say, ‘Hey, we have a process that works.’”
  • Heller additionally mentioned that even with uncertainties on the horizon, it’s potential to grab the second: “Whenever there’s change or upheaval and you throw a big rock in the pond, that creates opportunities.”

E-mail Jim Dalrymple II